-----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, UxsC87LruZq3xM76CXraJT4sZpGE1WPewCvwUraTLmHa8fNpGzmCi65VJ+wajX9i +HhBxtDIR491yIIKS4BHfg== 0001012870-99-003371.txt : 19990928 0001012870-99-003371.hdr.sgml : 19990928 ACCESSION NUMBER: 0001012870-99-003371 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 21 FILED AS OF DATE: 19990927 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FOGDOG INC CENTRAL INDEX KEY: 0001094323 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 770388602 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-87819 FILM NUMBER: 99717219 BUSINESS ADDRESS: STREET 1: 500 BROADWAY CITY: REDWOOD CITY STATE: CA ZIP: 94063 BUSINESS PHONE: 6508122559 MAIL ADDRESS: STREET 1: 500 BROADWAY CITY: REDWOOD CITY STATE: CA ZIP: 94063 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on September 27, 1999 Registration No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------- FORM S-1 REGISTRATION STATEMENT UNDER the Securities Act of 1933 --------------- FOGDOG, INC. (Exact name of registrant as specified in its charter) Delaware 7375 77-0388602 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification Number) incorporation or Classification Code organization) Number) 500 Broadway Redwood City, CA 94063 (650) 980-2500 (Address, including zip code, and telephone number, including area code, of the registrant's principal executive offices) --------------- Timothy P. Harrington Chief Executive Officer Fogdog, Inc. 500 Broadway Redwood City, CA 94063 (650) 980-2500 (Address, including zip code, and telephone number, including area code, of agent for service) --------------- Copies to: Warren T. Lazarow, Esq. Stanton D. Wong, Esq. David A. Makarechian, Esq. David R. Lamarre, Esq. Elizabeth H. Lefever, Esq. Colin M. Morris, Esq. Derrick N.D. Hansen, Esq. Paul C. McCoy, Esq. Hooman Shahlavi, Esq. Pillsbury Madison & Sutro LLP Brian E. Covotta, Esq. P.O. Box 7880 Brobeck, Phleger & Harrison LLP San Francisco, California 94120 Two Embarcadero Place (415) 983-1000 2200 Geng Road Palo Alto, California 94303 (650) 424-0160 --------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. --------------- If 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, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
Title of Each Class of Securities to be Amount to be Amount of Registration Registered Registered(1) Fee - --------------------------------------------------------------------------------------------- Common Stock, $0.001 par value............. $60,000,000 $16,680 - ---------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o). --------------- 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 that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ + + +The information contained in this prospectus is not complete and may be + +changed. We may not sell these securities until the registration statement + +filed with the Securities and Exchange Commission is effective. This + +prospectus is not an offer to sell and it is not soliciting an offer to buy + +these securities in any state where the offer or sale is not permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED SEPTEMBER 27, 1999 Shares [LOGO OF FOGDOG SPORTS] Common Stock -------- Prior to this offering, there has been no public market for our common stock. The initial public offering price of the common stock is expected to be between $ and $ per share. We will make application to list our common stock on The Nasdaq Stock Market's National Market under the symbol "FOGD." The underwriters have an option to purchase a maximum of additional shares to cover over-allotments of shares. Investing in the common stock involves risks. See "Risk Factors" on page 8.
Underwriting Price to Discounts and Proceeds to Public Commissions Fogdog -------- ------------- ----------- Per Share............................... $ $ $ Total................................... $ $ $
Delivery of the shares of common stock will be made on or about , 1999. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Credit Suisse First Boston J.P. Morgan & Co. Thomas Weisel Partners LLC Warburg Dillon Read LLC The date of this prospectus is , 1999. The inside front cover of the prospectus includes: FOGDOG HOME [PICTURE OF FOGDOG SPORTS HOMEPAGE] The following text is placed to the left of the picture of the Fogdog Sports homepage and lines connect the text to specific items on the picture of the Fogdog Sports homepage: 1. Highlight Top Shops (seasonal) The 6 top graphics are designed to highlight the more popular areas for consumers. These slots are able to change based on seasonality and other important factors. 2. Personalization Registered users are greeted by name and directed to an area that highlights items and promotions specific to their interests. 3. Shop by Sport or Department Departments are horizontal categorization of products such as footwear, apparel, etc. 4. Promotional Area Highlights the most important areas and products on the site. This area is very dynamic and typically changes on a weekly basis. 5. Concept Shops In-depth, brand-specific shops for key brands such as Callaway Golf. ------------ TABLE OF CONTENTS
Page ---- Prospectus Summary......................................................... 4 The Offering............................................................... 6 Summary Financial Information.............................................. 7 Risk Factors............................................................... 8 Cautionary Note on Forward-Looking Statements.............................. 22 Use of Proceeds............................................................ 23 Dividend Policy............................................................ 23 Capitalization............................................................. 24 Dilution................................................................... 25 Selected Financial Data.................................................... 26 Selected Pro Forma Consolidated Financial Data............................. 27
Page ---- Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 28 Business................................................................. 39 Management............................................................... 52 Transactions and Relationships with Related Parties...................... 65 Principal Stockholders................................................... 68 Description of Capital Stock............................................. 70 Shares Available for Future Sale......................................... 73 Underwriting............................................................. 75 Notice to Canadian Residents............................................. 77 Legal Matters............................................................ 78 Experts.................................................................. 78 Additional Information................................................... 78 Index to Financial Statements............................................ F-1
------------ You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may be used only where it is legal to sell these securities. The information in this prospectus is accurate only on the date of this document. Dealer Prospectus Delivery Obligation Until , 1999 (25 days after the commencement of this offering), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealer's obligation to deliver a prospectus when acting as an underwriter and with respect to unsold allotments or subscriptions. 3 PROSPECTUS SUMMARY You should read the following summary together with the more detailed information regarding our company and the common stock being sold in this offering and our financial statements and notes to those statements appearing elsewhere in this prospectus. Fogdog Sports We are a leading online retailer of sporting goods. We have designed fogdog.com, our online store, to offer extensive product selection, detailed product information and a personalized shopping experience. We believe that we offer the largest selection of sporting goods online, with up to 60,000 distinct stock keeping units representing more than 500 brands in all major sports categories. Fogdog.com features a collection of specialty shops, including soccer, baseball, golf, outdoors, fan/memorabilia and other popular categories, organized to appeal to a broad base of customers from the avid enthusiast to the occasional participant. We provide information and analysis authored by experts, helpful shopping services and innovative merchandising. According to Media Metrix, Inc., our web site received more visits during July 1999 than any other online sporting goods retailer focusing exclusively on sporting goods. We believe that the sporting goods industry is large and growing and that sporting goods are increasingly being purchased online. According to the Sports Business Research Network, total U.S. retail sales of sporting goods were approximately $77 billion in 1998 and have grown at a 6.8% compound annual rate since 1994. Forrester Research projects that U.S. consumers will purchase $4.2 billion of sporting goods online in 2004. We believe that the sporting goods industry will continue to benefit from the growth in participation and interest in sports, recreation, health, fitness and outdoor activities. We believe the sporting goods industry is fragmented and fails to satisfy fully the needs of consumers and manufacturers. Our online store is designed to address the limitations of the traditional sporting goods retail channel for consumers and manufacturers. Most of our products, representing 30 different sports, are featured in nine specialty shops and four brand concept shops. In addition to offering a wide selection of products, our web site provides a superior online shopping experience by emphasizing the following: . Specialty Shops Featuring Extensive Product Selection. We offer a broad range of product lines in a wide variety of sports in order to make fogdog.com a "one-stop-shop." Our specialty shops also feature useful, compelling information and expert advice to help customers make the right product selection to meet their sports performance objectives. . Value-Added Shopping Services. We offer helpful services to assist our customers with their purchasing decisions, including: - Detailed product information, guides, configurators and comparison charts; - Brand concept shops; - Advice and product recommendations by recognized sports experts; - Consumer reviews; and - Personalized shopping. . Convenient Shopping Experience. Our online store provides customers with an easy-to-use web site that is available 24 hours a day, seven days a week. . Commitment to Excellent Customer Service. We emphasize customer service during all phases of the customer's online shopping experience and hire sports consultants with a broad knowledge of athletics, sports products and training to assist customers in their purchasing decisions. 4 . Network of Fulfillment Partners. We have developed and implemented a fulfillment system that utilizes third-party warehouses, distributors and direct shipping from select manufacturers to support secure and reliable online retailing. The Fogdog Sports vision is to reinvent the sporting goods retail industry by providing customers with a new value proposition of selection, information and service. Our goal is to be the world's leading sporting goods retailer. We intend to achieve this goal by: . Building Brand Recognition. We intend to establish the Fogdog brand as the first global brand for retail sporting goods and in the process build consumer trust, confidence and loyalty. . Promoting Repeat Purchases. We are focused on promoting customer loyalty and building relationships with our customers to drive repeat sales. . Expanding Specialty Shops. We intend to add five to ten specialty shops organized by sport or brand within the next 12 months. . Maximizing Product Selection and Fulfillment Capabilities. We intend to expand our fulfillment network, extend our brand relationships and augment our technology and expertise so that we can sell and deliver the broadest possible array of top branded products to our customers. . Enhancing and Forming Strategic Relationships. We have strategic relationships with Nike USA, America Online and Keystone Fulfillment that we believe provide us with competitive advantages in merchandising, marketing and distributing our products. We intend to pursue additional strategic relationships to further develop our business. . Expanding Internationally. We intend to replicate our business model and build our brand name in selected international markets with appropriate demographics and market characteristics. Corporate Information Fogdog, Inc. was incorporated in October 1994 in California as Cedro Group, Inc. In November 1998, we changed our name to Fogdog, Inc. We plan to reincorporate in Delaware prior to the commencement of this offering. References in this prospectus to "Fogdog," "Fogdog Sports," "we," "our" and "us" refer to Fogdog, Inc., a Delaware corporation, its subsidiaries and its California predecessor, and not to the underwriters. Our principal executive offices are located at 500 Broadway, Redwood City, California 94063 and our telephone number is (650) 980-2500. Our web site can be found at www.fogdog.com. Information contained in our web site is not a prospectus and does not constitute a part of this prospectus. Our trademarks and service marks include Fogdog(TM), Fogdog(TM) with the accompanying design, the Fogdog logo, "The Dog Knows Sports(TM)." "The Dog Knows(TM)" and "Your Anytime, Anywhere Sports Store(TM)." All other brand names or trademarks appearing in this prospectus are the property of the companies that own them. The inclusion of other companies' brand names and products in this prospectus is not an endorsement of Fogdog Sports. These companies are not involved with the offering of our securities. 5 The Offering Common stock offered...... Shares Common stock to be outstanding after the offering............. Shares Use of proceeds........... For general corporate purposes, including marketing and sales activities, working capital and capital expenditures. We may use a portion of the proceeds for possible acquisitions. See "Use of Proceeds." Proposed Nasdaq National Market symbol............ FOGD
The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of June 30, 1999, and includes: . 5,294,116 shares of common stock issuable upon conversion of preferred stock sold in September 1999; and . 399,998 shares of common stock issued in connection with our acquisition of Sports Universe, Inc. in September 1999, and excludes: . 5,731,410 shares of common stock issuable upon exercise of stock options outstanding as of June 30, 1999 at a weighted average exercise price of $0.11 per share; . shares of common stock reserved for issuance under our 1999 Stock Incentive Plan that incorporates our Amended and Restated 1996 Stock Option Plan; . shares of common stock reserved for issuance under our 1999 Employee Stock Purchase Plan; . 6,171,524 shares of common stock issuable upon exercise of an outstanding warrant held by Nike USA, Inc. at an exercise price of $1.03 per share; and . 255,923 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $0.98 per share. For additional information regarding these shares, see "Management--Benefit Plans," "Description of Capital Stock" and Notes 6 and 10 of Notes to Financial Statements. ---------------- Except as set forth in the financial statements or as otherwise specified in this prospectus, all information in this prospectus: . assumes no exercise of the underwriters' over-allotment option; . assumes the completion of a for reverse stock split; . reflects the conversion of all of our outstanding preferred stock into common stock upon the completion of this offering; and . reflects our reincorporation into Delaware before the commencement of this offering. See "Description of Capital Stock" and "Underwriting." 6 SUMMARY FINANCIAL INFORMATION (in thousands, except per share data)
Six Months Year Ended December 31, Ended June 30, ------------------------ ---------------- 1996 1997 1998 1998 1999 ------ ------- ------ ------ ------- Statement of Operations Data: Total net revenues................ $ 677 $ 1,041 $ 765 $ 365 $ 1,084 Gross profit...................... 587 885 490 278 263 Total operating expenses.......... 1,053 1,922 4,665 1,170 7,069 Operating loss.................... (466) (1,037) (4,175) (892) (6,806) Net loss.......................... (469) (1,045) (4,120) (916) (6,648) Basic and diluted net loss per share............................ $(0.09) $ (0.15) $(0.64) $(0.17) $ (1.00) Basic and diluted weighted average shares used in computation of net loss per share................... 5,447 6,815 6,462 5,434 6,631 Pro forma basic and diluted net loss per share................... $(0.29) $ (0.23) Pro forma basic and diluted weighted average shares.......... 14,411 28,463
June 30, 1999 ----------------------------- Pro Pro Forma Actual Forma As Adjusted -------- -------- ----------- Balance Sheet Data: Cash, cash equivalents and short-term investments................................... $ 14,600 $ 29,321 $ Working capital................................ 12,803 26,902 Total assets................................... 17,072 34,359 Long-term liabilities.......................... 498 498 Total stockholders' equity..................... 13,070 29,370
The balance sheet data as of June 30, 1999 is set forth: . on an actual basis; . on a pro forma basis to give effect to: - the sale in September 1999 of 5,294,116 shares of preferred stock; - the issuance in September 1999 of 399,998 shares of our common stock in connection with our acquisition of Sports Universe, Inc.; and - the conversion of all outstanding shares of preferred stock into common stock effective upon completion of this offering; and . on a pro forma as adjusted basis to reflect each of the adjustments listed above and the estimated net proceeds from the sale of shares of common stock at an assumed initial public offering price of $ per share after deducting the estimated underwriting discounts and commissions and our estimated offering expenses. See "Use of Proceeds" and "Capitalization." 7 RISK FACTORS You should carefully consider the risks and uncertainties described below and the other information in this prospectus before deciding whether to invest in shares of our common stock. The occurrence of any of the following risks could materially and adversely affect our business, financial condition and operating results. In this case, the trading price of our common stock could decline and you may lose part or all of your investment. Investing in our common stock may expose you to the following risks inherent in our business We expect significant increases in our operating expenses and continuing losses. We incurred a net loss of $12.4 million for the period from inception through June 30, 1999. We have not achieved profitability. We only began selling products under our current business model in November 1998. We may not obtain enough customer traffic or a high enough volume of purchases to generate sufficient revenues and achieve profitability. We believe that we will continue to incur operating and net losses for the next several years, and that the rate at which we will incur losses will increase significantly from current levels. We intend to increase our operating expenses substantially as we: . increase our sales and marketing activities, particularly advertising efforts; . provide our customers with promotional benefits, such as selling selected products or offering shipping below our actual costs; . increase our general and administrative functions to support our growing operations; . expand our customer support and sports consultant staffs to better serve customer needs; . develop enhanced technologies and features to improve our web site; . enhance our distribution and order fulfillment capabilities; and . expand third-party distribution facilities or possibly buy or build our own. Because we will spend these amounts before we receive any revenues from these efforts, our losses will be greater than the losses we would incur if we developed our business more slowly. In addition, we may find that these efforts are more expensive than we currently anticipate, which would further increase our losses. Also, the timing of these expenses may contribute to fluctuations in our quarterly operating results. Our limited operating history makes forecasting difficult. Because most of our expenses are based on planned operating results, failure to accurately forecast revenues could cause net losses in a given quarter to be greater than expected. As a result of our limited operating history, it is difficult to accurately forecast our revenues and we have limited meaningful historical financial data upon which to base planned operating expenses. We were incorporated in October 1994. We started as a web site design company and derived most of our revenues from the sale of web development services until August 1998, when we stopped selling those services. We began selling products on our web site only in November 1998. Our results since that time will not be comparable to our prior results. We base our current and future expense levels on our operating plans, expected traffic and purchases from our web site and estimates of future revenues, and our significant expenses are to a large extent fixed in the short term. Our sales and operating results are difficult to forecast because they generally depend on the volume and timing of the orders we receive. As a result, we may be unable to adjust our spending in a timely manner to compensate for any unexpected revenue shortfall. This inability could cause our net loss in a given quarter to be greater than expected. 8 Our operating results are volatile and difficult to predict. If we fail to meet the expectations of public market analysts and investors, the market price of our common stock may decline significantly. Our annual and quarterly operating results have fluctuated in the past and may fluctuate significantly in the future due to a variety of factors, many of which are outside of our control. Because our operating results are volatile and difficult to predict, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance. It is likely that in some future quarter our operating results may fall below the expectations of securities analysts and investors. In this event, the trading price of our common stock may decline significantly. Factors that may harm our business or cause our operating results to fluctuate include the following: . our inability to obtain new customers at a reasonable cost, retain existing customers, or encourage repeat purchases; . decreases in the number of visitors to our web site or our inability to convert visitors to our web site into customers; . the mix of sporting goods, apparel, footwear and other products sold by us; . our inability to manage inventory levels; . our inability to adequately maintain, upgrade and develop our web site, the systems that we use to process customers' orders and payments or our computer network; . the ability of our competitors to offer new or enhanced web sites, services or products; . price competition; . fluctuations in the demand for sporting goods associated with sports events, movies, television and other entertainment events; . fluctuations in the amount of consumer spending on sporting goods and related products, which tend to be discretionary spending items; . the termination of existing marketing relationships with key business partners or failure to develop new ones; . increases in the cost of online or offline advertising; . the amount and timing of operating costs and capital expenditures relating to expansion of our operations; . unexpected increases in shipping costs or delivery times, particularly during the holiday season; and . technical difficulties, system downtime or Internet slowdowns. A number of factors will cause our gross margins to fluctuate in future periods, including the mix of products sold by us, inventory management, inbound and outbound shipping and handling costs, the level of product returns and the level of discount pricing and promotional coupon usage. Any change in one or more of these factors could reduce our gross margins in future periods. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Quarterly Results of Operations." Seasonal fluctuations in the sales of sporting goods could cause wide fluctuations in our quarterly results. We have experienced and expect to continue to experience seasonal fluctuations in our revenues. These seasonal patterns will cause quarterly fluctuations in our operating results. In particular, we expect that the fourth calendar quarter will account for a large percentage of our total annual sales. In anticipation of increased sales activity during the fourth calendar quarter, we may hire a significant number of temporary employees to bolster our permanent staff and we intend to significantly increase our inventory levels. For this reason, if our 9 revenues were below seasonal expectations during this quarter, our annual operating results could be below the expectations of securities analysts and investors. In the future, our seasonal sales patterns may become more pronounced, may strain our personnel, product distribution and shipment activities and may cause a shortfall in revenues as compared to expenses in a given period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." We have been unable to fund our operations with the cash generated from our business. If we do not generate cash sufficient to fund our operations, we may need additional financing to continue our growth or our growth may be limited. To date, we have funded our operations from the sale of equity securities and have not generated sufficient cash from operations. Cash from revenues must increase significantly for us to fund anticipated operating expenses internally. If our cash flows are insufficient to fund these expenses, we may need to fund our growth through additional debt or equity financings or reduce costs. Further, we may not be able to obtain financing on satisfactory terms. Our inability to finance our growth, either internally or externally, may limit our growth potential and our ability to execute our business strategy. If we issue securities to raise capital, our existing stockholders may experience additional dilution or the new securities may have rights senior to those of our common stock. We must maintain relationships with our distributors and manufacturers to obtain sufficient quantities of quality merchandise on acceptable commercial terms. If we fail to maintain our relationships with those parties on acceptable terms, our sales and profitability could suffer. Because we rely primarily on product manufacturers and third-party distributors to stock the products we offer, our business would be seriously harmed if we were unable to develop and maintain relationships with suppliers that allow us to obtain sufficient quantities of quality merchandise on acceptable terms. Our product orders are fulfilled by more than 15 distributors and manufacturers. However, our contracts or arrangements with these parties do not guarantee the availability of merchandise, establish guaranteed prices or provide for the continuation of particular pricing practices. In addition, we do not have a written contract with several of our major suppliers. Although we have alternative sources of supply for a small percentage of the products we offer, we may have difficulty establishing alternative sources for many of our products. Our current suppliers may not continue to sell products to us on current terms or at all, and we may not be able to establish new supply relationships to ensure delivery of merchandise in a timely and efficient manner or on terms acceptable to us. In addition, our supply contracts typically do not restrict a supplier from selling products to other retailers, which could limit our ability to supply the quantity of merchandise requested by our customers. If we cannot supply our products to consumers at acceptable prices, we may lose sales and market share as consumers make purchases elsewhere. Further, an increase in supply costs could cause our operating losses to increase beyond current expectations. If we are unable to establish and maintain relationships with key brand manufacturers, our sales will decrease. If we are unable to establish and maintain relationships with important brand manufacturers, we may be unable to obtain sufficient quantities of popular products and in-depth product information. This could result in lower sales. For the six months ended June 30, 1999, we derived approximately 17% of our net revenues from sales of our two top selling brands, adidas and Nike. We recently entered into an agreement with Nike that will give us access to Nike's generally available product lines and product information, as well as advance availability of selected, newly released Nike products. However, this agreement has a term of only two years and is subject to earlier termination if we breach the agreement. Moreover, Nike is not legally obligated to sell us any quantity of product or deliver on any particular schedule. Also, our purchases from Nike's online affiliate are subject to similar limitations. If our relationship with Nike deteriorates, our business and reputation could be seriously harmed. 10 We have experienced difficulty in obtaining sufficient product allocations from some of our key vendors. In addition, Nike and some of our other key vendors have established, and may continue to expand, their own online retailing efforts, which may impair our ability to acquire sufficient product allocations from these vendors. In connection with this expansion, or a decision by manufacturers not to offer products online or through our web site, manufacturers have asked us and may again ask us to remove their products from our web site. We depend on third parties to fulfill all of our customer orders, and any problems with these parties could impair our operating results and harm our reputation. Currently, we rely primarily on third-party distributors and product manufacturers to fulfill our customers' orders. These fulfillment partners are responsible for packaging products and arranging for them to be shipped to our customers. We may be unable to ensure that our fulfillment partners fill our customers' orders accurately and that orders are shipped promptly and in appropriate packaging. In addition, we have no written contracts with some of these fulfillment partners, and our contracts with the others are generally terminable upon short notice. If any of our existing fulfillment arrangements were to be terminated, our business could be disrupted and we could incur significant costs in attempting to make alternative arrangements. Our distribution network is also heavily dependent upon third-party carriers, primarily United Parcel Service, for product shipments. UPS accounted for approximately 90% of our customer shipments by units in the six months ended June 30, 1999. We are therefore subject to the risk that labor shortages, strikes, inclement weather or other factors may limit the ability of UPS and other carriers to meet our shipping needs. Our shippers' failure to deliver products to our customers in a timely manner would damage our brand and adversely affect our operating results. If UPS or our other existing shippers are unable or unwilling to deliver our products to our customers, we would need to arrange for alternative carriers. We may be unable to engage an alternative carrier on a timely basis or upon terms favorable to us. Changing carriers would likely disrupt our business. If we fail to expand our fulfillment operations successfully, sales could fall below expectations and we could incur unexpected costs. We must be able to fill customer orders quickly and efficiently. If we do not expand our fulfillment operations and systems to accommodate increases in demand, particularly during the peak holiday selling season, we will not be able to increase our net sales in accordance with the expectations of securities analysts and investors. We intend to add to the capacity of our distribution network by entering into agreements with additional fulfillment partners. It may be difficult for us to assimilate new partners into our distribution system in time for the 1999 holiday season or at all. We may be unable to secure these additional partners or integrate their systems and technologies into ours. If we fail to do so, we may lose sales and our reputation for prompt delivery and customer service would suffer. Even if we are successful in expanding our distribution network, our planned expansion may cause disruptions in our business and our fulfillment operations may be inadequate to accommodate increases in customer demand. High merchandise returns could adversely affect our financial condition and results of operations. We allow our customers to return products within 45 days for a full refund. We make allowances in our financial statements for anticipated merchandise returns based on historical return rates. However, actual returns may exceed our allowances. If merchandise returns increase significantly or exceed our allowances, our financial condition and results of operations could be adversely affected. We plan to expand our inventory levels, and we may have to write down the value of our inventory if consumer demand changes after we order products. Although we currently rely primarily on our distributors and brand name suppliers to carry the inventory available for purchase on our site, we anticipate that we will carry an increasing amount of inventory and that 11 the percentage of sales made from our own inventory will rise. As a result, it will be critical to our success that we accurately predict the rapidly changing trends in consumer preferences for sporting goods, and do not overstock unpopular products. Predicting these trends is difficult. If demand for one or more of our products falls short of our expectations, we may be required to take significant inventory markdowns, which could reduce our net sales and gross margins. This risk may be greatest in the first calendar quarter of each year, after we have significantly increased inventory levels for the holiday season. In addition, to the extent that demand for our products increases over time, we may be forced to increase inventory levels. Any increase would subject us to additional inventory risks. We rely substantially on our relationships with America Online and other online services, search engines and directories to drive traffic to our web site. If these relationships do not continue, it will be difficult for us to increase market share and achieve profitability. We have relationships with America Online, Inc. and other online services, search engines and directories to provide content and advertising banners that link to our web site. We rely on these relationships as significant sources of traffic to our web site and, therefore, new customers. However, these relationships are generally terminable on short notice, and they may not be available to us in the future on acceptable terms. If we are unable to maintain satisfactory relationships with high-traffic web sites on acceptable terms, our ability to attract new customers and enhance our brand could be harmed. Further, many of the web sites with which we have existing or potential online advertising arrangements may also provide advertising services for other marketers of sporting goods. As a result, these sites may be reluctant to enter into or maintain relationships with us. Our online advertising efforts may require costly, long-term commitments. We may not achieve sufficient online traffic or product purchases to realize sufficient sales to compensate for our significant obligations to these sites. Failure to achieve sufficient traffic or generate sufficient revenue from purchases originating from third-party web sites would likely reduce our profit margins and may result in termination of these types of relationships. Without these relationships, it is unlikely that we can sufficiently increase market share and achieve profitability. Because a key element of our strategy is to generate a high volume of traffic on our web site, our business could be harmed by capacity constraints. A key element of our strategy is to generate a high volume of traffic on, and use of, our web site, www.fogdog.com. Accordingly, the satisfactory performance, reliability and availability of our web site, transaction- processing systems and network infrastructure are critical to our reputation and our ability to attract and retain customers and maintain adequate customer service levels. Our revenue depends upon the number of visitors who shop on our web site and the volume of orders that we can fulfill. Any system interruptions that result in the unavailability of our web site or reduced order fulfillment would reduce the volume of goods that we sell and the attractiveness of our product offerings. We have experienced periodic system interruptions in the past, and we believe that system interruptions may continue to occur in the future. Any substantial increase in the volume of traffic on our web site or the number of orders placed by customers will require that we expand and upgrade our technology, transaction-processing systems and network infrastructure. We may not be able to accurately project the rate or timing of increases, if any, in the use of our web site or timely expand and upgrade our technology, transaction-processing systems and network infrastructure. We may not be able to accurately project the rate or timing of increases, if any, in the use of our web site or timely expand and upgrade our systems and infrastructure to accommodate these increases. Our vital computer and communications hardware and software systems are vulnerable to damage and interruption which could harm our business. Our success, in particular our ability to successfully receive and fulfill orders and provide high-quality customer service, largely depends upon the efficient and uninterrupted operation of our computer and communications hardware and software systems. We use internally developed systems for our web site and 12 some aspects of transaction processing, including customer profiling and order verifications. Our systems and operations are vulnerable to damage or interruption from: . earthquake, fire, flood and other natural disasters; . power loss, computer systems failures, Internet and telecommunications or data network failure, operator negligence, improper operation by or supervision of employees, physical and electronic loss of data or security breaches, misappropriation and similar events; and . computer viruses. In addition, we maintain our servers at the site of a third party, Exodus Communications, Inc., in Mountain View, California. We cannot control the maintenance and operation of this site, which is also susceptible to similar disasters and problems. We have no formal disaster recovery plan, and our insurance policies may not adequately compensate us for any losses that we may incur. Any system failure that causes an interruption in our service or a decrease in responsiveness could harm our relationships with our customers and result in reduced revenues. See "Business--Technology." Establishing the Fogdog brand quickly and cost-effectively is central to our success. If we do not establish the Fogdog brand quickly, we may not capture sufficient market share or increase revenues enough to achieve profitability. We believe that we must establish, maintain and enhance the Fogdog brand to attract more customers to our web site and to generate revenues from product sales. Brand recognition and customer loyalty will become increasingly important as more companies with well-established brands in online services or the sporting goods industry offer competing services on the Internet. For example, existing sporting goods retailers with established brand names may establish an online presence that competes with our web site and existing online providers with better name recognition than Fogdog Sports may begin selling sporting goods. Establishing the Fogdog brand as a widely recognized and trusted source of sporting goods will depend largely on our success in providing a high-quality online experience supported by a high level of customer service, which cannot be assured. We expect that we will need to increase substantially our spending on programs designed to create and maintain strong brand loyalty among customers and we cannot be certain that our efforts will be successful. Our inability to secure and protect our Internet domain name may adversely affect our business operation. The www.fogdog.com Internet domain name is our brand on the Internet. If we are unable to adequately protect our Internet domain name, our trademarks and other intellectual property rights, or must incur costs in doing so, it could harm our business. The acquisition and maintenance of Internet domain names generally is regulated by governmental agencies and their designees. Until recently, Network Solutions, Inc. was the exclusive registrar for the ".com," ".net" and ".org" generic top-level Internet domains in the U.S. In April 1999, however, the Internet Corporation for Assigned Names and Numbers, or ICANN, a new global non-profit corporation formed to oversee a set of the Internet's core technical management functions, opened the market for registering Internet domain names to an initial group of five companies. Network Solutions, Inc. still maintains the registry containing all the registrations in the generic top-level Internet domains. The market for registering these Internet domain names in the U.S. and in foreign countries is expected to undergo further changes in the near future. We expect the requirements for registering Internet domain names also to be affected. The relationship between regulations governing Internet domain names and laws protecting trademarks and similar proprietary rights is unclear. We may be unable to prevent third parties from acquiring Internet domain names that are similar to, infringe upon or otherwise decrease the value of our Internet domain name, our trademarks and other intellectual property rights used by us and we may need to protect our rights through litigation. 13 We may not be able to compete successfully against current and future competitors, which could harm our margins and our business. The online commerce market is new, rapidly evolving and intensely competitive. Increased competition is likely to result in price reductions, reduced gross margins and loss of market share, any of which could seriously harm our net sales and results of operations. We expect competition to intensify in the future because current and new competitors can enter our market with little difficulty and can launch new web sites at a relatively low cost. In addition, the development of new technologies and the expansion of existing technologies, such as price comparison programs that select specific products from a variety of web sites, may increase competitive pressures on us. We currently or potentially compete with a variety of other companies, including: . traditional, store-based, national chain sporting goods retailers such as the Venator Group (Footlocker brands and Champs; . traditional, store-based, national chain outdoor equipment retailers, such as REI; . traditional, store-based, national chain athletic footwear retailers, such as Just for Feet; . traditional, store-based, regional chain sporting goods retailers such as The Sports Authority, Dick's Sporting Goods, and Galyan's; . major discount retailers, such as Wal-Mart, Kmart and Target; . catalog sporting goods retailers, such as Eastbay, TSI and Edwin Watts; . numerous traditional local sporting goods and outdoor activity stores; . online efforts of these traditional retailers, including the online stores operated by Dick's Sporting Goods, Copeland's and REI; . vendors of sporting goods that currently sell some of their products directly online, such as K-Swiss and Patagonia; . Global Sports Interactive, a newly formed online joint venture established by a number of major, store-based retailers; . Internet portals and online service providers that feature shopping services, such as AOL, Excite@Home, GO Network and Lycos; . other online retailers that include sporting goods as part of their product offerings, such as Onsale and Buy.com; . physical and online stores of entertainment entities that sell sporting goods and fan memorabilia, such as ESPN.com and CBS Sportsline; and . retailers selling sporting goods exclusively online. There are no assurances that we will be able to be competitive against current or potential competitors. Many of our traditional store-based and online competitors have longer operating histories, larger customer or user bases, greater brand recognition and significantly greater financial, marketing, technical and other resources than we do. Many of these competitors have well established relationships with manufacturers, more extensive knowledge about our industry and can devote substantially more resources to web site development and advertising. In addition, new competitors may emerge in the future and larger, well-established and well-financed entities may join with online competitors or sporting goods suppliers as the use of the Internet and other online services increases. Our competitors may be able to secure products from vendors on more favorable terms, fulfill customer orders more efficiently and adopt more aggressive pricing or inventory availability policies than we can. 14 Furthermore, our competitors may be able to secure a broader range of products from or otherwise develop close relationships with primary vendors. Some competitors may price their products below cost in an attempt to gain market share. Traditional store-based retailers also enable customers to see and feel products in a manner that is not possible over the Internet. See "Business-- Competition." We may be unable to hire and retain the skilled personnel necessary to develop our business. We intend to hire a significant number of additional marketing, engineering, merchandising and retailing personnel in 1999 and beyond. Competition for these individuals is intense, and we may not be able to attract, assimilate or retain highly qualified personnel in the future. Our business cannot continue to grow if we cannot attract qualified personnel. Our failure to attract and retain the highly trained personnel that are integral to our business may limit our growth rate, which would harm our business. We expect to face greater difficulty attracting these personnel with equity incentives as a public company than we did as a privately held company. See "Business--Employees." We are dependent upon our chief executive officer for our future success and our managers are not obligated to stay with us. Our future success depends to a significant degree on the skills, experience and efforts of Timothy Harrington, our Chief Executive Officer, and other key personnel. The loss of the services of any of these individuals could harm our business and operations. In addition, we have not obtained key person life insurance on any of our key employees. If any of our key employees left or was seriously injured and unable to work and we were unable to find a qualified replacement, our business could be harmed. We have experienced significant growth in our business in recent periods and any inability to manage this growth and any future growth could harm our business. Our historical growth has placed, and any further growth is likely to continue to place, a significant strain on our management, administrative resources, software and systems. Any failure to manage growth effectively could seriously harm our business. We have grown from 22 employees on June 30, 1998 to 70 employees on June 30, 1999. We have also recently moved into a new headquarters building and significantly expanded our operations. To be successful, we will need to continue to implement management information systems and improve our operating, administrative, financial and accounting systems and controls. We will also need to train new employees and maintain close coordination among our executive, accounting, finance, marketing, sales and operations organizations. These processes are time consuming and expensive, will increase management responsibilities and will divert management attention. If the protection of our trademarks and proprietary rights is inadequate, our brand and reputation could be damaged and we could lose customers. The steps we take to protect our proprietary rights may be inadequate. We regard our copyrights, service marks, trademarks, trade dress, trade secrets and similar intellectual property as critical to our success. We rely on trademark and copyright law, trade secret protection and confidentiality or license agreements with our employees, customers, partners and others to protect our proprietary rights. Despite these precautions, it may be possible for a third-party to copy or otherwise obtain and use our intellectual property without our authorization. We have applied to register the trademark Fogdog in the United States and internationally. Effective trademark, service mark, copyright and trade secret protection may not be available in every country in which we will sell our products and services online. If we become involved in litigation to defend our intellectual property rights, we may have to spend significant amounts of money, and the litigation could divert our management's time and efforts. 15 We may be subject to intellectual property claims that could be costly and could disrupt our business. Third parties have in the past and may in the future assert that our business or technologies infringe their intellectual property rights or rights to publicity or that we engage in unfair competition or other illegal trade practices. These claims may increase in the future. We may be unsuccessful in defending against any such claim, which could result in substantial damages, fines or other penalties. The resolution of a claim could also require us to change how we do business, redesign our web site and other systems, or enter into burdensome royalty or licensing agreements. These license or royalty agreements, if required, may not be available on acceptable terms, if at all, in the event of a successful claim of infringement. Our insurance coverage may not be adequate to cover every claim that could be asserted against us. Even unsuccessful claims could result in significant legal fees and other expenses, diversion of management's time and disruptions in our business. Any such claim could also harm our reputation and brand. We intend to expand our business internationally, causing our business to become increasingly susceptible to numerous international business risks and challenges that could affect our profitability. We believe that the current globalization of the economy requires businesses to pursue or consider pursuing international expansion. We have expanded into international markets by opening an office in London. Revenue from merchandise shipped outside the United States was approximately 10% of total merchandise revenue for the six months ended June 30, 1999, and we expect to increase our international sales efforts. International sales are subject to inherent risks and challenges that could affect our profitability, including: . the need to develop new supplier and manufacturer relationships, particularly because major sporting goods manufacturers may require that our international operations deal with local distributors; . unexpected changes in international regulatory requirements and tariffs; . difficulties in staffing and managing foreign operations; . longer payment cycles from credit card companies; . greater difficulty in accounts receivable collection; . potential adverse tax consequences; . price controls or other restrictions on foreign currency; and . difficulties in obtaining export and import licenses. To the extent we generate international sales in the future, any negative effects on our international business could negatively impact our business, operating results and financial condition as a whole. In particular, gains and losses on the conversion of foreign payments into U.S. dollars may contribute to fluctuations in our results of operations and fluctuating exchange rates could cause reduced gross revenues and/or gross margins from dollar-denominated international sales. We may encounter significant difficulties in integrating our recent acquisition, Sports Universe, which could divert our management's attention and harm our business. In early September 1999, we completed the acquisition of Sports Universe, Inc. We acquired Sports Universe because we believe that we can achieve a broader and more complete product offering for our consumers by combining our products, marketing, consumer experience, distribution channels and client base with the "action sports" line of Sports Universe. We may not be able to successfully integrate the businesses and product offerings of the two companies. The process of combining the two companies and their product offerings may cause an interruption of, or a loss of momentum in, the activities of either or both of the companies' businesses, which could adversely affect their combined operations. Our management may have to divert attention from our day-to-day business and devote substantial resources to retaining employees and 16 maintaining other relationships. If we fail to successfully complete the integration of Sports Universe, our business could be harmed. Acquisitions of companies or technologies may result in disruptions to our business and management due to difficulties in assimilating personnel and operations. We may make acquisitions or investments in other companies or technologies. We may not realize the anticipated benefits of any acquisition or investment. If we make any acquisitions, we will be required to assimilate the operations, products and personnel of the acquired businesses and train, retain and motivate key personnel from the acquired businesses. We may be unable to maintain uniform standards, controls, procedures and policies if we fail in these efforts. Similarly, acquisitions may cause disruptions in our operations and divert management's attention from day-to-day operations, which could impair our relationships with our current employees, customers and strategic partners. In addition, our profitability may suffer because of acquisition- related costs or amortization costs for acquired goodwill and other intangible assets. We may be subject to product liability claims that could be costly and time consuming. We sell products manufactured by third parties, some of which may be defective. If any product that we sell were to cause physical injury or injury to property, the injured party or parties could bring claims against us as the retailer of the product. Our insurance coverage may not be adequate to cover every claim that could be asserted against us. If a successful claim were brought against us in excess of our insurance coverage, it could harm our business. Even unsuccessful claims could result in the expenditure of funds and management time and could have a negative impact on our business. Because of their significant stock ownership, our officers and directors will be able to exert significant control over our future direction. After this offering, our executive officers and directors, their affiliates and other substantial stockholders will together control approximately % of our outstanding common stock. As a result, these stockholders, if they act together, will be able to control all matters requiring our stockholders' approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may delay, prevent or deter a change in control, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the company or its assets and might adversely affect the market price of our common stock. Provisions of our certificate of incorporation and bylaws may make changes of control difficult, even if they would be beneficial to stockholders. After this offering, the board of directors will have the authority to issue up to 5,000,000 shares of preferred stock. Also, without any further vote or action on the part of the stockholders, the board of directors will have the authority to determine the price, rights, preferences, privileges and restrictions of the preferred stock. If we issue preferred stock, it might have preference over and harm the rights of the holders of common stock. Although the availability of this preferred stock will provide us with flexibility in connection with possible acquisitions and other corporate purposes, the issuance of preferred stock may make it more difficult for a third-party to acquire a majority of our outstanding voting stock. We currently have no plans to issue preferred stock. Our certificate of incorporation and bylaws include provisions that may deter an unsolicited offer to purchase us. These provisions, coupled with the provisions of the Delaware General Corporation Law, may delay or impede a merger, tender offer or proxy contest. Further, upon reincorporation into Delaware, our board of directors will be divided into three classes, only one of which will be elected each year. Our directors will only be removable by the affirmative vote of at least 66 2/3% of all classes of voting stock. These factors may 17 further delay or prevent a change of control. See "Description of Capital Stock--Anti-takeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law." We will rely on email and other forms of direct online marketing. Our business could suffer if these marketing techniques encounter consumer resistance or increased governmental regulation. We send emails to our registered users to obtain feedback about our online store, to provide order information and to promote repeat sales. We may expand our use of email and other direct online marketing techniques. If consumers resist these forms of communication due to concerns about privacy, computer viruses or the proliferation of commercial email, our business and reputation could be damaged. We also anticipate that our use of email and other direct online marketing techniques will be subject to increasingly stringent regulation. For example, several states have passed laws limiting the use of email for marketing purposes. To date, these laws have not had a significant effect on us because they focus primarily on unsolicited email marketing and we currently ask for our customers' permission before sending them email. However, other states and Congress have begun to consider placing restrictions on email marketing. This additional legislation could hamper our ability to provide effective customer service and generate repeat sales. If we experience significant inventory theft, our gross margin may decrease. If the security measures used at any distribution facility we use or operate do not significantly reduce or prevent inventory theft, our gross margin may significantly decrease. During the six months ended June 30, 1999, we experienced an immaterial amount of inventory theft. However, this theft may increase as we expand our fulfillment operations and distribution network. If measures we take to address inventory theft do not reduce or prevent inventory theft, our gross margin and results of operations could be significantly below expectations in future periods. Risks specific to the Internet and our industry Sporting goods consumers may not accept our online business model. This may result in slower revenue growth, loss of revenue and increased operating losses. To be successful, we must attract and retain a significant number of consumers to our web site at a reasonable cost. Any significant shortfall in the number of transactions occurring over our web site will negatively affect our financial results by increasing or prolonging operating losses. Conversion of customers from traditional shopping methods to electronic shopping may not occur as rapidly as we expect, or at all. Therefore, we may not achieve the critical mass of customer traffic we believe is necessary to become successful. Specific factors that could prevent widespread customer acceptance of our online business model, and our ability to grow our revenue, include: . customer concerns about the security of online transactions; . customer concerns about buying sporting goods, footwear and other products without first seeing them; . delivery time before customers receive Internet orders, unlike the immediate receipt of products at traditional retail outlets; . pricing that may not meet customer expectations; . customer resistance to shipping charges, which generally do not apply to purchases from traditional retail outlets; . shipment of damaged goods or wrong products from our suppliers; and . difficulties in returning or exchanging orders. 18 The success of our business model is dependent upon the continued growth of the online commerce infrastructure. Our future revenue and any future profits are also dependent upon the continued development of the online commerce infrastructure. The Internet and other online services may not be accepted as a viable commercial marketplace for a number of reasons, including potentially inadequate development of enabling technologies and performance improvements. To the extent that the Internet and other online services continue to experience significant growth in the number of users, their frequency of use or an increase in their bandwidth requirements, there can be no assurance that the infrastructure for the Internet and other online services will be able to support the demands placed upon them. In addition, the Internet or other online services could lose their viability due to delays in the development or adoption of new standards and protocols required to handle increased levels of Internet or other online service activity. Changes in or insufficient availability of telecommunications services to support the Internet or other online services could result in slower response times and adversely affect usage of the Internet and other online services, including fogdog.com. These problems would adversely affect our business and cause our stock price to decline. Sporting goods and apparel are subject to changing consumer preferences. If we fail to anticipate these changes, we will experience lower sales, higher inventory markdowns and lower margins. Our success depends upon our ability to anticipate and respond to trends in sporting goods merchandise and consumers' participation in sports. Consumers' tastes in apparel and sporting goods equipment are subject to frequent and significant changes, due in part to manufacturers' efforts to incorporate advanced technologies into some types of sporting goods. In addition, the level of consumer interest in a given sport can fluctuate dramatically. If we fail to identify and respond to changes in sporting goods merchandising and recreational sports participation, our sales could suffer and we could be required to mark down unsold inventory. This would depress our profit margins. In addition, any failure to keep pace with changes in consumers' recreational sports habits could allow our competitors to gain market share and could hurt our reputation. If we do not respond to rapid technological changes, our services could become obsolete and we could lose customers. To be competitive, we must continue to enhance and improve the functionality and features of our online store. The Internet and the online commerce industry are rapidly changing. If competitors introduce new products and services featuring new technologies, or if new industry standards and practices emerge, our existing web site and proprietary technology and systems may become obsolete. We may use new technologies ineffectively, or we may be unable to license or otherwise obtain new technologies from third parties. We may also experience difficulties in adapting our web site, the systems that we use to process customers' orders and payments, our computer network to customer requirements, new technologies or emerging industry standards. Governmental regulation may slow the Internet's growth and increase our costs of doing business. Laws and regulations directly applicable to online commerce or Internet communications are becoming more prevalent. These laws and regulations could expose us to compliance costs and substantial liability, which could materially harm our business, operating results and financial condition. In addition, the growth of the Internet, coupled with publicity regarding Internet fraud, may lead to the enactment of more stringent consumer protection laws. These laws would be likely to impose additional burdens on our business. The adoption of any additional laws or regulations may also inhibit the expansion of the Internet, which could reduce visits to our online store or otherwise harm our business. Moreover, the applicability to the Internet of existing laws in various jurisdictions governing issues such as qualifications to do business, property ownership, sales tax, obscenity, employment, libel, intellectual property and personal privacy is uncertain and may take years to resolve. In order to comply with new or existing laws regulating online commerce, we may need to modify the manner in which we do business, which may result in additional expenses and could slow our growth. For instance, we may need to spend time and money revising the process by which we fulfill customer orders to 19 ensure that each shipment complies with applicable laws. We may also need to revise our customer acquisition and registration processes to comply with increasingly stringent laws relating to dealing with minors online. We may need to hire additional personnel to monitor our compliance with applicable laws. We may also need to modify our software to further protect our customers' personal information. Regulations imposed by the Federal Trade Commission may adversely affect the growth of our Internet business or our marketing efforts. The Federal Trade Commission has proposed regulations regarding the collection and use of personal identifying information obtained from individuals when accessing web sites, with particular emphasis on access by minors. These regulations may include requirements that we establish procedures to disclose and notify users of privacy and security policies, obtain consent from users for collection and use of information and provide users with the ability to access, correct and delete personal information stored by us. These regulations may also include enforcement and remedial provisions. Even in the absence of those regulations, the Federal Trade Commission has begun investigations into the privacy practices of other companies that collect information on the Internet. One investigation resulted in a consent decree under which an Internet company agreed to establish programs to implement the principles noted above. We may become a party to a similar investigation or enforcement proceeding, or the Federal Trade Commission's regulatory and enforcement efforts may harm our ability to collect demographic and personal information from users, which could be costly or adversely affect our marketing efforts. Our inability to securely transmit confidential information over public networks may harm our business and cause our stock price to decline. A significant barrier to online commerce and communications is the secure transmission of confidential information over public networks. We rely upon encryption and authentication technology licensed from third parties to effect the secure transmission of confidential information, such as customer credit card numbers. Advances in computer capabilities, new discoveries in the field of cryptography or other events may result in a compromise or breach of the systems that we use to protect customer transaction data. A party who is able to circumvent our security measures may misappropriate proprietary information or customers' personal data such as credit card numbers, and could interrupt our operations. We may be required to expend significant capital and other resources to protect against such security breaches or to alleviate problems caused by these breaches. In addition, security breaches may damage our reputation and cause our stock price to decline. Credit card fraud could adversely affect our business. A failure to adequately control fraudulent credit card transactions could reduce our net revenues and our gross margin because we do not carry insurance against this risk. We have put in place technology to help us detect the fraudulent use of credit card information and have not suffered material losses to date. However, we may in the future suffer losses as a result of orders placed with fraudulent credit card data even though the associated financial institution approved payment of the orders. Under current credit card practices, we are liable for fraudulent credit card transactions because we do not obtain a cardholder's signature. If one or more states successfully assert that we should collect sales or other taxes on the sale of our merchandise, our business could be harmed. We do not currently collect sales or other similar taxes for physical shipments of goods into states other than California and Pennsylvania. However, one or more local, state or foreign jurisdictions may seek to impose sales tax collection obligations on us and other out-of-state companies that engage in online commerce. If one or more states or any foreign country successfully asserts that we should collect sales or other taxes on the sale of our merchandise, it could adversely affect our business. 20 We may be subject to liability for content on our web site. As a publisher of online content, we face potential liability for defamation, negligence, copyright, right of publicity or privacy, patent or trademark infringement, or other claims based on the nature and content of materials that we publish or distribute. We have, in the past, received notices of such claims, and we expect to continue to receive such claims in the future. We may also be subject to claims based on the content on our bulletin boards. If we face liability, then our reputation and our business may suffer. In the past, plaintiffs have brought these types of claims and sometimes successfully litigated them against online services. Although we carry general liability insurance, our insurance currently does not cover claims of these types. Year 2000 issues present technological risks, could disrupt our business and could decrease our sales. Many currently installed computer systems and software products are coded to accept or recognize only two digit entries in the date code field. These systems and software products will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and/or software used by many companies and governmental agencies may need to be upgraded to comply with these year 2000 requirements or risk system failure or miscalculations causing disruption of normal business activities. Any failure of our material systems, our suppliers' and fulfillment partners' material systems or the Internet to be year 2000 compliant could result in financial loss to us, harm to our reputation and legal liability. We are currently assessing the year 2000 readiness of the software, computer technology and other services that we use that may not be year 2000 compliant. We have not completed all operational tests on our internal systems. Accordingly, we are unable to predict to what extent our business may be affected if our software, the systems that operate in conjunction with our software or our internal systems experience a material year 2000 failure. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Compliance." Risks Related to This Offering Our management has broad discretion as to how to use the proceeds from this offering and the proceeds may not be appropriately used. We intend to use the proceeds from this offering for general corporate purposes, including working capital and capital expenditures, and we may use a portion of the proceeds to acquire other businesses, products or technologies. We will in any case have broad discretion over how we use these proceeds. You will not have the opportunity to evaluate the economic, financial or other information on which we base our decisions regarding how to use the proceeds from this offering, and we may spend these proceeds in ways with which you may disagree. Pending any of these uses, we plan to invest the proceeds of this offering in short-term, investment-grade, interest-bearing securities. We cannot predict whether these investments will yield a favorable return. See "Use of Proceeds." The price of our common stock after this offering may be lower than the offering price you pay and may be volatile. Prior to this offering, our common stock has not been sold in a public market. After this offering, an active trading market in our stock might not develop. If an active trading market develops, it may not continue. Moreover, if an active market develops, the trading price of our common stock may fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market has experienced extreme price and volume fluctuations that have affected the market prices of many Internet related companies, and which have often been unrelated or disproportionate to the operating performance of these companies. These broad market fluctuations could adversely affect the market price of our common stock. A significant 21 decline in our stock price could result in substantial losses for individual stockholders and could lead to costly and disruptive securities litigation. If you purchase shares of our common stock in this offering, you will pay a price that was not established in a competitive market. Rather, you will pay a price that we negotiated with the representatives of the underwriters based upon a number of factors. The price of our common stock that will prevail in the market after this offering may be higher or lower than the offering price. See "Underwriting." You will experience immediate and substantial dilution in the value of your shares following this offering. If you purchase shares of our common stock, you will incur immediate and substantial dilution in pro forma net tangible book value. If other securityholders exercise options or warrants to purchase our capital stock, you will suffer further dilution. See "Dilution." Substantial amounts of our common stock could be sold in the near future, which could depress our stock price. Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of common stock or the availability of shares of common stock for sale will have on the market price of the common stock prevailing from time to time. If our stockholders sell substantial amounts of our common stock in the public market following this offering, including shares issued upon the exercise of outstanding options and warrants, the trading price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. Upon completion of this offering, we will have shares of common stock outstanding, assuming no exercise of the underwriters' over- allotment option and no exercise of outstanding options. All of the shares we are selling in this offering may be resold in the public market immediately. Another 37,428,509 shares are subject to lock-up agreements and will become available for resale in the public market beginning 180 days after the date of this prospectus. As restrictions on resale end, our stock price could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them. See "Shares Available for Future Sale." CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements within the meaning of the federal securities laws, which involve risks and uncertainties. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about our industry, our beliefs and assumptions. We use words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates" and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those described in "Risk Factors" and elsewhere in this prospectus. You should not place undue reliance on these forward-looking statements, which reflect our management's view only as of the date of this prospectus. We undertake no obligation to update these statements or publicly release the result of any revision to the forward-looking statements that we may make to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events. 22 USE OF PROCEEDS Our net proceeds from the sale and issuance of the shares of common stock offered are estimated to be $ million at an assumed initial public offering price of $ per share after deducting the estimated underwriting discounts and commissions and our estimated offering expenses. If the underwriters' over-allotment option is exercised in full, our estimated net proceeds will be $ . We intend to use the net proceeds for general corporate purposes, including marketing and sales activities, working capital and capital expenditures. Pending these uses, we will invest the net proceeds of the offering in short-term, interest-bearing investment- grade securities. See "Risk Factors--Our management has broad discretion as to how to use the proceeds from this offering and the proceeds may not be appropriately used." In addition, we may use a portion of the net proceeds to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies. We currently have no agreements or commitments with respect to any acquisition or investment, and we are not involved in any negotiations with respect to any similar transaction. DIVIDEND POLICY We have never declared or paid dividends on our capital stock and do not anticipate declaring or paying cash dividends in the foreseeable future. Payments of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our financial condition, operating results, current and anticipated cash needs and plans for expansion. Our credit facility with Imperial Bank prohibits us from paying dividends without prior approval. 23 CAPITALIZATION The following table sets forth our capitalization as of June 30, 1999 on the following three bases: . on an actual basis; . on a pro forma basis giving effect to: . the sale in September 1999 of 5,294,116 shares of preferred stock; . the issuance in September 1999 of 399,998 shares of our common stock in connection with our acquisition of Sports Universe, Inc.; and . the conversion of all outstanding shares of preferred stock into shares of common stock effective upon the completion of this offering; and . on a pro forma as adjusted basis to reflect each of the adjustments listed above and the estimated net proceeds from the sale of shares of our common stock at an assumed initial public offering price of $ per share after deducting the estimated underwriting discounts and commissions and our estimated offering expenses. You should read this table in conjunction with our financial statements and the notes to our financial statements appearing elsewhere in this prospectus.
June 30, 1999 ------------------------------ Pro Forma Actual Pro Forma As Adjusted ------- --------- ----------- (in thousands) Long-term debt, less current portion............ $ 498 $ 498 $ ------- ------- ---- Stockholders' equity: Convertible Preferred Stock, issuable in series, $0.001 par value, 30,060,426, 41,796,282 and 5,000,000 shares authorized actual, pro forma and pro forma as adjusted, respectively; 29,843,884, no shares and no shares issued and outstanding actual, pro forma and pro forma as adjusted, respectively................................. 30 -- Common Stock, $0.001 par value, 60,000,000, 60,000,000 and 100,000,000 shares authorized actual, pro forma and pro forma as adjusted, respectively; and 7,584,625, 43,122,623 and shares issued and outstanding actual, pro forma and pro forma as adjusted, respectively................................. 7 43 Additional paid-in capital.................... 27,855 44,149 Unearned stock-based compensation............. (2,392) (2,392) Accumulated deficit........................... (12,430) (12,430) ------- ------- ---- Total stockholders' equity.................. 13,070 29,370 ------- ------- ---- Total capitalization...................... $13,568 $29,868 $ ======= ======= ====
The number of shares outstanding as of June 30, 1999 excludes: . 5,731,410 shares of common stock issuable upon exercise of stock options outstanding at a weighted average exercise price of $0.11 per share. . shares of common stock reserved for issuance under the 1999 Stock Incentive Plan that incorporates our Amended and Restated 1996 Stock Option Plan; . shares of common stock reserved for issuance under our 1999 Employee Stock Purchase Plan; . 6,171,524 shares of common stock issuable upon exercise of an outstanding warrant held by Nike USA, Inc. at an exercise price of $1.03 per share; and . 255,923 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $0.98 per share. For additional information regarding these shares, see "Management--Benefit Plans," "Description of Capital Stock" and Notes 6 and 10 of Notes to Financial Statements. 24 DILUTION If you invest in our common stock, your interest will be diluted to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Our pro forma net tangible book value at June 30, 1999, was approximately $27.2 million, or $0.63 per share of common stock. Pro forma net tangible book value per share represents total tangible assets less total liabilities, divided by the number of shares of common stock outstanding after giving effect to the conversion of all outstanding convertible preferred stock. After giving effect to the sale of shares of our common stock at an assumed initial public offering price of $ per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses, our pro forma net tangible book value at June 30, 1999, would have been $ , or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares of common stock in this offering. The following table illustrates this dilution: Assumed initial public offering price per share.................... $ Pro forma net tangible book value per share at June 30, 1999..... $0.63 Increase per share attributable to new investors................. ----- Pro forma as adjusted net tangible book value per share after the offering.......................................................... ---- Dilution per share to new investors................................ $ ====
The following table summarizes, at June 30, 1999, on a pro forma as adjusted basis, the total number of shares and consideration paid to us and the average price per share paid by existing stockholders and by new investors purchasing shares of common stock in this offering at an assumed initial public offering price of $ per share and before deducting the estimated underwriting discounts and commissions and estimated offering expenses:
Shares Purchased Total Consideration ------------------ ------------------- Average Price Number Percent Amount Percent Per Share ---------- ------- ----------- ------- ------------- Existing stockholders...... 43,122,623 % $40,935,000 % $0.95 New public investors....... ---------- ----- ----------- ----- Totals................... 100.0% $ 100.0% ========== ===== =========== =====
The above computations are based on the number of shares of common stock outstanding as of June 30, 1999 and include: . 5,294,116 shares of common stock issuable upon conversion of preferred stock sold in September 1999; and . 399,998 shares of common stock issued in connection with our acquisition of Sports Universe, Inc. in September 1999, and exclude: . 5,731,410 shares of common stock issuable upon exercise of stock options outstanding at a weighted average exercise price of $0.11 per share; . shares of common stock reserved for issuance under the 1999 Stock Incentive Plan that incorporates our Amended and Restated 1996 Stock Option Plan; . shares of common stock reserved for issuance under the 1999 Employee Stock Purchase Plan; . 6,171,524 shares of common stock issuable upon exercise of an outstanding warrant held by Nike USA, Inc. at an exercise price of $1.03 per share; and . 255,923 shares of common stock issuable upon exercise of outstanding warrants at a weighted average exercise price of $0.98 per share. To the extent that any of these options or warrants are exercised, there could be further dilution to new investors. For additional information regarding these shares, see "Capitalization," "Management--Benefit Plans," "Description of Capital Stock" and Notes 6 and 10 of Notes to Financial Statements. 25 SELECTED FINANCIAL DATA You should read the following selected financial data in conjunction with our financial statements and related notes included elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. The statement of operations data for the years ended December 31, 1996, 1997 and 1998, and the balance sheet data as of December 31, 1997 and 1998, are derived from the audited financial statements included elsewhere in this prospectus. The statement of operations data for the period from inception (October 28, 1994) to December 31, 1994 and for the year ended December 31, 1995, and the balance sheet data as of December 31, 1994, 1995 and 1996, are derived from the audited financial statements not included elsewhere in this prospectus. The statement of operations data for the six months ended June 30, 1998 and 1999 and the balance sheet data as of June 30, 1999 are derived from the unaudited financial statements included elsewhere in this prospectus and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair statement of this information when read in conjunction with the audited financial statements and related notes. The diluted net loss per share computation excludes potential shares of common stock (preferred stock, options and warrants to purchase common stock and common stock subject to repurchase rights that we hold), since their effect would be antidilutive. See Note 1 of Notes to Financial Statements for a detailed explanation of the determination of the shares used to compute actual and pro forma basic and diluted net loss per share. The historical results are not necessarily indicative of results to be expected for future periods.
Period from October 28, 1994 Six Months (inception) to Years Ended December 31, Ended June 30, December 31, -------------------------------- --------------- 1994 1995 1996 1997 1998 1998 1999 ---------------- ------ ------ ------- ------- ------ ------- (in thousands, except per share data) Statement of Operations Data: Net revenues: Merchandise........... $ -- $ -- $ -- $ -- $ 195 $ -- $ 1,049 Commission............ -- -- -- 11 123 37 35 Web development....... -- 213 677 1,030 447 328 -- ------ ------ ------ ------- ------- ------ ------- Total net revenues.. -- 213 677 1,041 765 365 1,084 ------ ------ ------ ------- ------- ------ ------- Cost of revenues: Merchandise........... -- -- -- -- 157 -- 821 Commission............ -- -- -- -- 19 -- -- Web development....... -- 84 90 156 99 87 -- ------ ------ ------ ------- ------- ------ ------- Total cost of revenues........... -- 84 90 156 275 87 821 ------ ------ ------ ------- ------- ------ ------- Gross profit............ -- 129 587 885 490 278 263 ------ ------ ------ ------- ------- ------ ------- Operating expenses: Marketing and sales... 2 65 686 1,285 2,399 449 4,345 Site development...... 90 15 119 259 1,318 409 1,208 General and administrative....... 11 87 248 378 705 289 776 Amortization of stock- based compensation... -- -- -- -- 243 23 740 ------ ------ ------ ------- ------- ------ ------- Total operating expenses........... 103 167 1,053 1,922 4,665 1,170 7,069 ------ ------ ------ ------- ------- ------ ------- Operating loss.......... (103) (38) (466) (1,037) (4,175) (892) (6,806) Interest income (expense), net......... (1) (6) (3) (8) 29 (24) 158 Other income............ -- -- -- -- 26 -- -- ------ ------ ------ ------- ------- ------ ------- Net loss................ $ (104) $ (44) $ (469) $(1,045) $(4,120) $ (916) $(6,648) ====== ====== ====== ======= ======= ====== ======= Basic and diluted net loss per share......... $(0.13) $(0.01) $(0.09) $ (0.15) $ (0.64) $(0.17) $ (1.00) ====== ====== ====== ======= ======= ====== ======= Basic and diluted weighted average shares used in computation of net loss per share..... 788 4,658 5,447 6,815 6,462 5,434 6,631 ====== ====== ====== ======= ======= ====== ======= Pro forma basic and diluted net loss per share.................. $ (0.29) $ (0.23) ======= ======= Pro forma basic and diluted weighted average shares......... 14,411 28,463 ======= =======
December 31, ------------------------------ June 30, 1994 1995 1996 1997 1998 1999 ---- ---- ---- ----- ------ -------- (in thousands) Balance Sheet Data: Cash, cash equivalents and short-term investments.......................... $ 23 $ 36 $471 $ 311 $2,117 $14,600 Working capital (deficit)............. (11) (71) 375 (172) 636 12,803 Total assets.......................... 51 144 763 580 2,840 17,072 Long-term liabilities................. -- 8 87 3 189 498 Total stockholders' equity (deficit).. 17 (21) 483 (13) 917 13,070
26 SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA Effective September 3, 1999, Fogdog Sports merged with Sports Universe, Inc. Sports Universe sells equipment and apparel for wakeboarding, waterskiing, inline skating, surfing and skateboarding on the Internet. The merger was accounted for using the purchase method of accounting and accordingly the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values as of the acquisition date. The total purchase price of approximately $1.6 million consisted of 399,998 shares of Fogdog Sports common stock with an estimated fair value of approximately $4.00 per share and other acquisition related expenses of approximately $30,000, consisting primarily of payments for professional fees. The purchase price was allocated as follows: $524,000 to net tangible liabilities assumed and $2.2 million to goodwill. The acquired goodwill will be amortized over its estimated useful life of two years. The following unaudited pro forma consolidated statement of operations gives effect to this merger as if it had occurred on February 9, 1998 (inception) by consolidating the results of operations of Sports Universe from inception through December 31, 1998 and the six months ended June 30, 1999 with the results of operations of Fogdog Sports. The following unaudited pro forma consolidated balance sheet gives effect to this merger as if it had occurred on June 30, 1999. See Note C to Pro Forma Consolidated Financial Information for a description of the method used to compute basic and diluted net loss per share.
Pro Forma -------------------------------- Six Months Year Ended Ended December 31, 1998 June 30, 1999 ----------------- -------------- (in thousands, except per share data) Pro Forma Consolidated Statement of Operations Data: Net revenues................................. $ 944 $ 1,346 Cost of revenues............................. 401 976 ------- ------- Gross profit............................... 543 370 ------- ------- Operating expenses: Marketing and sales........................ 2,660 4,412 Site development........................... 1,318 1,208 General and administrative................. 983 879 Amortization of stock-based compensation... 243 740 Amortization of goodwill................... 987 539 ------- ------- Total operating expenses................. 6,191 7,778 ------- ------- Loss from operations......................... (5,648) (7,408) Interest and other income, net............... 55 158 ------- ------- Net loss..................................... $(5,593) $(7,250) ======= ======= Basic and diluted loss per share............. $ (0.82) $ (1.03) ======= ======= Basic and diluted weighted average shares used in computation of net loss per share... 6,819 7,031 ======= ======= Pro Forma June 30, 1999 -------------- (in thousands) Pro Forma Consolidated Balance Sheet Data: Cash, cash equivalents and short-term investments................................. $14,621 Working capital.............................. 12,202 Total assets................................. 19,359 Long-term liabilities........................ 498 Total stockholders' equity................... 14,670
27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This prospectus contains forward-looking statements that involve risks and uncertainties. These forward-looking statements include, among others, those statements including the words "expects," "anticipates," "intends," "believes" and similar language. Our actual results could differ materially from those discussed in this prospectus. Factors that could cause or contribute to these differences include, but are not limited to, the risks discussed in the section entitled "Risk Factors" in this prospectus. Overview We are a leading Internet retailer focused exclusively on sporting goods. We currently offer an extensive selection of competitively priced sporting goods consisting of up to 60,000 distinct stock keeping units representing more than 500 brands in all major sports categories. We were incorporated in October 1994. From our inception through July 1998, we were engaged in providing web development and design services to sporting goods manufacturers, trade associations, retailers and other industry members. In July 1997, we launched a web site, "SportSite.com," and established partnerships with sporting goods catalog and distribution companies to process orders, manage inventory and ship goods directly to customers. In the third quarter of 1998, we phased out the design services portion of our business to focus exclusively on online retail. In November 1998, we changed our name to Fogdog, Inc. and the name of our web site to "fogdog.com." We derive our revenue from the sale of sporting goods from our web site. Merchandise revenue is recognized when goods are shipped to our customers from manufacturers, distributors or third-party warehouses, which occurs only after credit card authorization. For sales of merchandise, we are responsible for pricing, processing and fulfilling the orders. We process merchandise returns and bear the credit risk for these transactions. We generally allow returns for any reason within 45 days of the sale. Accordingly, we provide for allowances for estimated future returns at the time of shipment based on historical data. Historically, our rate of product returns has ranged between 8% and 10% of total revenues, but our future return rates could differ significantly from our historical averages. Currently, less than 15% of our transactions are shipped from inventory held at third-party warehouses. We expect this percentage to increase in future periods. From October 1994 through March 1999, we derived revenue from commissions. Our commission revenue was earned from transactions processed through our online stores, fogdog.com and SportSite.com, whereby we obtained and processed customer orders in exchange for a commission on the sale of the vendor's merchandise. At the conclusion of the sale, we forwarded the order information to the vendor, which then charged the customer's credit card and shipped the merchandise directly to the customer. We recognized commission revenue when we forwarded the order to the vendor. In a commission sale transaction, we did not take title or possession of the merchandise, and the vendor bore all the risk of credit card chargebacks and merchandise returns. When we launched our fogdog.com web site in November 1998, we began to take title to our own merchandise and also to bear customer credit and return risk on a substantial number of our transactions. In April 1999, we began to take title to the merchandise on all transactions processed on our web site. We have also earned commission revenue from transactions processed on several client sites, which has been immaterial to date. From October 1994 to July 1998, we also earned revenue from web development. Revenue from the sale of web development services was recognized when we had the right to invoice the customer, the collection of the receivable was probable, there were no significant obligations remaining and the client's web site was either placed on-line or completed to the client's satisfaction. We terminated our web development services in July 1998, and transitioned our remaining support obligations to a third party. 28 We have incurred substantial costs to develop our web site and to recruit, train and compensate personnel for our creative, engineering, sales, marketing, merchandising, customer service and administration departments. As a result, we have incurred substantial losses since inception and, as of June 30, 1999, had an accumulated deficit of $12.4 million. In order to expand our business, we intend to invest heavily in sales, marketing, merchandising, operations, site development and additional personnel to support these activities. We therefore expect to continue to incur substantial operating losses for the foreseeable future. We had 70 full-time employees as of June 30, 1999 and intend to hire a significant number of employees in the future. This expansion will place significant demands on our management and our operational resources. To manage this rapid growth, we must invest in and implement operational systems, procedures and controls that can be expanded easily. We expect future expansion to continue to challenge our ability to hire, train, manage and retain employees. In September 1999, we purchased Sports Universe, Inc., and Sports Universe became our wholly owned subsidiary. Sports Universe derives its revenue primarily from the sales of sporting goods from its web site, "sportsuniverse.com." Sports Universe is a Delaware corporation that is based in Austin, Texas and has fewer than 10 full-time employees. In the merger, we exchanged 399,998 shares of our common stock for all outstanding shares of Sports Universe capital stock. The transaction was accounted for using the purchase method. We will record goodwill of approximately $2.2 million, which will be amortized over a two-year period, in connection with the merger. Results of Operations The following table presents selected financial data for the periods indicated as a percentage of total net revenues.
Six Months Year Ended Ended December 31, June 30, ------------------ ----------- 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- Net revenues: Merchandise............................... --% --% 25% --% 97% Commission................................ -- 1 16 10 3 Web development........................... 100 99 59 90 -- --- ---- ---- ---- ---- Total net revenues...................... 100 100 100 100 100 --- ---- ---- ---- ---- Cost of revenues: Merchandise............................... -- -- 21 -- 76 Commission................................ -- -- 2 -- -- Web development........................... 13 15 13 24 -- --- ---- ---- ---- ---- Total cost of revenues.................. 13 15 36 24 76 --- ---- ---- ---- ---- Gross profit................................ 87 85 64 76 24 --- ---- ---- ---- ---- Operating expenses: Marketing and sales....................... 101 123 314 123 401 Site development.......................... 18 25 172 112 111 General and administrative................ 37 36 92 79 72 Amortization of stock-based compensation.. -- -- 32 6 68 --- ---- ---- ---- ---- Total operating expenses................ 156 184 610 320 652 --- ---- ---- ---- ---- Operating loss.............................. (69) (99) (546) (244) (628) Interest income (expense), net.............. -- (1) 4 (7) 15 Other income................................ -- -- 3 -- -- --- ---- ---- ---- ---- Net loss................................. (69)% (100)% (539)% (251)% (613)% === ==== ==== ==== ====
29 Six Months Ended June 30, 1998 and 1999 Net Revenues We had no merchandise revenue for the six months ended June 30, 1998 and $1.0 million for the six months ended June 30, 1999. Our merchandise revenue resulted from customer transactions on our fogdog.com web site. In November 1998, we began taking title to our own merchandise and bearing the credit risk on an increasing number of transactions. Revenue from merchandise shipped outside the United States was approximately 10% of total merchandise revenue for the six months ended June 30, 1999. Commission revenue was $37,000 for the six months ended June 30, 1998 and $35,000 for the six months ended June 30, 1999. The decrease in commission revenue was due to the elimination of commission transactions in March 1999. Web development revenue was $328,000 for the six months ended June 30, 1998, and we had no web development revenue for the six months ended June 30, 1999. We terminated our web development services in July 1998. Cost of Revenues Cost of merchandise revenue consists of product, shipping and handling costs, and credit card processing fees. We incurred no cost of merchandise revenue for the six months ended June 30, 1998, and cost of merchandise revenue was $821,000 for the six months ended June 30, 1999. As a percentage of merchandise revenue, cost of merchandise revenue was 78% for the six months ended June 30, 1999. We began to incur cost of merchandise revenue as we began taking title to our own merchandise and bearing customer credit risk. Cost of web development revenue consists of third-party fees and salaries and related costs for site development and maintenance on behalf of clients. Cost of web development revenue was $87,000 for the six months ended June 30, 1998, and we had no cost of web development revenue for the six months ended June 30, 1999. The decrease in the cost of web development revenue in dollars and as a percentage of web development revenue was due to the elimination of our hosting and maintenance activity. Gross Profit Gross profit was $278,000 for the six months ended June 30, 1998 and $263,000 for the six months ended June 30, 1999. As a percentage of total net revenues, gross profit was 76% for the six months ended June 30, 1998 and 24% for the six months ended June 30, 1999. The decrease in gross profit in dollars and as a percentage of total net revenues was due to the shift in our revenue from web development services to the sale of merchandise on our web site. Marketing and Sales Expenses Our marketing and sales expenses consist primarily of advertising and promotional expenditures, distribution facility expenses, including equipment and supplies, credit card verification fees and payroll and related expenses for personnel engaged in marketing, merchandising, customer service and distribution activities. Marketing and sales expenses were $449,000 for the six months ended June 30, 1998 and $4.3 million for the six months ended June 30, 1999. As a percentage of net revenues, marketing and sales expenses were 123% for the six months ended June 30, 1998 and 401% for the six months ended June 30, 1999. The increase in marketing and sales expenses in dollars and as a percentage of net revenues was attributable to an increase in advertising and merchandising, customer service, distribution, and marketing personnel and related costs as we continued to expand our online store and establish the Fogdog brand. In September 1999, we entered into an agreement with Nike USA, Inc. to distribute Nike products on our web site. In connection with this agreement, we granted Nike a warrant to purchase 6,171,524 shares of our common stock at an exercise price of $1.03 per share. Our sales and marketing expenses in each quarter over the two-year term of the agreement will include a portion of the warrant's estimated fair value of approximately $26 million, calculated on a straight-line basis. We expect to continue to substantially increase our marketing and promotional efforts and hire additional marketing, merchandising, customer service and operations personnel. 30 Site Development Expenses Our site development expenses consist of payroll and related expenses for web site development and information technology personnel, Internet access, hosting charges and logistics engineering, and web content and design expenses. Site development expenses were $409,000 for the six months ended June 30, 1998 and $1.2 million for the six months ended June 30, 1999. As a percentage of net revenues, site development expenses were 112% for the six months ended June 30, 1998 and 111% for the six months ended June 30, 1999. The increase in site development expenses in dollars was due to the introduction and enhancement of our fogdog.com web site in November 1998 and subsequent enhancements. We expect to continue to make substantial investments in site development and anticipate that site development expenses will continue to increase. General and Administrative Expenses General and administrative expenses consist of payroll and related expenses for executive and administrative personnel, facilities expenses, professional service expenses and other general corporate expenses. General and administrative expenses were $289,000 for the six months ended June 30, 1998 and $776,000 for the six months ended June 30, 1999. As a percentage of net revenues, general and administrative expenses were 79% for the six months ended June 30, 1998 and 72% for the six months ended June 30, 1999. The increase in general and administrative expenses in dollars was due to increased personnel and related costs to support the implementation of our business strategy. The decrease in general and administrative expenses as a percentage of net revenues was due to the growth in merchandise revenue without a proportionate increase in general and administrative expenses. We expect that general and administrative expenses will increase substantially as we add personnel and incur additional costs related to the anticipated growth of our business and operation as a public company. Amortization of Stock-Based Compensation In connection with the grant of employee stock options, we recorded aggregate unearned stock-based compensation of $3.4 million through June 30, 1999. Employee stock-based compensation expense is amortized over the vesting period of the options, which is generally four years, using the multiple-option approach. We expect to record additional unearned stock-based compensation of approximately $6.1 million for stock options granted in August and September 1999. We expect to record employee stock-based compensation expenses of approximately $822,000 for the quarter ending September 30, 1999, $1.1 million for the quarter ending December 31, 1999, $1.1 million for the quarter ending March 31, 2000 and $1.0 million for the quarter ending June 30, 2000. We anticipate this expense to decrease in future periods. Unearned stock-based compensation expense will be reduced in future periods to the extent that options are terminated prior to full vesting. Interest Income (Expense), Net Interest income (expense), net consists of interest earned on cash and short-term investments, offset by interest expense related to bank borrowings and other financing lines. Interest income (expense), net was $(24,000) for the six months ended June 30, 1998 and $158,000 for the six months ended June 30, 1999. The increase in interest income was due to higher average cash balances from additional sales of preferred stock completed in the first and second quarters of 1999. Years Ended December 31, 1996, 1997 and 1998 Net Revenues We had no merchandise revenue for the years ended December 31, 1996 and 1997, and merchandise revenue of $195,000 for the year ended December 31, 1998. Our merchandise revenue resulted from customer transactions on our fogdog.com web site. In November 1998, we began taking title to our own merchandise and bearing the credit risk on an increasing number of transactions. Revenue from merchandise shipped outside the United States was approximately 6% of total merchandise revenue for the year ended December 31, 1998. 31 We had no commission revenue for the year ended December 31, 1996. Commission revenue was $11,000 and $123,000 for the years ended December 31, 1997 and 1998, respectively. This increase in commission revenue was due to an increased number of commission transactions processed on our web site. Web development revenue was $677,000, $1.0 million and $447,000 for the years ended December 31, 1996, 1997 and 1998, respectively. The increase in web development revenue from 1996 to 1997 was due to an increase in the number of development contracts that we signed. The decrease in web development revenue from 1997 to 1998 occurred as we shifted our focus from being a web development services provider to an online retailer. Cost of Revenues We had no cost of merchandise revenue for the years ended December 31, 1996 and 1997, and cost of merchandise revenue was $157,000 or 81% of merchandise revenue for the year ended December 31, 1998. We began to incur cost of merchandise revenue as we began to take title to the merchandise and bear the credit risk prior to delivery to the customer. Cost of commission revenue consists of the value of services rendered and fees paid to trade associations. We had no cost of commission revenue for the years ended December 31, 1996 and 1997, and cost of commission revenue was $19,000 or 15% of commission revenue for the year ended December 31, 1998. We had no commission revenue in 1996. We had no cost of commission revenue for 1997 because all commission revenue in 1997 was derived from third-party web sites for which we incurred no verification fees. Cost of web development revenue was $90,000, $156,000 and $99,000 for the years ended December 31, 1996, 1997 and 1998, respectively. As a percentage of web development revenue, cost of web development revenue was 13%, 15% and 22% for the years ended December 31, 1996, 1997 and 1998, respectively. The increase in the cost of web development revenue in dollars and as a percentage of web development revenue from 1996 to 1997 was attributable to an increase in our hosting and maintenance activity for which we incurred initial start-up costs. The decrease in the cost of web development revenue in dollars and as a percentage of web development revenue from 1997 to 1998 was due to a reduction of our hosting and maintenance activity as we shifted our focus from being a web development services provider to an online retailer. Gross Profit Gross profit was $587,000, $885,000 and $490,000 for the years ended December 31, 1996, 1997 and 1998, respectively. As a percentage of total net revenues, gross profit was 87%, 85% and 64% for the years ended December 31, 1996, 1997 and 1998, respectively. The increase in gross profit from 1996 to 1997 was due to an increase in web development revenue. The decrease in gross profit in dollars and as a percentage of total net revenues from 1997 to 1998 was due to the shift in our revenue from web development to the sale of merchandise. Marketing and Sales Expenses Marketing and sales expenses were $686,000, $1.3 million and $2.4 million for the years ended December 31, 1996, 1997 and 1998, respectively. As a percentage of net revenues, marketing and sales expenses were 101%, 123% and 314% for the years ended December 31, 1996, 1997 and 1998, respectively. The increase in dollars and as a percentage of net revenues from 1996 to 1997 was attributable to an increase in personnel and related costs required to implement our sales and marketing strategy. The increase in marketing and sales expenses in dollars and as a percentage of net revenues from 1997 to 1998 was attributable to an increase in advertising and merchandising, customer service, distribution, and marketing personnel and related costs. 32 Site Development Expenses Site development expenses were $119,000, $259,000 and $1.3 million for the years ended December 31, 1996, 1997 and 1998, respectively. As a percentage of net revenues, site development expenses were 18%, 25% and 172% for the years ended December 31, 1996, 1997 and 1998, respectively. The increase in site development expenses in dollars and as a percentage of net revenues from 1996 to 1997 was due to the introduction and enhancement of the SportSite.com web site and subsequent enhancements. The increase in dollars and as a percentage of net revenues from 1997 to 1998 was due to the introduction and enhancement of our fogdog.com web site and the development of technologies for integrating with our suppliers. General and Administrative Expenses General and administrative expenses were $248,000, $378,000 and $705,000 for the years ended December 31, 1996, 1997 and 1998, respectively. As a percentage of net revenues, general and administrative expenses were 37%, 36% and 92% for the years ended December 31, 1996, 1997 and 1998, respectively. The increase in general and administrative expenses in dollars and as a percentage of net revenues was due to increased personnel and related costs to support the implementation of our business strategy. Amortization of Stock-Based Compensation In connection with the grant of employee stock options, we recorded aggregate unearned stock-based compensation of $1.2 million for the year ended December 31, 1998 which is being amortized over a four-year vesting period using the multiple-option approach. Interest Income (Expense), Net Interest income (expense), net was $(3,000), $(8,000) and $29,000 for the years ended December 31, 1996, 1997 and 1998, respectively. The increase in interest income (expense), net was due to higher average cash balances from additional sales of securities completed in the second quarter of 1998. Other Income Other income consists of the proceeds we received when we transitioned our remaining web development service obligations to a third-party, which was completed in the third quarter of 1998. Provision for Income Taxes We have incurred operating losses for all periods from inception through June 30, 1999, and therefore have not recorded a provision for income taxes. Our deferred tax asset primarily consists of net operating loss carryforwards and nondeductible accruals and allowances. We have recorded a valuation allowance for the full amount of our net deferred tax assets, as the future realization of the tax benefit is not currently likely. As of December 31, 1998, we had net operating loss carryforwards for federal and state tax purposes of approximately $4.3 million and $4.7 million, respectively. These federal and state tax loss carryforwards are available to reduce future taxable income and expire at various dates into the year 2019. We expect that the amount of net operating loss carryforwards that could be utilized annually in the future to offset taxable income will be limited by "change in ownership" provisions of the Internal Revenue Code. This annual limitation may result in the expiration of net operating loss carryforwards before their utilization. 33 Quarterly Results of Operations and Seasonality The following tables set forth a summary of our unaudited quarterly operating results for each of the six quarters in the period ended June 30, 1999. This information has been derived from our unaudited financial statements which, in management's opinion, have been prepared on a basis consistent with the audited financial statements contained elsewhere in this prospectus and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of this information when read in conjunction with our audited financial statements and related notes. The amount and timing of our operating expenses generally will vary from quarter to quarter depending on our level of actual and anticipated business activities. Our revenue and operating results are difficult to forecast and will fluctuate, and we believe that period-to-period comparisons of our operating results will not necessarily be meaningful. As a result, you should not rely upon them as an indication of future performance.
Quarter Ended ------------------------------------------------------------- Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, 1998 1998 1998 1998 1999 1999 -------- -------- --------- -------- -------- -------- Statement of Operations Data (in thousands): Net revenues: Merchandise............... $ -- $ -- $ -- $ 195 $ 318 $ 731 Commission................ 11 26 32 54 35 -- Web development........... 206 122 119 -- -- -- ------ ------ ------ -------- -------- -------- Total net revenues...... 217 148 151 249 353 731 ------ ------ ------ -------- -------- -------- Cost of revenues: Merchandise............... -- -- -- 157 232 589 Commission................ -- -- 12 7 -- -- Web development........... 62 25 12 -- -- -- ------ ------ ------ -------- -------- -------- Total cost of revenues.. 62 25 24 164 232 589 ------ ------ ------ -------- -------- -------- Gross profit................ 155 123 127 85 121 142 ------ ------ ------ -------- -------- -------- Operating expenses: Marketing and sales....... 192 257 548 1,402 1,536 2,809 Site development.......... 185 224 328 581 482 726 General and administrative........... 131 158 168 248 316 460 Amortization of stock- based compensation....... -- 23 102 118 331 409 ------ ------ ------ -------- -------- -------- Total operating expenses............... 508 662 1,146 2,349 2,665 4,404 ------ ------ ------ -------- -------- -------- Operating loss.............. (353) (539) (1,019) (2,264) (2,544) (4,262) ------ ------ ------ -------- -------- -------- Interest income (expense), net........................ (11) (13) 26 27 22 136 Other income................ -- -- 26 -- -- -- ------ ------ ------ -------- -------- -------- Net loss.................... $(364) $(552) $(967) $(2,237) $(2,522) $(4,126) ====== ====== ====== ======== ======== ======== As a Percentage of Total Net Revenues: Net revenues: Merchandise............... --% --% --% 78% 90% 100% Commission................ 5 18 21 22 10 -- Web development........... 95 82 79 -- -- -- ------ ------ ------ -------- -------- -------- Total net revenues...... 100 100 100 100 100 100 ------ ------ ------ -------- -------- -------- Cost of revenues: Merchandise............... -- -- -- 63 66 81 Commission................ -- -- 8 3 -- -- Web development........... 29 17 8 -- -- -- ------ ------ ------ -------- -------- -------- Total cost of revenues.. 29 17 16 66 66 81 ------ ------ ------ -------- -------- -------- Gross profit................ 71 83 84 34 34 19 ------ ------ ------ -------- -------- -------- Operating expenses: Marketing and sales....... 89 173 363 563 435 384 Site development.......... 85 151 217 233 136 99 General and administrative........... 60 107 110 100 89 63 Amortization of stock- based compensation....... -- 16 68 47 94 56 ------ ------ ------ -------- -------- -------- Total operating expenses............... 234 447 758 943 754 602 ------ ------ ------ -------- -------- -------- Operating loss.............. (163) (364) (674) (909) (720) (583) ------ ------ ------ -------- -------- -------- Interest income (expense), net........................ (5) (9) 17 11 6 19 Other income................ -- -- 17 -- -- -- ------ ------ ------ -------- -------- -------- Net loss.................... (168)% (373)% (640)% (898)% (714)% (564)% ====== ====== ====== ======== ======== ========
34 Commencing with the launch of our fogdog.com web site in November 1998, our merchandise revenue has increased during each quarter. These increases resulted from growth in the number of customers and products available for sale on our web site. Cost of merchandise revenue increased from the fourth quarter of 1998 through the second quarter of 1999 as we increased merchandise sales. Our cost of merchandise revenue as a percentage of net revenues increased from the fourth quarter of 1998 to the first and second quarters of 1999 due to increased shipping and handling costs. Marketing and sales expenses increased each quarter from the first quarter of 1998 through the second quarter of 1999 as we began online and offline advertising and as we launched the fogdog.com web site in the fourth quarter of 1998. We also increased personnel and related expenses required to implement our marketing and sales strategy. Site development expenses increased each quarter from the first quarter of 1998 through the fourth quarter of 1998 as we began enhancing our web site to accommodate the increased transaction volume and product offerings for the holiday season. After completion of the launch of our fogdog.com web site in the fourth quarter of 1998, site development expenses decreased from the fourth quarter of 1998 to the first quarter of 1999 as we did not have any launch related expenses. Site development expenses increased from the first quarter of 1999 to the second quarter of 1999 as we increased spending on design and content to develop additional specialty shops. General and administrative expenses increased each quarter from the first quarter of 1998 through the second quarter of 1999 as we increased personnel and related expenses to support our new business strategy. We expect our business to be highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the fourth quarter. We believe that a substantial portion of our annual sales will occur in the fourth quarter. We expect to experience lower sales during the other quarters, and as is typical in the retail industry, have incurred and may continue to incur greater losses in these quarters. See "Risk Factors--Seasonal fluctuations in the sales of sporting goods could cause wide fluctuations in our quarterly results." Results of Operations--Sports Universe We acquired Sports Universe, Inc. in September 1999. Since its inception in February 1998, Sports Universe has incurred operating losses. During the six months ended June 30, 1999, Sports Universe recorded revenue of approximately $262,000 from the sale of merchandise on its web site and from web design services, and incurred a net loss of $63,000. During the six months ended June 30, 1999, Sports Universe incurred total operating expenses of approximately $170,000, which consisted primarily of personnel and related costs for marketing, sales and administrative staff. At June 30, 1999, Sports Universe had negative working capital of $571,000 and an accumulated deficit of $549,000. Liquidity and Capital Resources Since inception, we have financed our operations primarily from private sales of convertible preferred stock totaling $24.2 million and, to a lesser extent, from bank borrowings and lease financing. Our operating activities used cash of $399,000 during 1996, $915,000 during 1997, $3.0 million during 1998 and $5.4 million during the first six months of 1999. This negative operating cash flow resulted primarily from our net losses experienced during these periods. In 1998 and 1999, we invested in the development of our brand and online store, hired additional personnel and expanded our technology infrastructure to support our growth. Our investing activities, consisting of purchases of furniture, fixtures and computer equipment to support our growing number of employees, used cash of $137,000 during 1996, $81,000 during 1997, $692,000 during 1998 and $318,000 during the first six months of 1999. 35 Our financing activities generated cash of $971,000 during 1996, $836,000 during 1997, $5.0 million during 1998 and $18.2 million during the first six months of 1999. Of these financing activities, the issuance of convertible preferred stock generated net proceeds of $945,000 during 1996, $528,000 during 1997, $4.8 million during 1998 and $17.9 million for the six months ended June 30, 1999. We also had proceeds from bank borrowings of $452,000 in 1998. At June 30, 1999, we had cash and cash equivalents and short-term investments aggregating $14.6 million. Our short-term investments secure a letter of credit issued in connection with the lease of our corporate offices. We have an agreement with a bank, which provides us with the ability to borrow up to $1.5 million, subject to specified limitations. The agreement provides for the following: . a revolving line of credit for $500,000 secured by cash on hand to cover the outstanding balance; . an equipment loan for $800,000, due on September 15, 2001, limited to 75% of the invoice amount of the equipment; and . an equipment term loan for $150,000 payable in 24 equal installments commencing January 28, 1999. We had an outstanding aggregate balance at June 30, 1999 of $1.0 million. Interest on the borrowings range from the prime rate plus one-half percent to the prime rate plus one percent and is payable monthly. We must meet financial covenants with respect to the borrowings, one of which we were in violation of at June 30, 1999. We received a waiver from the bank regarding the violated covenant. We also have an agreement with a software company to purchase software under a one-year loan agreement which bears interest at 7.5%. The principal and interest is payable in 12 equal monthly installments beginning in October 1998. We had an outstanding balance at June 30, 1999 of $47,000. During 1999, we entered into a number of commitments for online and traditional offline advertising. As of June 30, 1999, our remaining commitments were approximately $5.0 million. In addition, we have remaining commitments under the lease for our headquarters of $4.9 million. We expect to devote substantial resources to continue development of our brand and online store, expand our sales, support, marketing and engineering organizations, establish additional facilities worldwide and build the systems necessary to support our growth. Although we believe that the proceeds of this offering, together with our current cash and cash equivalents and our borrowing capacity, will be sufficient to fund our activities for at least the next 12 months, there can be no assurance that we will not require additional financing within this time frame or that additional funding, if needed, will be available on terms acceptable to us or at all. In addition, although there are no present understandings, commitments or agreements with respect to any acquisition of other businesses, products or technologies, we may, from time to time, evaluate potential acquisitions of other businesses, products and technologies. In order to consummate potential acquisitions, we may issue additional securities or need additional equity or debt financing and these financings may be dilutive to existing investors. Recent Accounting Pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use." SOP 98-1 is effective for financial statements for years beginning after December 15, 1998. SOP 98-1 provides guidance over accounting for computer software developed or obtained for internal use including the requirements to capitalize specified costs and amortization of such costs. The adoption of the provisions of SOP 98-1 during our fiscal year beginning January 1, 1999 did not have a material effect on our financial statements. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 36 establishes accounting and reporting standards of derivative instruments, including certain derivative instruments embedded in other contracts, and for other hedging activities. SFAS 133 is effective for all fiscal quarters beginning with the quarter ending June 30, 1999. In July 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133." SFAS 137 deferred the effective date until the first fiscal quarter ending June 30, 2000. We will adopt SFAS 133 in our quarter ending June 30, 2000. We do not currently engage in hedging activities or invest in derivative instruments. Year 2000 Compliance Many currently installed computer systems and software products are coded to accept or recognize only two digit entries in the date code field. These systems and software products will need to accept four digit entries to distinguish 21st century dates from 20th century dates. As a result, computer systems and/or software used by many companies and governmental agencies may need to be upgraded to comply with Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. In the second quarter of 1999, we initiated a Year 2000 compliance program. The program is being directed by our information technology group. Our IT group is charged with identifying issues of potential risk within each department and making the appropriate evaluation, modification, upgrade or replacement. Members of our IT group have worked with members of each of our principal internal divisions in the course of assessing our Year 2000 compliance. Scope of Year 2000 Assessment The scope of our Year 2000 compliance program includes testing our web site and the IT and non-IT systems used in our business at our headquarters and at our third-party warehouses. The operational areas under investigation include: . software applications; . facilities; . suppliers and vendors, including distributors; and . computer systems. We do not currently have information concerning the Year 2000 compliance status of all of our vendors and distributors. If our suppliers, distributors and manufacturers fail to achieve Year 2000 compliance, our business could suffer. Budget and Schedule We have funded our Year 2000 plan from available cash and have not separately accounted for these expenses in the past. As a result of our short operating history, we believe that most of our third-party systems were purchased in Year 2000 compliant condition. To date, expenditures for Year 2000 compliance have not been material and have totaled less than $150,000. Most of our expenses have related to, and are expected to continue to relate to, the operating costs associated with time spent by employees in the evaluation process and Year 2000 compliance matters generally. We expect to incur no more than an additional $100,000 to verify that our IT and non-IT systems are capable of properly distinguishing between 20th century and 21st century dates. However, we may experience unanticipated, material problems and expenses associated with Year 2000 compliance that could harm our business. Finally, we are also subject to external forces that might generally affect industry and commerce, such as Year 2000 compliance failures by utility or transportation companies and related service interruptions. 37 We have not yet completed the evaluation of our web site and our third-party software systems. We are in the process of obtaining Year 2000 assurances from our principal third-party hardware vendors and service providers, and installing Year 2000 "patch kits", where appropriate. We anticipate concluding these activities by November 1999. Third-Party Hardware and Software Systems and Services We are in the process of evaluating all of the material third-party hardware and software systems we use on our web site and in our business. We have received written assurances of Year 2000 compliance from substantially all of the providers of hardware used in our business. We have identified approximately 20 different software vendors that provide software products for our web site and in our business. To date, we have received adequate assurances from substantially all of our software vendors as well. If any of the assurances we have received from our third-party software or hardware providers are false, our internal systems and our ability to ship our product would be materially harmed. We have also obtained assurances as to Year 2000 compliance from our hosting service provider and we are in the process of obtaining written assurances from our other third-party service providers. We expect to receive assurances from such entities without additional expenditures by us. We have made written inquiry of our distributors and the manufacturers from which we obtain products. A majority of those entities have not provided us with written assurances as to Year 2000 compliance. We cannot assure you that we will obtain Year 2000 assurances from these entities, and if they do not upgrade their systems for Year 2000 compliance, our ability to ship products would be materially impaired. Contingency Plan We expect our compliance program to be substantially completed by November 1999. If we encounter delays or are unable to meet this schedule, we will engage in testing and re-testing of non-compliant areas and develop a back up plan which we would expect to complete by December 1999. We may discover Year 2000 compliance problems in our systems that will require substantial revision. In addition, third-party software, hardware or services incorporated into our business or used in our web site may need to be revised or replaced, all of which could be time-consuming and expensive and result in the following, any of which could adversely affect our business: . delay or loss of revenue; . diversion of development and information technology resources; . damage to our reputation; and . litigation costs. Our failure to fix or replace our third-party software, hardware or services on a timely basis could result in lost revenues, increased operating costs, the loss of customers and other business interruptions. Quantitative and Qualitative Disclosure About Market Risk We currently market our merchandise in the United States and anticipate expanding our marketing efforts in Europe in late 1999 and throughout 2000. As a result, our financial results could be affected by factors including changes in foreign currency exchange rates or weak economic conditions in foreign markets. As all sales are currently made in U.S. dollars, a strengthening of the dollar could make our products less competitive in foreign markets. Our interest income is sensitive to changes in the general level of U.S. interest rates, particularly since the majority of our investments are in short-term instruments. Due to the short-term nature of our investments, we believe that there is no material risk exposure. Therefore, no quantitative tabular disclosures are required. 38 BUSINESS Fogdog Sports is a leading online retailer of sporting goods. We have designed fogdog.com, our online store, to offer an extensive product selection, detailed product information and other value-added services. We believe that we offer the largest selection of sporting goods online, with up to 60,000 distinct stock keeping units representing more than 500 brands in all major sports categories. According to Media Metrix, Inc., our web site received more visits during July 1999 than any other online retailer focusing exclusively on sporting goods. Fogdog.com features a collection of specialty shops, including soccer, baseball, golf, outdoors, fan/memorabilia and other popular categories, organized to appeal to a broad base of customers from the avid enthusiast to the occasional participant. We provide information and analysis authored by our own experts, helpful shopping services, innovative merchandising and an emphasis on customer service to help customers make more educated purchasing decisions. We offer customers the convenience and flexibility of shopping 24 hours a day, seven days a week, which makes fogdog.com the "anytime, anywhere, sports store." We intend to establish Fogdog as the first global brand for retail sporting goods, and in the process build consumer trust, confidence and loyalty. Industry Overview Electronic Commerce. The Internet is an increasingly significant medium for communication, information exchange and commerce. Forrester Research estimates that online purchases by U.S. consumers will grow from approximately $20 billion in 1999 to $184 billion by 2004, representing a compound annual growth rate of 56%. International Data Corporation estimates that the number of total online purchasers will grow from approximately 31 million in 1998 to 183 million in 2003, representing a compound annual growth rate of 43%. Forrester Research projects that U.S. consumers will purchase $4.2 billion of sporting goods online in 2004. We believe that growth in Internet usage is being fueled primarily by easier and cheaper access to the Internet and improvements in network security, infrastructure and bandwidth. We believe that these trends are also helping to fuel the growth and consumer acceptance of online commerce. The Internet provides a number of advantages for online retailers. Because online retailers are not constrained by shelf space or catalog page limitations, they are able to "display" a larger number of products at a lower cost than traditional store-based or catalog retailers. In addition, online retailers can more easily and frequently adjust their featured selections, editorial content and pricing, providing significant merchandising flexibility. Online retailers also benefit from the ability to reach a large group of customers from a central location, and the potential for low-cost customer interaction. Unlike traditional retail channels, online retailers do not have the burdensome costs of managing and maintaining a retail store infrastructure or the significant printing and mailing costs of catalogs. Online retailers also can more easily obtain demographic and behavioral data about customers, increasing their opportunities for targeted marketing and personalized services. Traditional Sporting Goods Industry. We believe that the sporting goods industry, which includes apparel, equipment and athletic footwear, is large and growing. According to the Sports Business Research Network, total U.S. retail sales of sporting goods were approximately $77 billion in 1998 and have grown at a 6.8% compound annual rate since 1994. Additionally, according to Sports Trend, a trade publication, in 1998 the top five U.S.-based sporting goods specialty retailers, excluding mass merchandisers, accounted for only $6.6 billion of total industry sales, demonstrating the highly fragmented nature of the sporting goods retail market. According to the Sporting Goods Manufacturers Association, the number of people who actively participate in sports, fitness and outdoor activities grew 19% from 68.5 million in 1987 to 81.6 million in 1996. We believe that the sporting goods industry will continue to benefit from the continued growth in participation and interest in sports, recreation, health, fitness and outdoor activities. Limitations of the Traditional Sporting Goods Retail Channel. The traditional sporting goods retail channel is fragmented, including mass merchant retailers and discount stores, regional or national chain stores, local specialty shops and mail order catalogers. Mass merchant retailers and discount stores often offer 39 attractive pricing. However, they typically offer only a limited selection of each brand's products and lack trained, knowledgeable sales people. Local and regional chain stores often have a broader line of branded products, but lack extensive product knowledge at the individual store level. Specialty stores such as golf and ski shops may offer better customer service, but with higher prices and a narrower selection. Mail order catalogers typically focus on one sport category, and are limited by catalog space constraints in offering either extensive selection or in-depth product information. As a result of these factors, we believe that the traditional retail channel for sporting goods fails to satisfy fully consumers' desire for selection, product information, expert advice, personalized service and convenience. We believe that, in addition to failing to fully satisfy the needs of the customer, the traditional sporting goods retail channel presents significant limitations for manufacturers. Traditional sporting goods retailers often do not provide manufacturers global distribution or proper and consistent brand merchandising and allow discounts below minimum advertised price policy. In addition, traditional sporting goods retailers cannot offer manufacturers unlimited shelf space, full product line presentation with high-quality product information and extensive customer service with knowledgeable salespersons. Similarly, traditional retailers offer manufacturers limited flexibility in how a product is sold and presented directly to the consumer. Taken together, we believe that these factors serve to make the traditional retail sporting goods experience inefficient and inconvenient for both customers and manufacturers. The Fogdog Sports Solution We have designed our online store to offer an extensive product selection, detailed product information and other value-added services to address the limitations of the traditional sporting goods retail channel for customers and manufacturers. With up to 60,000 distinct stock keeping units representing more than 500 brands, we believe we offer a broader product selection and more sporting goods categories than many of the largest, brick and mortar retailers. Our online store is designed to provide customers with a convenient and enjoyable shopping experience through a collection of specialty shops for popular sporting goods categories. Our exclusive focus on sporting goods and commitment to excellent customer service enable us to effectively address the needs and desires of our customers. In order to further deploy our solution, we have entered into a strategic relationship with Nike which will allow us to offer Nike's generally available product lines, present product information and give us advance availability of selected, newly released Nike products. The key components of our solution include: Specialty Shops Featuring Extensive Product Selection. We offer a broad range of product lines in a wide variety of sports in order to make Fogdog Sports a "one-stop-shop." Most of our products, representing 30 different sports, are featured in nine specialty shops and four brand concept shops. This presentation gives manufacturers an opportunity to merchandise their entire product lines and maintain brand identity and pricing. Our specialty shops feature soccer, outdoor, baseball, golf, tennis and racquet sports, football, fan/memorabilia and other categories and provide useful information and expert advice to help customers make product selections. Each shop offers equipment, apparel and accessories designed to appeal to avid enthusiasts and occasional participants. For example, our soccer shop features soccer cleats, protective equipment, balls, uniforms, shorts, tops, cross training shoes, pants, tights, warm-ups, athletic tape, socks, equipment bags and other goods. Because we believe that our customers tend to participate in several sports, a positive shopping experience in one specialty shop may encourage shopping in our other specialty shops. Value-Added Shopping Services. We offer helpful services to assist our customers with their purchasing decisions, including: . Detailed Product Information, Guides and Comparison Charts. Fogdog.com features extensive information on products, including product descriptions, high-quality product pictures, technical specifications and the intended product use descriptions. Our web site's technology allows the user to zoom in on selected products to view construction, materials and other product details. To further aid consumers in finding the right product for their specific needs, our staff of experts writes product 40 guides which incorporate manufacturers' data and are intended to help consumers learn about various product features, sizing and fit information and other relevant information to know before purchasing. Our experts research the products and summarize the information in easy- to-read comparison charts. . Brand Concept Shops. In addition to our specialty shops, we offer brand shops devoted exclusively to selected high-end brands for customers loyal to a particular brand. Created in conjunction with top brand manufacturers, such as Callaway and Moving Comfort, these shops surround the customer with in-depth information, broad selection and the "look and feel" consistent with the manufacturers' product merchandising. These shops are accessible from our home page and from our specialty shops. . Advice and Product Recommendations by Recognized Sports Experts. We offer information to help customers select the right product for their sports needs. We have a staff of world-class athletes, notable equipment experts and recognized sports journalists who write product articles for the site, respond to customer emails, answer customer service questions and recommend products as "Fogdog Picks," chosen for their features and value. We also host bulletin board sessions in which our expert staff shares ideas with visitors to our web site. . Consumer Reviews. To further enhance the site experience and to increase involvement in our online sporting community, we encourage customers to offer their personal reviews of any product available on the site. Our customers review products on a five-star rating scale. We moderate the reviews for appropriate language and user authenticity. To encourage reviews, recent shoppers at fogdog.com receive a follow-up email generally within three weeks after their purchase, which inquires about the overall shopping experience and asks the customer to submit a review of the purchased products. This email also serves as an opportunity for cross selling of additional related products. . My Fogdog. To provide a more personalized shopping experience, we have developed an environment for registered users of the site known as "My Fogdog." Every registered user of fogdog.com is greeted by name on the home page and is offered a link into a customized area focusing on the individual's product interests and buying history. This area includes merchandised items that are specific to that individual's interests, targeted promotions and links to our online order history and tracking system which enables customers to check order status and reorder more easily. Registered My Fogdog users are able to receive product offers that are relevant to their sports preferences, check-out faster with "Express Shopper" which stores shipping and credit card information, gain access to special items and promotions and reorder items easily. Convenient Shopping Experience. Our online store provides customers with an easy-to-use web site. Fogdog.com is available 24 hours a day, seven days a week and may be reached from the shopper's home or office. Our online store enables us to deliver a broad selection of products to customers who do not have convenient access to physical stores. Our "Power Search" technology allows customers to locate products more efficiently based on user-defined criteria such as shoe size, gender, product category and manufacturer. Commitment to Excellent Customer Service. We emphasize customer service during all phases of the customer's online shopping experience. Our staff includes sports consultants who are hired for their broad knowledge of athletics, sports products and training to assist customers in their purchasing decisions. To ensure that our staff receives ongoing information on product features and functionality, we offer training sessions sponsored by key manufacturers. Our consultants, together with our in-house staff, provide free pre- and post-sales support via both email and toll-free telephone service during extended business hours. Once a customer places an order, that customer can view order-tracking information on our web site or contact our customer service department to obtain the status of the order and, when necessary, resolve order and product questions. Furthermore, our web site contains extensive information for first-time and repeat visitors, including helpful hints in searching for, selecting, ordering and returning our products. If the purchased product does not satisfy the customer, we offer an unconditional, 45-day money-back return policy. If customers are unable to find a product, they can submit a form asking the "Fogdog Search Squad" to find it for them. The Fogdog Search 41 Squad are members of our customer service staff who locate and ship hard-to- find products for customers. This service addresses our customers' desire for a single trusted source for sporting goods. Network of Fulfillment Partners. We believe the Fogdog Sports solution simplifies the order fulfillment process in the complex and highly fragmented sporting goods industry. We have developed proprietary technologies and implemented a fulfillment system that utilizes two third-party warehouses, distributors, converted catalogers and direct shipping from select manufacturers to support and secure reliable online retailing. We believe that our distribution network provides us with competitive advantages in offering our customers and partners an efficient and cost-effective order fulfillment solution. The use of this network is transparent to the customer and allows us to effectively manage the distribution process and deliver products to the customer in Fogdog Sports packaging. Growth Strategy The Fogdog Sports vision is to reinvent the sporting goods industry by providing customers with a new value proposition of selection, information and service. Our goal is to be the world's leading sporting goods retailer. Key elements of our growth strategy are to: Build Brand Recognition. We intend to establish the Fogdog brand as the first global brand for retail sporting goods and in the process build consumer trust, confidence and loyalty. We believe that through a compelling shopping experience and aggressive advertising and promotional activities, we can continue to build awareness for Fogdog. We are targeting a broad base of customers who are passionate about their sports, from the avid enthusiast to the occasional participant. A compelling site experience reinforces the brand promise that fogdog.com is the "ultimate sports store" and "your anytime, anywhere sports store." We use a combination of traditional and online marketing strategies to maximize our brand recognition: . Television, Radio, Print and Outdoor Advertising. We intend to continue to use a mix of traditional media to build awareness for the Fogdog brand, relying primarily on cable and broadcast TV. We plan to focus our TV advertising on high-profile, national cable and broadcast television networks to associate Fogdog Sports with the active sporting lifestyle. In addition, we intend to continue to use radio, print and outdoor advertising to reach potential customers, particularly in markets with high Internet use. . Online Advertising. We intend to continue to establish relationships with major online services and Internet shopping portals to target active online sporting goods shoppers. For example, we have entered into a marketing agreement with America Online, and we also have agreements with WebTV Networks, Inc., GO Network, Snap! and Women.com for prominent positioning in their online shopping areas. We advertise on these sites as well as sites of other major online portals, including Excite, HotBot and MSN.com. We also advertise on Yahoo! with over 8,000 Fogdog products available through the Yahoo! shopping area. We intend to continue to maintain high visibility on major web sites and portals. . Affiliate Network. We have agreements with numerous web sites which we refer to as "affiliates." We believe our affiliates program is one of the largest among major online retail web sites. Affiliates direct traffic to our web site, and we offer affiliates a commission on resulting sales. We intend to expand our affiliates program to continue to draw customers to our web site. . Promotions, Events and Sponsorships. We have a program of sponsoring high profile, local sporting events, such as the Hi-Tec Adventure Racing Series and the Escape from Alcatraz Triathlon. We intend to continue to expand our sponsorship programs in order to build credibility with and recognition by athletes. Promote Repeat Purchases. We are focused on promoting customer loyalty and building relationships with our customers to drive repeat sales. To accomplish this strategy, we strive to provide quality customer service seven days per week, ship products promptly and for a low cost and provide an easy-to-shop online retail environment. We also employ technology which targets returning customers and makes specific offers to 42 them based on the customers' purchase history, sports preferences and shopping behavior. We intend to continue to build features that will enhance loyalty, provide offerings unique to each individual customer and continually strive to enhance our customer service. In addition, we intend to expand our direct, online marketing by delivering meaningful information and special offers to our customers. Expand Specialty Shops. We have created a collection of specialty shops within our online store, and we intend to provide additional shops organized by sport or brand. We anticipate adding five to ten of these specialty shops during the next twelve months, including shops focused on "action sports" such as snowboarding and wakeboarding, hockey, water sports and Nike products. We design these shops to be destination sites for sports enthusiasts by including top branded products, extensive product information and superior customer service. We intend to further enhance our specialty shops by offering the best of a traditional offline specialty shop in service and information along with the best product selection for all sports across top brands. Maximize Product Selection and Fulfillment Capabilities. We intend to employ a three-part strategy so that we can sell and deliver the broadest possible array of top branded products to our customers. We believe that our focus on product availability and use of multiple fulfillment partners and channels will enable us to increase our margins while serving a rapidly expanding customer base. Our strategy is to: . Expand Fulfillment Network. We plan to augment our network of partners that manage inventory, shipping, warehousing and general purchasing, as well as our relationships with manufacturers that ship directly to customers. We believe the strength of our fulfillment network provides a competitive advantage by increasing product availability without exposing us to all of the inventory risk of a traditional retailer. . Extend Brand Relationships. We currently buy products directly from numerous sporting goods manufacturers with well-known consumer brands. We intend to continue to develop relationships with top brand manufacturers to secure the highest level of premium product inventory available. We also plan to continuously improve our relationships and the efficiency of our interactions with these key vendors by incorporating brand and product information into our site, and by featuring certain brands within brand concept shops. Our strategic relationship with Nike will give us access to all Nike brands including Jordan, Bauer, Nike ACG, Nike Golf and Nike Team Sports. . Augment Distribution Technology and Expertise. We have developed a broad range of technologies to integrate our web site and other systems directly with the systems of our fulfillment partners. We plan to leverage and expand our technical expertise to increase this integration. We also have built and will continue to enhance a team devoted to executing our warehousing, inventory management, buying and merchandising activities to ensure superior product selection. Enhance and Form Strategic Relationships. We have strategic relationships with Nike, America Online and Keystone Fulfillment. We intend to leverage our strategic relationships in order to provide us with competitive advantages in merchandising, marketing and distributing our products. For example, we believe our strategic relationship with Nike will allow us to offer the broadest possible product selection of the leading sporting goods brand. Under the agreement, we will have access to Nike's generally available product lines and advance product availability for selected, newly released products. In addition, we intend to leverage our relationships with major online services and Internet shopping portals such as AOL to provide us with key positioning in online sporting goods shopping areas. We intend to augment our distribution capabilities through agreements with third parties, such as our agreement with Keystone Fulfillment, which provides outsourced inventory management, warehousing and shipping services. We intend to continue to pursue strategic relationships that allow us to further develop our business. Expand Internationally. Although to date we have focused on the United States, we believe that growth in sales of sporting goods outside of the United States will represent additional market opportunities for us. To take advantage of these opportunities, we intend to replicate our business model and build our brand name 43 in selected international markets with appropriate demographics and market characteristics. For example, we have opened an office in London to serve as a launching point for our European operations. The Fogdog Sports Store We designed our online retail store to be a destination site for sports enthusiasts from the avid enthusiast to the occasional participant. We believe our online store is well organized, attractive and easy to use, and offers customers an enjoyable shopping experience. The look and feel of our web site is action-oriented, and navigation is user-friendly and consistent throughout. All of our product pages are "three clicks" from our home page, allowing customers to find and purchase products easily. A consumer shopping on our web site can, in addition to ordering products, browse the different specialty shops, conduct targeted searches by product or brand, view recommended products, participate in promotions and check order status. Specialty Shops We categorize many of our products into different specialty shops, including soccer, baseball, golf, outdoor, and others. Within each shop, products are organized by brand, such as Nike and Callaway, by department, such as footwear, apparel and equipment, and by our recommendations, which we call "bestsellers" and "Fogdog Picks." Each shop has helpful product information and many feature tips from a site expert with extensive knowledge about the right gear for specific sports. The following is a summary of our current specialty shops: Soccer. We offer an extensive selection of soccer footwear, apparel, and equipment, with key brands such as adidas, Kappa, Nike, Puma and Umbro. Our soccer shop includes a Power Search feature, which allows customers to search all soccer products for available in-stock merchandise in their size. Our on- site expert provides advice on soccer cleat selection and evaluates equipment. The soccer shop features a technology report with information on the way different manufacturers design their cleats, along with a special section on "What the Pros Wear," where customers can click directly to purchase products worn by professional athletes. Outdoor. The outdoor shop features an extensive selection of products for hiking, climbing, mountaineering and other outdoor activities from manufacturers such as Hi-Tec, Kelty, Nike ACG, The North Face and Sierra Designs. Our outdoor shop expert provides helpful information in areas such as camping and back packing, as well as detailed product reviews. We also feature a bulletin board service where customers can post questions about products and sports activities. We offer an extensive product information resource online, with comparison charts for items such as backpacks, tents and sleeping bags. Baseball. We believe that we offer the largest selection of baseball equipment available on the Internet. We also provide a comprehensive selection of apparel and footwear, including such key brands as Easton, Louisville Slugger, Mizuno, Nike, Rawlings and Wilson. In our baseball shop, customers can use a bat configurator that takes input on the individual's height, weight and league type and chooses an appropriate selection of product. This shop will have regular equipment reviews by our staff journalists. Golf. The golf shop offers golf equipment, apparel and footwear including brands such as Adams, Callaway, Nike Golf, Orlimar, Spalding and Taylor Made. This shop features a Callaway brand golf shop, with information on how to select Callaway clubs, what they are made of and how they are designed. We worked closely with Callaway to develop the content of this area and the shop offers the entire line of Callaway products. The golf shop also includes an area called "What's in the Bag," which shows what professional golfers carry on the course. Tennis & Racquet Sports. The tennis and racquet shop includes a wide selection of tennis equipment, footwear and apparel from top manufacturers such as Head, Penn, Pro Kennex and Wilson. The tennis racquet shop also offers a racquet configurator which gives customers the ability to customize their racquets with their desired grip, string and stringing tension, which generally ship the same day the order is placed. 44 Football. The football shop serves a range of players from the recreational, weekend participant to the serious league player. We offer the merchandise necessary to outfit a player and/or team including pads, helmets, guards and braces, from leading manufacturers such as Bike, Nike, Pony, Rawlings and Wilson. Fan/Memorabilia. Our fan/memorabilia shop is designed to outfit fans with apparel and souvenirs from their favorite teams and players. We help fans of a specific league, player or team find the products that support their teams. The shop includes products licensed from NCAA collegiate athletics, the National Football League, Major League Baseball, the National Basketball Association, the National Hockey League, Major League Soccer and international soccer teams. The shop also carries vintage era replicas and other related sports memorabilia such as autographed photos. Fitness & Health. Our fitness and health shop is an extensive collection of products and content associated with general fitness. Our fitness shop offers Avia, Champion, Fitness Quest, Harbinger, Hind and Moving Comfort. The shop features advice on exercise, apparel selection and nutrition tips. Team. We believe that Fogdog Sports is the first and currently the only online retailer to offer custom uniforms and volume discounts for teams. Our team sales shop enables the team buyer to design custom uniforms and place the entire order online. We feature a large in-stock selection of uniforms, and we are able to ship most orders the same day, with a five to seven day turnaround for custom orders as compared to three to four weeks for most traditional team dealers. Shopping At Our Store Customers navigate our online store through our simple, intuitive and easy- to-use web site. Our goal is to make the shopping process as easy as possible for customers. Users accessing our online store generally fall into two categories: individuals who want to purchase a particular product immediately in a highly convenient manner, and individuals who browse the store, seeking an entertaining and informative shopping experience. We designed our online store to satisfy both types of users in a simple, intuitive fashion. Browsing and Comparing. Our web site offers visitors a variety of highlighted subject areas and special features arranged in a simple, easy-to- use format intended to enhance product search, selection and discovery. By clicking on the permanently displayed specialty shop names, the consumer moves directly to the home page of the desired shop and can quickly view promotions and featured products. On our web site customers can find detailed product information, including expert reviews of a product, how to use the product and how to care for it. Customers can use a quick keyword search or search by brand in order to locate a specific product. They can also execute more sophisticated searches based on pre-selected criteria depending upon the department. In addition, customers can browse our online store by linking to specially designed pages dedicated to products from key national and specialty brands. We provide product information in tabular form across brands and stock keeping units for easy comparison of features and benefits. Customization and Personalization. We use configurators which we call the "Fogdog Fetch" to identify merchandise unique to a customer's sport requirements and interests. We also cross-sell merchandise to customers based on what they have identified as their sport preferences in My Fogdog, what they have added to their shopping basket during the checkout process and what they have purchased. Our Fogdog Power Search tool also enables customers to search for products in some of our shops based on size and brand preferences. Selecting a Product and Checking Out. To purchase products, customers simply click on the "add to basket" button to add products to their virtual shopping cart. Customers can add and subtract products from their shopping cart as they browse around our store prior to making a final purchase decision, just as in a traditional store. Our web site is updated through the direct uploading of supply information from distributors to remove products that are out of stock. To execute orders, customers click on the "checkout" button and, 45 depending upon whether the customer has previously shopped with us, are prompted to supply shipping details online. We also offer customers a variety of shipping options during the checkout process. Prior to finalizing an order by clicking the "submit order" button, customers are shown their total charges along with the various options chosen at which point customers still have the ability to change their order or cancel it entirely. Paying. To pay for orders, a customer must use a gift certificate or credit card, which is authorized during the checkout process, but which is charged when the product is shipped. Our web site uses a security technology that works with the most common Internet browsers. Our system automatically confirms receipt of each order via email within minutes and notifies the customer when the order is shipped, typically within one to two business days for in-stock items. We also offer our customers an unconditional, 45-day money-back return policy. Repeat customers can use an "Express Checkout" feature in which customer data and payment information is automatically entered into our system. Getting Help. From every page of our web site, a customer can click on a "help" button to go to our customer service area. The customer service area of our web site contains extensive information for first-time and repeat visitors. In this area, we assist customers in searching for, shopping for, ordering and returning our products as well as provide information on our low price guarantee, shipping charges and other policies. In addition, we provide customers with answers to the most frequently asked questions and encourage our visitors to send us feedback and suggestions via email. Furthermore, customer service agents are available to answer questions about products and the shopping process during extended business hours via our toll-free number, which is displayed in the customer service area of our web site. Promotional Area. Through our promotional area, which is located on the Fogdog Sports home page, we offer products that tie into recent sporting events or seasonal themes. For example, we offered soccer jerseys and equipment following the Women's World Cup, golf equipment and apparel to tie into the U.S. Open, and backpacks in time for back to school. Customers can also purchase gift certificates from us in any denomination. We keep each customer's gift certificate balance on record on the site. Marketing We have implemented an aggressive advertising and marketing campaign to increase awareness of the Fogdog brand. We plan to acquire new customers through multiple channels, including traditional and online advertising, direct marketing and expansion and strengthening of our strategic relationships. We intend to use a significant portion of the net proceeds from this offering to continue to pursue advertising and marketing campaigns. Our marketing strategy is designed to: . build global brand recognition; . differentiate and build a unique positioning for Fogdog Sports in the marketplace; . increase consumer traffic to our web site; . acquire new customers; . build strong customer loyalty; . emphasize a one-on-one relationship with our customers; . maximize repeat purchases; and . develop additional ways to increase our net sales. Positioning and Branding Strategy. We aggressively seek to brand the Fogdog online experience at every customer touch point, including advertising, promotions, site experience, packaging and delivery. We seek to position Fogdog Sports as the trusted online sports store built for people who "live to play sports" with a selection of top brands, information and expertise. We target a broad range of customers in active lifestyle households. Our primary demographic focus is on active sports participants, male and female. 46 Advertising Mix. To build brand awareness, the primary elements of our marketing mix include cable and network television, broad reach online services, such as AOL, and Web shopping portals. We also employ targeted radio, print and outdoor media campaigns in specific markets during key sporting goods shopping seasons. We believe that through a sustained national TV campaign, we can drive consistent growth in awareness, and reach a broad audience of active sports participants with high-impact creative advertising. Our TV media plan includes advertising during major cable and network sports programming and events. We have also secured agreements with leading shopping portals, with positioning in sporting goods shopping areas. For example, under our agreement with AOL, we are a "Shopping Anchor" in two of the four AOL sports shopping areas. We also have agreements with WebTV, GO Network, Snap! and Women.com for prominent positioning in their online shopping areas. In addition, we advertise on Yahoo! with over 8,000 Fogdog products available through the Yahoo! shopping area. Under our contracts with Internet portals and online service providers, we typically pay a fixed dollar amount in exchange for placement of an enlarged icon in high traffic areas of their sites. These agreements are generally for a fixed term of one to two years. For example, under our agreement with AOL, we have an "anchor" position providing prominent placement in the camping and outdoor fitness and sports sections of AOL Shopping for the next two years. AOL guarantees a minimum number of user impressions of our material through AOL's online service or AOL.com. Affiliate Network. We believe we maintain one of the leading affiliate programs on the Web, extending the reach of our brand and drawing customers from a variety of sports and general content sites. This program provides a low-cost means of acquiring customers by providing a sales commission of between 10% and 20% to affiliate partners. Promotions, Events and Sponsorships. We sponsor multiple events to build credibility with and recognition by athletes and sports enthusiasts, including the Hi-Tec Adventure Racing Series, an extreme type of triathlon, Let it Fly Football, a football program that has attracted more than 50,000 participants and triathlons such as the recent Escape from Alcatraz triathlon in San Francisco. Promotions on the site, such as a free gym bag with purchase and the chance to win a Volkswagen Jetta loaded with sports gear, are designed to encourage consumers to try our service. We have also offered sports-related sweepstakes to win baseball gloves, soccer gear, adventure trips and trips to baseball spring training. Loyalty, Retention and Personalization. We believe that we are building a loyal base of customers through a total shopping experience which emphasizes customer service and marketing incentive programs. For example, we communicate with prospective customers through email campaigns and with customers through follow-up emails. In addition, through My Fogdog, we collect relevant information from registered customers that allow us to market more specifically to each customer's interest. Each registered member of My Fogdog has access to special product offerings, promotions and targeted offers, which we believe helps build loyalty. Distribution Strategy and Operations Our strategy for delivering our products to our customers is to focus on obtaining products through authorized distribution channels while maximizing customer selection and product availability. Inventory available to us is either reserved for our customers, shared with other partners or purchased for our account. Our shared and reserved inventory partners include distributors, manufacturers and catalogers who purchase and inventory products and then make products available for sale on our web site. These partners ship products directly to our customers from these partners using our packaging and shipping materials, so that customers only interact with the Fogdog brand throughout the order and delivery process. Our purchased inventory is held at two third-party distribution centers for processing, packaging and shipment to customers. The shipment of products directly from our distributors, manufacturers and catalogers to our customers reduces the level of inventory we are required to carry. We generally handle merchandise returns ourselves. We are currently evaluating various alternatives to expand the capacity of our distribution system. 47 We use technology to optimize the exchange of information between Fogdog, our third party distribution centers and our distribution partners, so that we can properly set customer expectations about product availability and delivery dates. Our distribution, engineering and logistics teams work with our partners and third-party warehouses to manage and monitor order accuracy, fulfillment rate, shipment speed, and overall delivery reliability and timeliness. We measure performance through daily reports, frequent on-site visits with partners and our warehouses and quarterly reviews. The following diagram illustrates our distribution system: [DIAGRAM OF OUR DISTRIBUTION STRUCTURE SHOWING A BOX LABELED "WWW.FOGDOG.COM," OVER A BOX LABELED "FULFILLER MANAGEMENT SYSTEMS (FMS)" OVER THREE ARROWS, ONE OF WHICH IS LABELED ORDERS AND POINTS DOWN, ONE OF WHICH IS LABELED INVENTORY AND POINTS UP AND ONE OF WHICH IS LABELED ORDER STATUS AND POINTS UP, ALL THREE OF WHICH ARROWS ARE OVER A BOX LABELED FULFILLMENT PARTNERS, WHICH BOX IS OVER FOUR SIDE BY SIDE BOXES LABELED "FOGDOG WAREHOUSE," "DISTRIBUTORS," "DIRECT SHIP" AND "SEARCH SQUAD."] Merchandising Merchandising. Our merchandising strategy is to provide a broad assortment of quality equipment, athletic footwear and apparel at prices that meet those of leading sporting goods retailers. Our web site, particularly in our specialty and brand shops, offers a core selection of brand name merchandise complemented by a selection of accessories and related products designed to enable enthusiasts to have a quality shopping experience. Our leading product category is sporting equipment, followed by apparel and athletic footwear. No single product category accounts for more than 50% of sales. 48 Brand Name Merchandise. We emphasize quality brand name merchandise. We believe that the breadth of our brand name merchandise selection generally exceeds the merchandise selection carried by traditional, store-based competitors. Many of these branded products are technical and our customers benefit from extensive product information and sales assistance. We work with manufacturers to obtain product information and educate the sports consultants we keep on staff on the latest features and trends. Strategic Relationship with Nike. We expect that our relationship with Nike will provide us with an extensive selection of high quality branded products. Under the terms of our agreement, subject to agreed upon exceptions, Nike will not sell its products to any other "Internet only" account through March 2000. In addition, we will have access to all of Nike's generally available product lines, including Jordan, Bauer, Nike ACG, Nike Golf and Nike Team Sports. Our agreement also allows us advance availability and return rights for selected products. Under the agreement, Nike and its affiliates are not legally obligated to sell us any quantity of product or deliver on any particular schedule. Purchasing. Our merchandising manager and merchandise buyers analyze current sporting goods trends by maintaining close relationships with our manufacturers, monitoring sales at competing stores, studying specialized data about traffic to our web site and reviewing industry trade publications. Customer Service We believe that a high level of customer service and support is critical to retaining and expanding our customer base. First, our web site is designed to help answer many questions customers might have in selecting products. Our customer service representatives are available seven days a week to provide assistance via email or telephone. We strive to answer all customer inquiries within 24 hours. Sports consultants on our customer service team are hired for their extensive knowledge and background in athletics and sporting goods. Their backgrounds include experience as athletes, coaches and working for sporting goods manufacturers and retailers. The combination of specific sport and category understanding, knowledge of products and their use, and technical capabilities enable them to guide our customers in making an informed product selection. Our sports consultants also handle questions about orders, assist customers in finding desired products and register customers' credit card information over the telephone. We generally allow returns for any reason within 45 days of the sale for a full refund. Further, if a customer cannot find a product on our site, we provide the Fogdog Search Squad, which helps locate products primarily through our existing distribution channels. Our web site also contains a customer service page that outlines store policies and provides answers to frequently asked questions. Technology We have implemented a broad array of web site management, search, customer interaction, distribution services and systems that we use to process customers' orders and payments. These services and systems use a combination of our own technologies and commercially available, licensed technologies and are designed to be easily expanded to grow with our business. The systems that we use to process customers' orders and payments are integrated with our accounting and financial systems. We focus our internal development efforts on creating and enhancing specialized software for our business. We use a set of applications for: . generating and running our web site; . managing product data, including product details, inventory and pricing; . accepting and validating customer orders; . organizing, placing and managing orders with suppliers and partners; and . capturing and analyzing customer information and trends. Our systems are based on commercially available software and industry standard protocols and have been designed to reduce downtime in the event of outages or catastrophic occurrences. Our system hardware is hosted at a third- party data center in Mountain View, California, which provides redundant communications 49 lines and emergency power backup. We have implemented load balancing systems and our own redundant servers to provide for fault tolerance. System security is managed by both internal staff as well as by security staff at our third- party data center. Government Regulation We are not currently subject to direct federal, state or local regulation other than regulations applicable to businesses generally or directly applicable to retailing or electronic commerce. However, as the Internet becomes increasingly popular, it is possible that a number of laws and regulations may be adopted with respect to the Internet. These laws may cover issues such as user privacy, freedom of expression, pricing, content and quality of products and services, taxation, advertising, intellectual property rights and information security. Furthermore, the growth of electronic commerce may prompt calls for more stringent consumer protection laws. Several states have proposed legislation to limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties and has proposed regulations restricting the collection and use of information from minors online. We do not currently provide individual personal information regarding our users to third parties and we currently do not identify registered users by age. However, the adoption of additional privacy or consumer protection laws could create uncertainty in Web usage and reduce the demand for our products and services or require us to redesign our web site. We are not certain how our business may be affected by the application of existing laws governing issues such as property ownership, copyrights, encryption and other intellectual property issues, taxation, libel, obscenity, qualification to do business and export or import matters. The vast majority of these laws were adopted prior to the advent of the Internet. As a result, they do not contemplate or address the unique issues of the Internet and related technologies. Changes in laws intended to address these issues could create uncertainty in the Internet marketplace. This uncertainty could reduce demand for our services or increase the cost of doing business as a result of litigation costs or increased service delivery costs. Competition The online commerce market is new, rapidly evolving and intensely competitive. We expect competition to intensify in the future. Our primary competitors are currently traditional national chain retailers of sporting goods, including Venator Group, which operates Footlocker stores and Champs, national chain retailers of outdoor equipment, such as REI, and national chain retailers of athletic footwear, such as Just For Feet. We also compete against traditional regional chain retailers of sporting goods, such as The Sports Authority, Dick's Sporting Goods and Galyan's. Our competitors also include major discount retailers, such as Wal-Mart, Kmart and Target, catalog retailers and numerous local sporting goods or outdoor activities stores. In addition to traditional store-based retailers, we compete with numerous online retailers. Online retailers that we compete with include the online efforts of traditional retailers such as Dick's, Copeland's and REI and manufacturers of sporting goods that currently sell some of their products directly online, such as K- Swiss and Patagonia. A number of major, store-based retailers have also announced the formation of an online joint venture which we expect to compete with in the future. In addition, we compete against Internet portal sites and online service providers that either offer or feature shopping services, such as AOL, Yahoo!, Excite@Home, GO Network and Lycos. We also compete against other online retailers that include sporting goods as part of their product lines, such as Buy.com, Onsale and Value America. In addition, sports-oriented web sites such as ESPN.com and CBS Sportsline offer sporting goods and fan memorabilia over the Web, and we expect greater competition from these web sites in the future. Finally, we compete with other retailers selling sporting goods exclusively online, many of which sell products in only one or a few sports categories. We believe that we compete primarily on the basis of recognition of the brands we offer on our web site, the breadth of our product offerings, the amount of product information provided to customers, convenience of the shopping experience and price. Particularly with online retailers, we compete on the basis of speed and 50 accessibility of our web site, quality of site content, customer service and reliability and speed of order shipment. Although we believe we compete favorably with both traditional, store-based retailers and our online competitors, our market is relatively new and is evolving rapidly. We may not be able to maintain our competitive position against current and potential competitors, especially those with significantly greater financial, marketing, service, support, technical and other resources. Many of our competitors have longer operating histories, significantly greater financial, technical, marketing and other resources, significantly greater name recognition and more traffic to their web sites. In addition, many of our competitors have well-established relationships with manufacturers and more extensive knowledge about our industry. It is possible that new competitors or alliances among competitors will emerge in the future. Legal Proceedings From time to time, we may be involved in litigation relating to claims arising out of our ordinary course of business. We believe that there are no claims or actions pending or threatened against us, the ultimate disposition of which would have a materially adverse effect on us. Intellectual Property We rely on various intellectual property laws and contractual restrictions to protect our proprietary rights in services and technology. These include confidentiality, invention assignment and nondisclosure agreements with employees, contractors, suppliers and strategic partners. Despite these precautions, it may be possible for a third-party to copy or otherwise obtain and use our intellectual property without our authorization. In addition, we pursue the registration of our trademarks and service marks in the U.S. and internationally. However, effective intellectual property protection may not be available in every country in which our services are made available online. Our trademarks and service marks include Fogdog, Fogdog with the accompanying design and the Fogdog logo. We rely on technologies that we license from third parties. These licenses may not continue to be available to us on commercially reasonable terms in the future. As a result, we may be required to obtain substitute technology of lower quality or at greater cost, which could materially adversely affect our business, results of operations and financial condition. We do not believe that our technologies infringe the proprietary rights of third parties. However, third parties have in the past and may in the future claim that our business or technologies infringe their rights. We expect that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. Any such claim, with or without merit, could be time-consuming, result in costly litigation, cause service upgrade delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to us or at all. As a result, any such claim of infringement against us could have a material adverse effect upon our business, results of operations and financial condition. Employees As of June 30, 1999, we had 70 full-time employees. None of our employees is represented by a labor union. We have not experienced any work stoppages and consider our employee relations to be good. Facilities Our corporate offices are located in Redwood City, California, where we lease 32,000 square feet under a lease that expires in July 2004. We believe our existing facilities are adequate to meet our needs for at least the next 12 months. 51 MANAGEMENT Executive Officers, Directors and Key Employees The following table sets forth certain information regarding our executive officers, directors and key employees as of September 20, 1999:
Name Age Position - ---- --- -------- Executive Officers and Directors Timothy P. Harrington......... 42 Chief Executive Officer and Director Timothy J. Joyce.............. 43 President Marcy E. von Lossberg......... 30 Chief Financial Officer Brett M. Allsop............... 28 President, International Division, and Chairman of the Board Robert S. Chea................ 28 Vice President, Engineering Thomas E. Clarke.............. 48 Director Frederick M. Gibbons.......... 49 Director Peter J. Huff................. 29 Director Robert R. Maxfield............ 57 Director Warren J. Packard............. 32 Director Ralph O. Parks................ 53 Director Ray A. Rothrock............... 44 Director Lloyd D. Ruth................. 52 Director Key Employees Ronald L. Berry............... 50 Vice President, General Merchandising Andrew Y. Chen................ 27 Vice President, Team Sports Mark G. Loncar................ 36 Vice President, Executive Producer John P. McGovern.............. 41 General Counsel Thomas G. Romary.............. 33 Vice President, Marketing Executive Vice President, Strategic Robin R. Smith................ 52 Development Phillip A. Winters............ 43 Vice President, Business Development
Timothy P. Harrington. Mr. Harrington joined Fogdog Sports in June 1998 as President, Chief Operating Officer and a director. In January 1999 he became Chief Executive Officer and ceased serving as Chief Operating Officer. Prior to joining Fogdog Sports, from March 1997 to April 1998, Mr. Harrington served as General Manager of GolfWeb, Inc., a golf information and e-commerce web site. From June 1996 to December 1996, Mr. Harrington served as the Director of National Accounts for Cobra Golf, Inc., a manufacturer of golf equipment. Prior to working with Cobra Golf, Inc., from June 1979 to June 1996, Mr. Harrington served in various financial management positions with International Business Machines Corporation, a computer systems corporation, including Chief Operating Officer for International Business Machines' education division. Mr. Harrington was a Sloan Fellow at Stanford University's Graduate School of Business. Mr. Harrington holds a B.B.A. in accounting from Siena College and an M.S. in business management from Stanford University's Graduate School of Business. Timothy J. Joyce. Mr. Joyce joined Fogdog Sports in August 1999 as President. Prior to joining Fogdog Sports, from April 1980 to August 1999, Mr. Joyce held various positions at Nike, Inc., an athletic apparel and footwear manufacturer, serving as Divisional Vice President for Global Sales from February 1997 to August 1999, Director of European Sales from August 1994 to February 1997, Director of USA Footwear Sales from May 1990 to August 1994 and Regional Sales Manager from March 1987 to May 1990. Mr. Joyce holds both a B.A. and an M.S. in sports administration from Ohio University. 52 Marcy E. von Lossberg. Ms. von Lossberg joined Fogdog Sports in January 1995 as Chief Financial Officer. Prior to joining Fogdog Sports, from April 1993 to December 1994, Ms. von Lossberg served as a Senior Business Planner for Walt Disney Studios, an entertainment and media company. From June 1991 to March 1993, Ms von Lossberg served as a financial analyst for BT Securities, a financial services company. Ms. von Lossberg holds a B.A. in economics and political science from Stanford University. Brett M. Allsop. Mr. Allsop is a co-founder of Fogdog Sports, and he has served as Chairman of the Board of Directors and President of the International Division of Fogdog Sports since January 1999. From June 1998 to January 1999 Mr. Allsop served as our Chief Executive Officer. From October 1994 to June 1998 Mr. Allsop served as our President. Mr. Allsop holds a B.A. engineering degree in values, technology, science and society from Stanford University. Robert S. Chea. Mr. Chea is a co-founder of Fogdog Sports and has served as Vice President of Engineering since October 1994. Prior to joining Fogdog Sports, from January 1994 to September 1994, Mr. Chea served as an engineer at Award Software International, Inc., a firmware software vendor. Mr. Chea holds a B.S. in electrical engineering from Stanford University. Thomas E. Clarke. Dr. Clarke has served as a director of Fogdog Sports since September 1999. Dr. Clarke joined Nike, Inc. in 1980, and was elected President and Chief Operating Officer of Nike in 1994. Dr. Clarke has held various positions with Nike, primarily in research, design, development and marketing. He was appointed divisional vice president in charge of marketing in 1987. He was elected corporate Vice President in 1989 and appointed General Manager in 1990. Dr. Clarke holds a Doctorate degree in biomechanics from Pennsylvania State University. He currently serves as a director of Nike. Frederick M. Gibbons. Mr. Gibbons has served as a director of Fogdog Sports since April 1996. Since January 1995, Mr. Gibbons has been a lecturer in business management at Stanford University's Graduate School of Engineering. From September 1980 to April 1994, Mr. Gibbons served as the Chief Executive Officer of Software Publishing Corporation, a personal computer productivity software company that he founded in 1981. Mr. Gibbons holds both a B.S. in electrical engineering and a M.S. in computer science from the University of Michigan and an M.B.A. from the Harvard Business School. Peter J. Huff. Mr. Huff has served as a director of Fogdog Sports since August 1999. Mr. Huff joined J.H. Whitney and Co., a private venture capital firm, in September 1997 and now serves as Managing Director of Whitney Internet Venture Investing. Mr. Huff is also currently a General Partner and Co-Founder of Triad Media Ventures, a private venture capital firm. From May 1993 to September 1997, Mr. Huff was a management consultant with McKinsey and Company, Inc. From June 1992 to June 1993, Mr. Huff served as a Fulbright Fellow at the National University of Singapore. He currently serves as a director of Brooks, Business Data Services, ExpertCentral.com and other private companies. Mr. Huff received a B.A. from Southern Methodist University and an M.B.A. from Stanford University's Graduate School of Business. Robert R. Maxfield. Mr. Maxfield has served as a director of Fogdog Sports since September 1996. Since January 1989, Mr. Maxfield has served as a professional consultant and has invested in private start-up and emerging growth companies. From March 1989 to September 1992, Mr. Maxfield was a venture partner with Kleiner Perkins Caufield & Byers, a venture capital firm. From June 1969 to November 1988 Mr. Maxfield served as an Executive Vice President of ROLM Corporation, a telecommunications and computer equipment company which he co-founded. Mr. Maxfield was a director of ROLM Corporation from June 1980 to November 1984. Mr. Maxfield also serves on the board of directors of Echelon Corporation, a public company. Mr. Maxfield holds both a B.A. and a B.S. in electrical engineering from Rice University and an M.S. and a Ph.D. in electrical engineering from Stanford University. Warren J. Packard. Mr. Packard has served as a director of Fogdog Sports since June 1999. Since June 1997, Mr. Packard has been a venture capitalist with Draper Fisher Jurvetson, a venture capital firm. Prior to joining Draper Fisher Jurvetson, from January 1996 until June 1997, Mr. Packard was Vice President of Business Development of Angara Database Systems, a main-memory database technology company which he founded. From June 1996 to January 1997, Mr. Packard was an Associate at Institutional Venture Partners, a venture capital firm, investing in early-stage technology companies. From August 1991 to August 1995, 53 Mr. Packard served as a Senior Principal Engineer in the New Business and Advanced Product Development Group at Baxter International. He currently serves as a director of Chili!Soft, Inc., Corvia Networks, Inc., Digital Impact, Inc., DigitalWork, Inc., Direct Hit Technologies, Inc., Eclipse International and Best Offer.Com, Inc. Mr. Packard holds a B.S. and M.S. in Mechanical Engineering from Stanford University and an M.B.A. from Stanford University's Graduate School of Business. Ralph O. Parks. Mr. Parks has served as a director of Fogdog Sports since September 1999. Mr. Parks served as President of Footaction USA, a footwear retailer, from 1991 to 1999 and as Footaction's Executive Vice President and Chief Operating Officer from 1987 to 1991. Ray A. Rothrock. Mr. Rothrock has served as a director of Fogdog Sports since March 1999. Mr. Rothrock serves as a General Partner of Venrock Associates, a venture capital firm. Mr. Rothrock also serves on the boards of directors of Check Point Software Technologies Ltd., USinternetworking, Inc. and several private companies, including Appliant, General Bandwidth, PrintNation.com, QPass, Reciprocal, Simba Technology, Shym Technology, Space.com and Versity.com. Mr. Rothrock holds a B.S. in nuclear engineering from Texas A&M University, an M.S. in nuclear engineering from the Massachusetts Institute of Technology and an M.B.A. with distinction from the Harvard Business School. Lloyd D. "Chip" Ruth. Mr. Ruth has served as a director of Fogdog Sports since March 1999. Since January 1987, Mr. Ruth has served as a Partner of Marquette Venture Partners, a venture capital firm that he co-founded. Mr. Ruth holds a B.S. in industrial engineering from Cornell University, an M.S. in computer science from the Naval Postgraduate School in Monterey and an M.B.A. from Stanford University's Graduate School of Business. Ronald L. Berry. Mr. Berry joined Fogdog Sports in July 1999 as our Vice President of General Merchandising. Prior to joining Fogdog Sports, from April 1996 to May 1998, Mr. Berry served as Vice President, Division Merchandising Manager for Footlocker U.S.A., an athletic footwear and apparel company. From February 1992 to March 1996, Mr. Berry served as the General Merchandising Manager of Footlocker Europe. Andrew Y. Chen. Mr. Chen is a co-founder of Fogdog Sports. From October 1994 to June 1996, he served as our Director of Technical Development. From June 1996 until August 1998, he served as our Vice President of Production. In August 1998, he became the Vice President of Quality Control and in January 1999 was appointed Vice President of Team Sales. Mark G. Loncar. Mr. Loncar joined Fogdog Sports in August 1998 as our Vice President and Executive Producer. Prior to joining Fogdog Sports, from June 1992 to August 1998, Mr. Loncar was a partner with the CKS Group, a marketing, communications and design company. Prior to June 1992, Mr. Loncar served as a Vice President and Director of Worldwide Technology with BBDO advertising. John P. McGovern. Mr. McGovern joined Fogdog Sports in March 1999 as our General Counsel. Prior to joining Fogdog Sports, from December 1984 to March 1999, Mr. McGovern was an attorney in private practice, focusing on business and employment law. Mr. McGovern holds a B.A. in economics and philosophy from the University of California at San Diego and a J.D. from Martin Luther King, Jr. Hall at the University of California at Davis. Thomas G. Romary. Mr. Romary joined Fogdog Sports in July 1998 as our Vice President of Marketing. Prior to joining Fogdog Sports, from June 1997 to June 1998, Mr. Romary served as the Director of Marketing of GolfWeb, Inc., a golf information and e-commerce web site. From May 1995 to May 1997, Mr. Romary served in various marketing positions with Creative Wonders, an educational software company, including Product Manager, Group Product Manager and Director of Channel Marketing. From August 1992 to May 1995, Mr. Romary served in brand management for General Mills, a consumer goods corporation. Mr. Romary holds a B.S. in engineering from Duke University and an M.B.A. from the Harvard Business School. 54 Robin R. Smith. Mr. Smith joined Fogdog Sports in July 1996 as Vice President of Sales and Marketing and has served as our Executive Vice President of Strategic Business Development since April 1999. Prior to joining Fogdog Sports, from February 1989 to October 1995, Mr. Smith served as Vice President and General Manager of Mizuno Sports, Inc., a manufacturer of sporting goods footwear, apparel and equipment. From 1983 to 1988, Mr. Smith held several senior positions with Avia Athletic Footwear, including Vice President of Marketing for Avia and Vice President and General Manager for the Donner Mountain division. Mr. Smith holds a B.A. in economics from Occidental College and an M.B.A. in Marketing and Finance from the Wharton School at the University of Pennsylvania. Phillip A. Winters. Mr. Winters joined Fogdog Sports in January 1999 as Director of Business Development and has served as our Vice President of Business Development since April 1999. Prior to joining Fogdog Sports, from June 1978 to December 1998, Mr. Winters served in United States Naval Aviation in positions including global logistics, operations, strategic management, and command of a squadron. Mr. Winters served as a commanding officer from January 1997 to December 1998. Mr. Winters holds a B.S. in engineering from the United States Naval Academy and an M.S. in management from Stanford University's Graduate School of Business. Board of Directors We currently have authorized ten directors. Following this offering, our board will consist of ten directors divided into three classes, with each class serving for a term of three years. At each annual meeting of stockholders, directors will be elected by the holders of common stock to succeed the directors whose terms are expiring. Messrs. Maxfield, Gibbons and Huff are Class I directors whose terms will expire in 2000, Messrs. Ruth, Packard, Clarke and Allsop are Class II directors whose terms will expire in 2001 and Messrs. Harrington, Rothrock and Parks are Class III directors whose terms will expire in 2002. This classification of the board of directors may delay or prevent a change in control of our company or in our management. See "Description of Capital Stock--Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law." Board Committees We have established an audit committee composed of independent directors that reviews and supervises our financial controls, including the selection of our auditors, reviews our books and accounts, meets with our officers regarding our financial controls, acts upon recommendations of our auditors and takes further actions as the audit committee deems necessary to complete an audit of our books and accounts, as well as other matters that may come before it or as directed by the board. The audit committee currently consists of three directors, Messrs. Gibbons, Rothrock and Packard. We have also established a compensation committee that reviews and approves the compensation and benefits for our executive officers, administers our stock plans and performs other duties as may from time to time be determined by the board. The compensation committee currently consists of three directors, Messrs. Maxfield, Ruth and Huff. Director Compensation We currently do not compensate any non-employee member of the board. Directors who are also employees do not receive additional compensation for serving as directors. Under the 1999 Stock Incentive Plan, non-employee directors will receive automatic option grants upon becoming directors and on the date of each annual meeting of stockholders. The 1999 Stock Incentive Plan also contains a director fee option grant program. Should this program be activated in the future, each non-employee board member will have the opportunity to apply all or a portion of any annual retainer fee otherwise payable in cash to the acquisition of an option with an exercise price below the then fair market value. Non-employee directors will be eligible to receive discretionary option grants and direct stock issuance, under the 1999 Stock Incentive Plan. See "Management--Benefit Plans." 55 In August 1999, we granted Mr. Parks an option to purchase 40,000 shares of common stock at an exercise price of $0.88 per share, vesting in annual installments over a four-year period measured from the option grant date. Compensation Committee Interlocks and Insider Participation None of our compensation committee members is an employee of or ever was an employee of Fogdog Sports. Messrs. Huff and Rothrock, who serve on our compensation committee, are affiliated with two of our significant stockholders. See "Transactions and Relationships with Related Parties." None of our executive officers serves on the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board or our compensation committee. Executive Officers Our executive officers are appointed by and serve at the discretion of our board of directors. There are no family relationships among any of our directors, officers or key employees. Executive Compensation Summary Compensation Table The following table sets forth certain information concerning compensation during the year ended December 31, 1998 of our Chief Executive Officer and each of the four other most highly compensated executive officers for the fiscal year ended December 31, 1998, referred to in this prospectus as the named executive officers. In August 1999, Mr. Joyce joined us as our President. Mr. Joyce's annualized salary for 1999 is $280,000. In March 1999, the board of directors approved increases in the annual salaries that we pay our named executive officers. Pursuant to this increase: . Mr. Harrington's annualized salary for 1999 is $170,000; . Ms. von Lossberg's annualized salary for 1999 is $115,000; . Mr. Allsop's annualized salary for 1999 is $135,000; and . Mr. Chea's annualized salary for 1999 is $110,000. No individual who would otherwise have been includable in the table on the basis of salary and bonus earned during 1998 has resigned or otherwise terminated his or her employment during 1998.
Long-Term Annual Compensation Compensation(1) Awards -------------------- ------------ Fiscal Securities Name and Principal Year Underlying All Other Position Ended Salary ($) Bonus ($) Options (#) Compensation - ------------------ ------ ---------- --------- ------------ ------------ Timothy P. Harrington (2)..................... 1998 86,442 -- 1,200,000 -- Chief Executive Officer Robin R. Smith........... 1998 114,308 -- -- -- Executive Vice President, Strategic Development Marcy E. von Lossberg.... 1998 95,517 13,000 -- -- Chief Financial Officer Brett M. Allsop.......... 1998 86,884 -- 50,000 -- President, International Division and former Chief Executive Officer Robert S. Chea........... 1998 78,585 -- 50,000 -- Vice President, Engineering
- -------- (1) Excludes other compensation in the form of perquisites and other personal benefits that constitutes the lesser of $50,000 or 10% of the total annual salary and bonus of each of the named executive officers in 1998. (2) Mr. Harrington joined us in June 1998. His annualized salary for 1998 was $150,000. 56 Option Grants in Fiscal Year 1998 The following table sets forth certain information with respect to stock options granted to each of our named executive officers in 1998, including the potential realizable value over the term of the options, based on assumed rates of stock appreciation of 5% and 10%, compounded annually. No stock appreciation rights were granted during 1998.
Individual Grants ------------------------------------------------ Potential Realizable Value at Assumed Annual Rates Number of Percent of of Stock Price Appreciation Securities Total Options for Option Term Underlying Granted at Public Offering Price ($) Options to Employees in Exercise Expiration ------------------------------ Name Granted Fiscal 1998 Price ($) Date 5% 10% - ---- ---------- --------------- ---------- ---------- -------------- --------------- Timothy P. Harrington... 1,200,000 41.2% 0.055 06/02/02 Robin R. Smith.......... -- -- -- -- -- -- Marcy E. von Lossberg... -- -- -- -- -- -- Brett M. Allsop......... 50,000 1.7 0.055 12/31/02 Robert S. Chea.......... 50,000 1.7 0.055 12/31/02
In 1998, we granted options to purchase up to an aggregate of 2,913,000 shares to employees, directors and consultants under our Amended and Restated 1996 Stock Option Plan at exercise prices equal to the fair market value of our common stock on the date of grant, as determined in good faith by our board of directors. Options granted are immediately exercisable in full, but any shares purchased under these options that are not vested are subject to our right to repurchase the shares at the shares' option exercise price. In general, this repurchase right lapses as to 25% of the shares after one year of service and as to the remaining shares in equal monthly installments over an additional three-year period. However: . the options granted to Mr. Harrington and Mr. Allsop vest in 48 equal monthly installments; and . 12,500 of the options granted to Mr. Chea vested on January 1, 1999 and the remaining options vest in a series of 36 equal monthly installments beginning on January 1, 1999. The potential realizable value is calculated assuming the aggregate exercise price on the date of grant appreciates at the indicated rate for the entire term of the option and that the option is exercised and sold on the last day of its term at the appreciated price. Stock price appreciation of 5% and 10% is assumed pursuant to the rules of the Commission. We can give no assurance that the actual stock price will appreciate over the term of the options at the assumed 5% and 10% levels or at any other defined level. Actual gains, if any, on stock option exercises will be dependent on the future performance of our common stock. Unless the market price of the common stock appreciates over the option term, no value will be realized from the option grants made to the named executive officers. In March 1999, we granted to the following named executive officers, options to purchase up to the following numbers of shares of common stock at an exercise price of $0.22 per share: . Mr. Harrington received an option to purchase up to 800,000 shares of common stock; . Mr. Smith received an option to purchase up to 60,000 shares of common stock; . Ms. von Lossberg received an option to purchase up to 100,000 shares of common stock; . Mr. Allsop received an option to purchase up to 50,000 shares of common stock; and . Mr. Chea received an option to purchase up to 50,000 shares of common stock. The options are immediately exercisable, but any shares purchased under these options that are not vested are subject to repurchase by us at the option exercise price. This repurchase right lapses with respect to 25% of the shares covered by each option on March 31, 2000 and lapses with respect to the remaining shares in equal monthly installments over the 36-month period following March 31, 2000. The options expire on March 30, 2004. 57 Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values The following table sets forth information concerning the number and value of shares of common stock underlying the unexercised options held by the named executive officers. No options or stock appreciation rights were exercised during 1998 and no stock appreciation rights were outstanding as of December 31, 1998. The value of unexercised in-the-money options at December 31, 1998 is calculated on the basis of the assumed initial public offering price of $ , less the aggregate exercise price of the options.
Number of Securities Underlying Value of Unexercised Unexercised Options at December In-the-Money Options at 31, 1998 December 31, 1998 ------------------------------------ ------------------------- Name Exercisable Unexercisable Exercisable Unexercisable - ---- ------------------ ---------------- ----------- ------------- Timothy P. Harrington... 1,200,000 -- -- Robin R. Smith.......... 572,110 -- -- Marcy E. von Lossberg... 150,000 -- -- Brett M. Allsop......... 150,000 -- -- Robert S. Chea.......... 150,000 -- --
Benefit Plans 1999 Stock Incentive Plan Introduction. Our 1999 Stock Incentive Plan is intended to serve as the successor program to our Amended and Restated 1996 Stock Option Plan. The 1999 plan was adopted by our board in September 1999 and approved by our stockholders in 1999. The 1999 plan will become effective when the underwriting agreement for this offering is signed. At that time, all outstanding options under our existing plan will be transferred to the 1999 plan, and no further option grants will be made under the prior plan. The transferred options will continue to be governed by their existing terms, unless our compensation committee decides to extend one or more features of the 1999 plan to those options. Except as otherwise noted below, the transferred options have substantially the same terms as will be in effect for grants made under the discretionary option grant program of our 1999 plan. Share Reserve. shares of our common stock have been authorized for issuance under the 1999 plan. This share reserve consists of the number of shares we estimate will be carried over from the 1996 plan plus an additional increase of shares. The share reserve under our 1999 plan will automatically increase on the first trading day in January of each year from 2001 through 2005, by an amount equal to 3% of the total number of shares of our common stock outstanding on the last trading day of December in the prior year, but in no event will this annual increase exceed shares. In addition, no participant in our 1999 plan may be granted stock options or direct stock issuances for more than shares of common stock in total in any calendar year. Programs. Our 1999 plan has five separate programs: . the discretionary option grant program, under which eligible individuals in our employ may be granted options to purchase shares of our common stock at an exercise price not less than the fair market value of those shares on the grant date; . the stock issuance program, under which eligible individuals may be issued shares of our common stock that will vest upon the attainment of performance milestones or upon the completion of a period of service or that are fully vested at issuance as a bonus for past services; . the salary investment option grant program, under which our executive officers and other highly compensated employees may be given the opportunity to apply a portion of their base salary to the acquisition of special below market stock option grants; 58 . the automatic option grant program, under which option grants will automatically be made at periodic intervals to eligible non-employee board members to purchase shares of common stock at an exercise price equal to the fair market value of those shares on the grant date; and . the director fee option grant program, under which our non-employee board members may be given the opportunity to apply a portion of any retainer fee otherwise payable to them in cash for the year to the acquisition of special below-market option grants. Eligibility. The individuals eligible to participate in our 1999 plan include our officers and other employees, our board members and any consultants that we hire. Administration. The discretionary option grant and stock issuance programs will be administered by our compensation committee. This committee will determine which eligible individuals are to receive option grants or stock issuances under those programs, the time or times when the grants or issuances are to be made, the number of shares subject to each grant or issuance, the status of any granted option as either an incentive stock option or a nonstatutory stock option under the federal tax laws, the vesting schedule to be in effect for the option grant or stock issuance and the maximum term for which any granted option is to remain outstanding. The compensation committee will also have the authority to select the executive officers and other highly compensated employees who may participate in the salary investment option grant program if that program is put into effect for one or more calendar years. Plan Features. Our 1999 plan will include the following features: . The exercise price for any options granted under the plan may be paid in cash or in shares of our common stock valued at fair market value on the exercise date. The option may also be exercised through a same-day sale program without any cash outlay by the optionee. . The compensation committee will have the authority to cancel outstanding options under the discretionary option grant program, including any transferred options from our 1996 plan, in return for the grant of new options for the same or different number of option shares with an exercise price per share based upon the fair market value of our common stock on the new grant date. . Stock appreciation rights may be issued under the discretionary option grant program. These rights will provide the holders with the election to surrender their outstanding options for a payment from us equal to the fair market value of the shares subject to the surrendered options less the exercise price payable for those shares. We may make the payment in cash or in shares of our common stock. None of the options under our 1996 plan have any stock appreciation rights. Change in Control. The 1999 plan will include the following change in control provisions that may result in the accelerated vesting of outstanding option grants and stock issuances: . If we are acquired by merger or asset sale, each outstanding option under the discretionary option grant program that is not to be assumed by the successor corporation will immediately become exercisable for all the option shares, and all outstanding unvested shares will immediately vest, except to the extent our repurchase rights with respect to those shares are to be assigned to the successor corporation. . The compensation committee will have complete discretion to grant one or more options that will become exercisable for all the option shares if those options are assumed in the acquisition but the optionee's service with us or the acquiring entity is subsequently terminated. The vesting of any outstanding shares under our 1999 plan may be accelerated upon similar terms and conditions. . The compensation committee may grant options and structure repurchase rights so that the shares subject to those options or repurchase rights will immediately vest in connection with a successful tender offer for more than fifty percent of our outstanding voting stock or a change in the majority of our board through one or more contested elections. Such accelerated vesting may occur either at the time of such transaction or upon the subsequent termination of the individual's service. 59 . Some options under our 1996 plan contain vesting acceleration features. Certain of those options, however, contain an additional vesting acceleration feature that will result in the immediate vesting of all or part of those options upon an involuntary termination of the optionee's employment within 18 months following an acquisition in which those options are assumed. Salary Investment Option Grant Program. If the compensation committee decides to put this program into effect for one or more calendar years, each of our executive officers and other highly compensated employees may elect to reduce his or her base salary for the calendar year by an amount not less than $10,000 nor more than $50,000. Each selected individual who makes such an election will automatically be granted, on the first trading day in January of the calendar year for which his or her salary reduction is to be in effect, an option to purchase that number of shares of common stock determined by dividing the salary reduction amount by two-thirds of the fair market value per share of our common stock on the grant date. The option will have an exercise price per share equal to one-third of the fair market value of the option shares on the grant date. As a result, the option will be structured so that the fair market value of the option shares on the grant date less the exercise price payable for those shares will be equal to the amount of the salary reduction. The option will become exercisable in a series of 12 equal monthly installments over the calendar year for which the salary reduction is to be in effect. Automatic Option Grant Program. Each individual who first becomes a non- employee board member at any time after the effective date of this offering will receive an option grant for 10,000 shares of common stock on the date such individual joins the board. In addition, on the date of each annual stockholders meeting held after the effective date of this offering, each non- employee board member who is to continue to serve as a non-employee board member, including each of our current non-employee board members, will automatically be granted an option to purchase 2,500 shares of common stock, provided such individual has served on the board for at least six months. Each automatic grant will have an exercise price per share equal to the fair market value per share of our common stock on the grant date and will have a term of 10 years, subject to earlier termination following the optionee's cessation of board service. The option will be immediately exercisable for all of the option shares; however, we may repurchase, at the exercise price paid per share, any shares purchased under the option that are not vested at the time of the optionee's cessation of board service. The shares subject to each initial 10,000-share automatic option grant will vest in a series of four successive annual installments upon the optionee's completion of each year of board service over the four year period measured from the grant date. The shares subject to each annual 2,500-share automatic option grant will vest upon the optionee's completion of one year of board service measured from the grant date. However, the shares will immediately vest in full upon certain changes in control or ownership or upon the optionee's death or disability while a board member. Director Fee Option Grant Program. If this program is put into effect in the future, then each non-employee board member may elect to apply all or a portion of any cash retainer fee for the year to the acquisition of a below-market option grant. The option grant will automatically be made on the first trading day in January in the year for which the non-employee board member would otherwise be paid the cash retainer fee in the absence of his or her election. The option will have an exercise price per share equal to one-third of the fair market value of the option shares on the grant date, and the number of shares subject to the option will be determined by dividing the amount of the retainer fee applied to the program by two-thirds of the fair market value per share of our common stock on the grant date. As a result, the option will be structured so that the fair market value of the option shares on the grant date less the exercise price payable for those shares will be equal to the portion of the retainer fee applied to that option. The option will become exercisable in a series of 12 equal monthly installments over the calendar year for which the election is in effect. However, the option will become immediately exercisable for all the option shares upon the death or disability of the optionee while serving as a board member. 60 Additional Program Features. Our 1999 plan will also have the following features: . Outstanding options under the salary investment and director fee option grant programs will immediately vest if we are acquired by a merger or asset sale or if there is a successful tender offer for more than 50% of our outstanding voting stock or a change in the majority of our board through one or more contested elections. . Limited stock appreciation rights will automatically be included as part of each grant made under the salary investment option grant program and the automatic and director fee option grant programs, and these rights may also be granted to one or more officers as part of their option grants under the discretionary option grant program. Options with this feature may be surrendered to us upon the successful completion of a hostile tender offer for more than 50% of our outstanding voting stock. In return for the surrendered option, the optionee will be entitled to a cash distribution from us in an amount per surrendered option share based upon the highest price per share of our common stock paid in that tender offer. . The board may amend or modify the 1999 plan at any time, subject to any required stockholder approval. The 1999 plan will terminate no later than September 2009. 1999 Employee Stock Purchase Plan Introduction. Our 1999 Employee Stock Purchase Plan was adopted by the board in September 1999 and approved by the stockholders in 1999. The plan will become effective immediately upon the signing of the underwriting agreement for this offering. The plan is designed to allow our eligible employees and the eligible employees of our participating subsidiaries to purchase shares of our common stock, at semi-annual intervals, with their accumulated payroll deductions. Share Reserve. 500,000 shares of our common stock will initially be reserved for issuance. The reserve will automatically increase on the first trading day in January of each year from 2001 through 2005, by an amount equal to 1% of the total number of outstanding shares of our common stock on the last trading day in December in the prior year. In no event will any such annual increase exceed shares. Offering Periods. The plan will have a series of successive offering periods, each with a maximum duration of 24 months. However, the initial offering period will start on the date the underwriting agreement for the offering is signed and will end on the last business day in January 2002. The next offering period will start on the first business day in February 2002, and subsequent offering periods will be set by our compensation committee. Eligible Employees. Individuals scheduled to work more than 20 hours per week for more than five calendar months per year may join an offering period on the start date or any semi-annual entry date within that period. Semi-annual entry dates will occur on the first business day of February and August each year. Individuals who become eligible employees after the start date of an offering period may join the plan on any subsequent semi-annual entry date within that offering period. Payroll Deductions. A participant may contribute up to 15% of his or her cash earnings through payroll deductions, and the accumulated deductions will be applied to the purchase of shares on each semi-annual purchase date. The purchase price per share will be equal to 85% of the fair market value per share on the participant's entry date into the offering period or, if lower, 85% of the fair market value per share on the semi-annual purchase date. Semi- annual purchase dates will occur on the last business day of January and July each year. The first purchase date will occur on the last business day of July 2000. In no event, however, may any participant purchase more than 750 shares on any purchase date, and not more than 125,000 shares may be purchased in total by all participants on any purchase date. 61 Reset Feature. If the fair market value per share of our common stock on any purchase date is less than the fair market value per share on the start date of the two-year offering period, then that offering period will automatically terminate, and a new two-year offering period will begin on the next business day. All participants in the terminated offering will be transferred to the new offering period. Change in Control. Should we be acquired by merger or sale of substantially all of our assets or more than 50% of our voting securities, then all outstanding purchase rights will automatically be exercised immediately prior to the effective date of the acquisition. The purchase price will be equal to 85% of the market value per share on the participant's entry date into the offering period in which an acquisition occurs or, if lower, 85% of the fair market value per share immediately prior to the acquisition. Plan Provisions. The following provisions will also be in effect under the plan: . The plan will terminate no later than the last business day of July 2009. . The board may at any time amend, suspend or discontinue the plan. However, certain amendments may require stockholder approval. Employment Contracts, Termination of Employment Arrangements and Change in Control Arrangements In December 1997, we entered into a letter agreement with Mr. Smith to serve as our Vice President of Business Development and General Manager of Multi- Brand Stores. Mr. Smith's base annualized salary for his services was $90,000. Pursuant to the agreement, this base annualized salary was increased to $135,000 when we completed a venture financing in June 1998. Additional terms under the agreement are as follows. . Mr. Smith received options to purchase up to 337,110 shares of our common stock in December 1997. Of these options, 84,277 vested on July 1, 1997 and the remaining options are vesting in a series of 36 monthly installments over the period of Mr. Smith's service measured from July 1, 1997. These options will vest in full if we complete an initial public offering or if we are acquired. However, Mr. Smith will not receive accelerated vesting in connection with an acquisition if the acceleration would make the acquisition ineligible for selected accounting treatment. . Mr. Smith also received options to purchase up to 235,000 shares of our common stock. Of these options, 58,750 vested on July 1, 1997, 58,750 vested upon our closing of a venture financing in June, 1998 and the remaining options are vesting thereafter in a series of equal monthly installments of 4,895 shares until July 1, 2000. In June 1998, we entered into an employment agreement with Mr. Harrington to serve as our President, Chief Operating Officer and a member of our board of directors. Mr. Harrington's base salary for his services was initially $150,000 per year and was increased to $170,000 per year in 1999 when Mr. Harrington became our Chief Executive Officer. Additional terms under the agreement are as follows. . Mr. Harrington is eligible to receive a bonus of up to 20% of his base salary based on the achievement of performance goals that are mutually agreeable to Mr. Harrington and the board of directors. . Mr. Harrington also received options to purchase up to 1,200,000 shares of our common stock. The options are vesting in 48 equal monthly installments over Mr. Harrington's period of service with us. However, the options will become fully vested if we are acquired and the successor corporation does not assume the options or if Mr. Harrington is involuntarily terminated within 12 months of an acquisition. In addition, if Mr. Harrington is terminated for any reason other than cause, he will receive a payment of $200,000 or one full year of salary, whichever is greater, and an additional 500,000 option shares will accelerate. 62 Mr. Harrington's employment agreement terminates in June 2000, unless terminated earlier upon death, disability, notice from us, with or without cause, or voluntary resignation. In June 1998, we entered into an employment agreement with Mr. Chea to serve as our Vice President of Technology. Mr. Chea's initial base salary for his services was $90,000 and was increased to $110,000 per year in 1999 when Mr. Chea became Vice President, Engineering. Additional terms under the agreement are as follows. . Mr. Chea is entitled to receive an annual bonus of up to 20% of his annual base salary based on the achievement of performance goals. . Mr. Chea received options to purchase up to 50,000 shares of our common stock. Of these options, 12,500 vested on January 1, 1999 and the remainder are vesting in a series of 36 equal monthly installments thereafter over Mr. Chea's period of service with us measured from January 1, 1999. . Mr. Chea granted us the right to repurchase up to 500,000 shares of his Fogdog Sports common stock at fair market value if he voluntarily terminates his employment without good reason. The repurchase right lapses in 30 equal monthly installments over Mr. Chea's period of service with us. However, the repurchase right lapses with respect to all of the shares upon the completion of an initial public offering of our common stock, if we are acquired, if Mr. Chea dies, becomes disabled or terminates his employment for good cause, if we terminate his employment without cause or if we hire a technology officer with a senior title, duties and responsibilities. . Mr. Chea is entitled to 12 weeks of severance pay if he is terminated without cause or if he voluntarily departs with good reason. Mr. Chea's employment agreement terminates in January 2001, unless terminated earlier upon death, disability, notice from us with or without cause or if he voluntary resigns. In April 1999, we entered into an amended and restated employment agreement with Mr. Allsop to serve as our President of International Division and Chairman of the Board for a base salary of $105,000 per year. Pursuant to the agreement, Mr. Allsop's base salary was increased to $135,000 per year upon Mr. Allsop's relocation to our new London office. Additional terms under the agreement are as follows. . Mr. Allsop is entitled to receive a supplement to his base salary of $8,000 to compensate him for the higher cost of living abroad. . Mr. Allsop is eligible to receive a bonus of up to 20% of his base salary upon achievement of performance goals mutually determined by Mr. Allsop and our chief executive officer. . Mr. Allsop granted us the right to repurchase up to 173,333 shares of his Fogdog Sports common stock at fair market value if he voluntarily terminates his employment without good reason. The repurchase right lapses in 26 equal monthly installments over Mr. Allsop's period of service with us. However, the repurchase right lapses with respect to all of the shares upon the completion of an initial public offering of our common stock, if we are acquired or if Mr. Allsop dies, becomes disabled or terminates his employment for good cause. . Mr. Allsop is also entitled to 26 additional weeks of salary if he is terminated without cause. Mr. Allsop's employment agreement terminates in June 2001, unless terminated earlier upon death, disability, notice from us with or without cause or voluntary resignation. In August 1999, we entered into a letter agreement with Mr. Joyce to serve as our President. Additional terms under the agreement are as follows. . Mr. Joyce is entitled to a base salary of $280,000 per year. . Mr. Joyce is also eligible to receive a target bonus of 20% of his base salary with the opportunity to earn more through the attainment of performance goals. 63 . Mr. Joyce is also entitled to receive options to purchase up to 1,000,000 shares of our common stock which were granted on August 26, 1999, and vest over a period of four years in a series of 48 equal monthly installments over Mr. Joyce's continued period of service with us. However, if we are acquired within one year of the date of the agreement and the successor corporation does not assume Mr. Joyce's options, the options will vest on an accelerated basis such that 24 months worth of unvested options shall become vested. . Mr. Joyce also received a grant of options to purchase up to 125,000 shares of our common stock when Nike USA, Inc. opened a retail account for its premium products with us in September 1999, which options will vest fully six months from the date of grant. . Mr. Joyce is eligible for a reimbursement of up to $60,000 for relocation expenses. In September 1999, our board of directors approved a severance package for Ms. Von Lossberg. Pursuant to this severance package, she is entitled to three months of salary if she is terminated without cause. Limitation of Liability and Indemnification Our certificate of incorporation eliminates, to the maximum extent allowed by the Delaware General Corporation Law, directors' personal liability to Fogdog Sports or its stockholders for monetary damages for breaches of fiduciary duties. The certificate of incorporation of Fogdog Sports does not, however, eliminate or limit the personal liability of a director for the following: . any breach of the director's duty of loyalty to Fogdog Sports or its stockholders; . acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; . unlawful payments of dividends or unlawful stock repurchases or redemptions; or . any transaction from which the director derived an improper personal benefit. Our bylaws provide that we shall indemnify our directors and executive officers to the fullest extent permitted under the Delaware General Corporation Law and may indemnify our other officers, employees and other agents as set forth in the Delaware General Corporation Law. In addition, we have entered into an indemnification agreement with each of our directors and executive officers. The indemnification agreements contain provisions that require us, among other things, to indemnify our directors and executive officers against liabilities (other than liabilities arising from intentional or knowing and culpable violations of law) that may arise by reason of their status or service as directors or executive officers of Fogdog Sports or other entities to which they provide service at our request and to advance expenses they may incur as a result of any proceeding against them as to which they could be indemnified. We believe that these bylaw provisions and indemnification agreements are necessary to attract and retain qualified directors and officers. Prior to the consummation of the offering, we will obtain an insurance policy covering directors and officers for claims they may otherwise be required to pay or for which we are required to indemnify them. At present, there is no pending litigation or proceeding involving any of our directors, officers, employees or agents where indemnification will be required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification. 64 TRANSACTIONS AND RELATIONSHIPS WITH RELATED PARTIES Sales of Securities Since January 1996, we have raised capital primarily through the sale of our securities, including: . In September 1996, we issued to various investors including Novus Ventures, L.P., the Robert Maxfield Separate Property Trust and Frederick Gibbons an aggregate of 866,666 shares of our Series A preferred stock for an aggregate consideration of $974,999; . In September 1996, we issued and sold an aggregate of 331,746 shares of common stock to Robert Maxfield for an aggregate consideration of $18,661. . In September 1996, we issued and sold an aggregate of 165,872 shares of common stock to Frederick M. Gibbons for an aggregate consideration of $9,330. . In December 1997, we issued to Novus Ventures, L.P., Robert Maxfield and Frederick Gibbons warrants to purchase up to an aggregate of 44,667 shares of our Series A preferred stock at an exercise price of $0.5625 per share and convertible promissory notes in aggregate principal amount of $162,500 accruing interest at a rate of 8% per annum; . In May 1998, we issued to Novus Ventures, L.P., Robert Maxfield and Frederick Gibbons warrants to purchase up to an aggregate of 44,667 shares of our Series A preferred stock at an exercise price of $0.5625 per share and convertible promissory notes in aggregate principal amount of $162,500 accruing interest at a rate of 8% per annum; . In June 1998, Novus Ventures, L.P., Robert Maxfield and Frederick Gibbons converted the principal of the convertible promissory notes, a total of $325,000, into an aggregate of 651,933 shares of our Series B preferred stock; . In June 1998, we sold to various investors, including entities affiliated with Draper Fisher Jurvetson Management and entities affiliated with Whitney Equity Partners, an aggregate of 9,026,767 shares of our Series B preferred stock for an aggregate consideration of $4,500,000, which included $75,000 of cancellation of indebtedness; and . In March and April 1999, we sold to various investors, including Novus Ventures, L.P., entities affiliated with Vertex Management, Inc., entities affiliated with Draper Fisher Jurvetson Management, entities affiliated with Whitney Equity Partners, entities associated with Sprout Group, L.P. and entities affiliated with Venrock Associates, an aggregate of 17,485,916 shares of our Series C preferred stock for an aggregate consideration of $18,000,000. . In September 1999, we issued and sold 5,294,116 shares of our Series D preferred stock to entities affiliated with Draper Fisher Jurvetson, entities affiliated with Whitney Equity Partners, entities affiliated with Venrock Associates, entities affiliated with Sprout Group L.P., entities affiliated with Marquette Venture Partners, Vertex Technologies Fund (II) Ltd., entities affiliated with Worldview, Boston Millennia Partners, L.P., entities affiliated with Lycos Ventures, Hikari Tsushin, Inc., Aman Ventures L.L.C., Smedvig and certain individual investors for an aggregate purchase price of $15,300,000. In September 1999, we issued to Nike USA, Inc. a warrant to purchase up to an aggregate of 6,171,524 shares of our Series C preferred stock at an exercise price of $1.03 per share. Upon the consummation of our public offering, this warrant will automatically become exercisable for up to 6,171,524 shares of our common stock. 65 The following table summarizes the shares of common stock and preferred stock purchased by our executive officers, directors and five percent stockholders and persons associated with them since January 1996. The number of total shares on an as-converted basis reflects a one-to-one conversion to common stock ratio for each share of Series A, Series B, Series C and Series D preferred stock.
Warrants Warrants Total to Purchase to Purchase Shares on Series A Series B Series C Series D Series A Series C an As- Common Preferred Preferred Preferred Preferred Preferred Preferred Converted Investor Stock Stock Stock Stock Stock Stock Stock Basis -------- --------- --------- --------- --------- --------- ----------- ----------- --------- Entities affiliated with Draper Fisher Jurvetson Management............. -- -- 4,413,086 1,651,447 415,225 -- -- 6,479,758 Entities affiliated with Whitney Equity Partners............... -- -- 4,613,681 1,651,447 294,117 -- -- 6,559,224 Novus Ventures, L.P..... -- 1,422,222 401,190 485,720 -- 53,334 -- 2,362,466 Entities affiliated with Venrock Associates..... -- -- -- 4,274,335 294,119 -- -- 4,568,454 Entities affiliated with Vertex Management, Inc.................... -- -- -- 2,088,595 103,806 -- -- 2,192,401 Entities affiliated with Sprout Group, L.P...... -- -- -- 3,837,187 259,516 -- -- 4,096,703 Nike USA, Inc. ......... -- -- -- -- -- -- 6,171,524 6,171,524 Timothy P. Harrington... 441,600 -- -- -- -- -- -- 441,600 Brett M. Allsop......... 1,700,000 -- -- -- -- -- -- 1,700,000 Marcy E. von Lossberg... 390,792 -- -- -- -- -- -- 390,792 Robert S. Chea.......... 1,700,000 -- -- -- -- -- -- 1,700,000 Frederick M. Gibbons.... 165,872 88,888 50,148 -- -- 8,000 -- 312,908 Robert R. Maxfield...... 331,746 177,778 200,595 -- -- 28,000 -- 738,119
Holders of shares of our preferred stock and our common stock issued or issuable upon conversion thereof and some holders of our common stock are entitled to registration rights. See "Description of Capital Stock-- Registration Rights." Agreement with Nike USA, Inc. In September 1999, we entered into an agreement with Nike USA, Inc. pursuant to which we have the right to market on our web site the generally available Nike product lines, including Jordan, Bauer, Nike ACG, Nike Golf and Nike Team Sports. We will receive a discount on the products we purchase. Under the agreement, we also have advance product availability for selected, newly released products. The agreement prohibits us from selling any of these products to consumers with shipping addresses outside of the United States unless Nike.com is allowed to sell in those countries and the sales do not constitute a violation of any agreement with any third party. We also agreed to use Nike USA as the exclusive supplier of Nike brand products, and Nike USA agreed to not open any new "Internet only" accounts to sell Nike products through March 2000. Nike USA may terminate the agreement at any time without cause upon 90 days notice to us, but must pay us a termination fee if it exercises this right prior to December 31, 2001. We also issued Nike USA a warrant to purchase up to 6,171,524 shares of our Series C preferred stock at an exercise price of $1.03 per share. Upon the consummation of this offering, this warrant will automatically become exercisable for up to 6,171,524 shares of our common stock. Finally, Nike USA is entitled to a seat on our board of directors or, at its election, to have an observation right for one individual to have all of the rights and privileges of a board member, except the right to vote. Currently, Mr. Clarke has a seat on our board pursuant to this agreement. Agreements with Officers and Directors In July 1995, we entered into an employment agreement with Ms. von Lossberg. Pursuant to the terms of this agreement, we agreed to grant Ms. von Lossberg a 2.5% equity interest in the company after six months of employment and another 2.5% equity interest in December 1995. In August 1996, we entered into an 66 agreement with Ms. von Lossberg pursuant to which we issued 315,792 shares of our common stock to Ms. von Lossberg in satisfaction of our obligations under the prior employment agreement. In August 1999, Mr. Harrington exercised vested options to purchase 441,667 shares of our common stock for an aggregate purchase price of $35,292. Mr. Harrington exercised these options by issuing us a promissory note that is secured by the stock. In September 1999, Ms. von Lossberg exercised options to purchase 75,000 shares of our common stock for an aggregate purchase price of $4,192. Ms. von Lossberg exercised these options by issuing us a promissory note that is secured by the common stock. We have entered into employment arrangements with our executive officers. See "Management--Employment Contracts, Termination of Employment Arrangements and Change in Control Arrangements." We have granted options and issued common stock to our executive officers and directors. See "Management--Executive Compensation" and "Principal Stockholders." We have entered into an indemnification agreement with each of our executive officers and directors. See "Management--Limitation of Liability and Indemnification." We have entered into non-competition and confidentiality agreements with some of our officers. We believe that all of the transactions set forth above were made on terms no less favorable to us than could have been otherwise obtained from unaffiliated third parties. All future transactions, including loans, if any, between the company and our officers, directors and principal stockholders and their affiliates and any transactions between the company and any entity with which our officers, directors or five percent stockholders are affiliated will be approved by a majority of the board of directors, including a majority of the independent and disinterested outside directors of the board of directors and will be on terms no less favorable to us than could be obtained from unaffiliated third parties. 67 PRINCIPAL STOCKHOLDERS The table below sets forth information regarding the beneficial ownership of our common stock as of September 23, 1999, by the following individuals or groups: . each person or entity who is known by us to own beneficially more than 5% of our outstanding stock; . each of the named executive officers; . each of our directors; and . all directors and executive officers as a group. Each stockholder's percentage ownership in the following table is based on 43,880,292 shares of common stock outstanding as of September 23, 1999, as adjusted to reflect the conversion of all outstanding shares of preferred stock upon the closing of this offering and treating as outstanding all options and warrants exercisable within 60 days of September 23, 1999 held by the particular stockholder and that are included in the first column. The numbers shown in the table below assume no exercise by the underwriters of their over- allotment option. Unless otherwise indicated, the principal address of each of the stockholders below is c/o Fogdog, Inc., 500 Broadway, Redwood City, California 94063. Except as otherwise indicated, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock held by them.
Percentage of Shares Number of Beneficially Owned shares ------------------------ Beneficially Prior After Name and Address of Beneficial Owner Owned to Offering the Offering ------------------------------------ ------------ ----------- ------------ Entities affiliated with Whitney Equity Partners(1)............................ 6,559,245 15.0% Entities affiliated with Draper Fisher Jurvetson(2)........................... 6,479,758 14.8 Nike USA, Inc.(3)....................... 6,171,524 12.3 Entities affiliated with Sprout Group, L.P.(5)................................ 4,096,703 9.3 Entities affiliated with Venrock Associates(4).......................... 4,568,454 10.4 Novus Ventures, L.P.(6)................. 2,362,466 5.4 Entities affiliated with Vertex Management, Inc.(7).................... 2,192,401 5.0 Timothy P. Harrington(8)................ 2,000,000 4.4 Brett M. Allsop(9)...................... 1,740,000 3.7 Marcy E. von Lossberg(10)............... 565,792 1.3 Robin R. Smith(11)...................... 632,110 1.4 Robert S. Chea(12)...................... 1,800,000 4.1 Thomas E. Clarke(3)..................... 6,171,524 12.3 Frederick M. Gibbons(13)................ 312,908 * Peter J. Huff(1)........................ 6,559,245 15.0 Robert R. Maxfield(14).................. 738,119 1.7 Warren J. Packard(2).................... 6,479,758 14.8 Ralph O. Parks(15)...................... 40,000 * Lloyd D. Ruth(16)....................... 1,630,170 3.7 Ray A. Rothrock(5)...................... 4,568,454 9.3 All directors and executive officers as a group (14 persons)(17)............... 33,141,324 71.3
- -------- * Less than one percent. (1) Principal address is 177 Broad Street, Stamford, CT 06901. Represents 6,404,913 shares of common stock held by J.H. Whitney III, L.P. and 154,332 shares of common stock held by Whitney Strategic Partners III, L.P. Mr. Huff disclaims beneficial ownership of all of these shares except to the extent of his pecuniary interest in entities affiliated with Whitney Equity Partners. 68 (2) Principal address is 400 Seaport Court, Suite 250, Redwood City, CA 94063. Represents 6,026,175 shares of common stock held by Draper Fisher Associates Fund IV, L.P. and 424,517 shares of common stock and 29,066 shares of common stock held by Draper Fisher Partners IV, L.P. Mr. Packard disclaims beneficial ownership of all of these shares except to the extent of his pecuniary interest in entities affiliated with Draper Fisher Jurvetson. (3) Principal address is One Bowerman Drive, Beaverton, OR 97005. Represents warrants held by Nike USA, Inc. to purchase up to 6,171,524 shares of common stock at an exercise price of $1.03 per share. Dr. Clarke disclaims beneficial ownership of all of these shares except to the extent of his pecuniary interest therein. (4) Principal address is 2494 Sand Hill Road, Suite 200, Menlo Park, CA 94025. Represents 1,873,066 shares of common stock held by Venrock Associates and 2,695,388 shares of common stock held by Venrock Associates II, L.P. Mr. Rothrock disclaims beneficial ownership of all of these shares except to the extent of his pecuniary interest in entities affiliated with Venrock Associates. (5) Principal address is 3000 Sand Hill Road, Building 3, Suite 170, Menlo Park, CA 94025-7114. Represents 11,871 shares of common stock held by DLJ Capital Corp., 309,648 shares of common stock held by DLJ ESC II, L.P., 3,335,656 shares of common stock held by Sprout Capital VIII, L.P. and 213,507 shares of common stock held by Sprout Venture Capital, L.P. (6) Principal address is 20111 Stevens Creek Boulevard, Suite 130, Cupertino, CA 95014. Includes warrants to purchase up to 53,334 shares of common stock at an exercise price of $0.5625 per share. (7) Principal address is Three Lagoon Drive, Suite 220, Redwood City, CA 94065. Includes 2,192,401 shares of common stock held by Vertex Technology Fund II, Ltd. (8) Includes 1,558,400 shares of common stock issuable upon the exercise of immediately exercisable options. (9) Includes 100,000 shares of common stock issuable upon the exercise of immediately exercisable options. (10) Includes 175,000 shares of common stock issuable upon the exercise of immediately exercisable options. (11) Includes 632,110 shares of common stock issuable upon the exercise of immediately exercisable options. (12) Includes 100,000 shares of common stock issuable upon the exercise of immediately exercisable options. (13) Principal address is 11800 Murieta Lane, Los Altos Hills, CA 94022. Includes warrants to purchase up to 8,000 shares of common stock at an exercise price of $0.5625 per share. (14) Principal address is 12930 Saratoga Avenue, Suite B-3, Saratoga, CA 95070. Includes warrants to purchase up to 28,000 shares of Series A preferred stock at an exercise price of $0.5625 per share. (15) Represents 40,000 shares of common stock issuable upon the exercise of immediately exercisable options. (16) Principal address is 520 Lake Cook Road, Suite 450, Deerfield, IL 60015. Represents 1,457,160 shares of common stock and 173,010 shares of common stock held by Marquette Venture Partners III, L.P. Mr. Ruth disclaims beneficial ownership of all of these shares except to the extent of his pecuniary interest in Marquette Venture Partners III, L.P. (17) Includes 2,590,510 shares of common stock issuable upon the exercise of options and warrants. 69 DESCRIPTION OF CAPITAL STOCK General At the closing of this offering, we will be authorized to issue 100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of undesignated preferred stock, $0.001 par value, after giving effect to the amendment of our certificate of incorporation to delete references to the existing preferred stock following conversion of that stock. The following description of capital stock gives effect to the certificate of incorporation to be filed upon closing of this offering. Immediately following the completion of this offering, and assuming no exercise of the underwriters' over-allotment option, an aggregate of shares of common stock will be issued and outstanding, and no shares of preferred stock will be issued and outstanding. The following description of our capital stock is subject to and qualified by our certificate of incorporation and bylaws, which are included as exhibits to the registration statement of which this prospectus forms a part, and by the provisions of the applicable Delaware law. Common Stock The holders of our common stock are entitled to one vote per share on all matters to be voted upon by our stockholders. Subject to preferences that may be applicable to any outstanding preferred stock that may come into existence, the holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the board of directors out of funds legally available for dividends. See "Dividend Policy." In the event of our liquidation, dissolution or winding up, the holders of our common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. Our common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are fully paid and nonassessable, and the shares of common stock to be outstanding upon completion of this offering will be fully paid and nonassessable. Preferred Stock Our board of directors is authorized to issue from time to time, without stockholder authorization, in one or more designated series, any or all of our authorized but unissued shares of preferred stock with any dividend, redemption, conversion and exchange provisions as may be provided in the particular series. Any series of preferred stock may possess voting, dividend, liquidation and redemption rights superior to those of the common stock. The rights of the holders of our common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. Issuance of a new series of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of entrenching our board of directors and making it more difficult for a third-party to acquire, or discourage a third-party from acquiring, a majority of our outstanding voting stock. We have no present plans to issue any shares of or designate any series of preferred stock. Warrants At June 30, 1999, there were warrants outstanding to purchase a total of 133,779 shares of our Series A preferred stock and 122,144 shares of our common stock. Warrants to purchase 89,334 shares of our Series A preferred stock and warrants to purchase 122,144 shares of our common stock will be exercised immediately upon the completion of this offering. Warrants exercisable for 44,445 shares of our common stock will remain outstanding after the completion of this offering and will expire on December 24, 2002 if not exercised. In September 1999, we issued a warrant to purchase up to 6,171,524 shares of our Series C preferred stock, which will automatically convert to a warrant to purchase 6,171,524 shares of common stock upon completion of this offering, and will expire in March 2003 if not exercised. 70 Registration Rights Upon completion of the offering, the holders of an aggregate of approximately 40,450,000 shares of common stock and warrants to purchase up to approximately 6,200,000 shares of our common stock will be entitled to certain rights with respect to the registration of the shares under the Securities Act. Nike USA, Inc. has three separate demand registration rights. These rights are provided under the terms of agreements between us and the holders of these securities. If we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders exercising registration rights, these holders are entitled to notice of the registration and are entitled to include shares of common stock in the registration. The rights are subject to conditions and limitations, among them the right of the underwriters of an offering subject to the registration to limit the number of shares included in the registration. Holders of these rights may also require us to file a registration statement under the Securities Act at our expense with respect to their shares of common stock, and we are required to use our best efforts to effect the registration, subject to conditions and limitations. Furthermore, stockholders with registration rights may require us to file additional registration statements on Form S-3, subject to conditions and limitations. Compliance with California Law We are currently subject to Section 2115 of the California General Corporation Law. Section 2115 provides that, regardless of a company's legal domicile, certain provisions of California corporate law will apply to that company if more than 50% of its outstanding voting securities are held of record by persons having addresses in California and the majority of the company's operations occur in California. For example, while we are subject to Section 2115, stockholders may cumulate votes in electing directors. This means that each stockholder may vote the number of votes equal to the number of candidates multiplied by the number of votes to which the stockholder's shares are normally entitled in favor of one candidate. This potentially allows minority stockholders to elect some members of the board of directors. When we are no longer subject to Section 2115, cumulative voting will not be allowed and a holder of 50% or more of our voting stock will be able to control the election of all directors. In addition to this difference, Section 2115 has the following additional effects: . enables removal of directors with or without cause with majority stockholder approval; . places limitations on the distribution of dividends; . extends additional rights to dissenting stockholders in any reorganization, including a merger, sale of assets or exchange of shares; and . provides for information rights and required filings in the event we effect a sale of assets or complete a merger. We anticipate that our common stock will be qualified for trading as a national market security on the Nasdaq National Market and that we will have at least 800 stockholders of record by the record date for our 2000 annual meeting of stockholders. If these two conditions occur, then we will no longer be subject to Section 2115 as of the record date for our 2000 annual meeting of stockholders. Antitakeover Effects of Provisions of the Certificate of Incorporation, Bylaws and Delaware Law Our certificate of incorporation authorizes our board to establish one or more series of undesignated preferred stock, the terms of which can be determined by our board at the time of issuance. See "--Preferred Stock." Our certificate of incorporation also provides that all stockholder action must be effected at a duly called meeting of stockholders and not by written consent. In addition, our certificate of incorporation and bylaws do not permit our stockholders to call a special meeting of stockholders. Only our Chief Executive Officer, President, Chairman of the Board or a majority of the board of directors are permitted to call a special meeting of stockholders. Our certificate of incorporation also provides that the board of directors is divided into three classes, with each director assigned to a class with a term of three years, and that the number of directors 71 may only be determined by the board of directors. Our bylaws require that stockholders give advance notice to our secretary of any nominations for director or other business to be brought by stockholders at any stockholders' meeting, and that the chairman of the board has the authority to adjourn any meeting called by the stockholders. Our bylaws also require a supermajority vote of members of the board of directors and/or stockholders to amend certain bylaw provisions. These provisions of our restated certificate of incorporation and our bylaws could discourage potential acquisition proposals and could delay or prevent a change in control of the company. These provisions also may have the effect of preventing changes in the management of the company. See "Risk Factors--Certain provisions of our certificate of incorporation and bylaws make changes of control difficult, even if they would be beneficial to owners." We are subject to Section 203 of the Delaware General Corporation Law, an anti-takeover law. In general, Section 203 prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless: . prior to that date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; . upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by: (i) persons who are directors and also officers; and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or . on or subsequent to that date, the business combination is approved by the board of directors of the corporation and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines "business combination" to include the following: . any merger or consolidation involving the corporation and the interested stockholder; . any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; . subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; . any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or . the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any of these entities or persons. Transfer Agent and Registrar Our transfer agent and registrar for our common stock is Equiserve L.P. Its telephone number is (781) 575-2469. 72 SHARES AVAILABLE FOR FUTURE SALE Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock in the public market could adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity securities. Upon the completion of this offering we will have shares of common stock outstanding assuming no exercise of the underwriters' over- allotment option. The number of shares of common stock to be outstanding after this offering is based on the number of shares outstanding as of June 30, 1999, and includes 5,294,116 shares of common stock issuable upon conversion of our Series D preferred stock sold in September 1999 and 399,998 shares of our common stock issued in connection with our acquisition of Sports Universe, Inc., and excludes: . 5,731,410 shares of common stock issuable upon the exercise of stock options outstanding as of June 30, 1999 at a weighted average exercise price of $0.11 per share; . shares of common stock reserved for issuance under our 1999 Stock Incentive Plan that incorporates our Amended and Restated 1996 Stock Option Plan; . shares of common stock reserved for issuance under our 1999 Employee Stock Purchase Plan; . 6,171,524 shares of common stock issuable upon exercise of an outstanding warrant held by Nike USA, Inc. of an exercise price of $1.03 per share; and . 255,923 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.98 per share. Of the outstanding shares, all of the shares sold in this offering will be freely tradable, except that any shares held by our "affiliates," as that term is defined in Rule 144 promulgated under the Securities Act, may only be sold in compliance with the limitations described below. The remaining 38,821,400 shares of common stock will be deemed "restricted securities" as defined under Rule 144. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rules 144, 144(k) and 701, additional shares will be available for sale in the public market as follows:
Number of Shares Date --------- ------------------------------------------------------------------ -- After the date of this prospectus, freely tradable shares sold in this offering and shares saleable under Rule 144(k) that are not subject to the 180-day lock-up 37,472,954 After 180 days from the date of this prospectus, the 180-day lock- up is released and these shares are saleable under Rule 144 (subject, in some cases, to volume limitations) or Rule 144(k) 711,970 After 180 days from the date of this prospectus, the 180-day lock- up is released and these shares are saleable under Rule 701 (subject to repurchase by the Company) 636,476 After 180 days from the date of this prospectus, restricted securities that are held for less than one year and are not yet saleable under Rule 144
Rule 144 In general, under Rule 144 as currently in effect, a person, or group of persons whose shares are required to be aggregated, including any of our affiliates, who has beneficially owned shares for at least one year, including the holding period of any prior owner who is not an affiliate, is entitled to sell within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed 73 the greater of one percent of the then-outstanding shares of our common stock, which will be approximately shares immediately after this offering, or the average weekly trading volume in our common stock during the four calendar weeks preceding the date on which notice of such sale is filed, subject to certain restrictions. In addition, a person who is not deemed to have been an affiliate at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years, including the holding period of any prior owner who is not an affiliate, would be entitled to sell these shares under Rule 144(k) without regard to the requirements described above. To the extent that shares were acquired from one of our affiliates, a person's holding period for the purpose of effecting a sale under Rule 144 would commence on the date of transfer from the affiliate. Stock Options As of June 30, 1999, options to purchase a total of 5,731,410 shares of common stock were outstanding, all of which were currently exercisable but were subject to repurchase upon termination of employment until vested. We intend to file a Form S-8 registration statement under the Securities Act to register all shares of common stock issuable under our 1999 Stock Incentive Plan and our 1999 Employee Stock Purchase Plan. Accordingly, shares of common stock underlying these options will be eligible for sale in the public markets, subject to vesting restrictions or the lock-up agreements described below. See "Management--Benefit Plans." Lock-up Agreements We have agreed, and each of our officers and directors and substantially all of our securityholders have agreed, subject to specified exceptions, not to, without the prior written consent of Credit Suisse First Boston Corporation, sell, otherwise dispose of any shares of our common stock or options to acquire shares of our common stock or take any action to do any of the foregoing during the 180-day period following the date of this prospectus. Credit Suisse First Boston Corporation may, in its sole discretion and at any time without notice, release all or any portion of the securities subject to lock-up agreements. See "Underwriting." Following this offering, under specified circumstances and subject to customary conditions, holders of approximately 40,450,000 shares of our outstanding common stock and warrants to purchase up to approximately 6,200,000 shares of our common stock will have registration rights with respect to their shares of common stock, subject to the 180-day lock-up arrangement described above, to require us to register their shares of common stock under the Securities Act. If the holders of these registrable securities request that we register their shares, and if the registration is effected, these shares will become freely tradable without restriction under the Securities Act. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock. See "Description of Capital Stock-- Registration Rights." 74 UNDERWRITING Under the terms and subject to the conditions contained in an underwriting agreement dated , 1999, we have agreed to sell to the underwriters named below, for whom Credit Suisse First Boston Corporation, J.P. Morgan Securities Inc., Thomas Weisel Partners LLC and Warburg Dillon Read LLC are acting as representatives, the following respective numbers of shares of common stock:
Underwriter Number of Shares ----------- ---------------- Credit Suisse First Boston Corporation...................... J.P. Morgan Securities Inc.................................. Thomas Weisel Partners LLC.................................. Warburg Dillon Read LLC..................................... --------- Total..................................................... =========
The underwriting agreement provides that the underwriters are obligated to purchase all the shares of common stock in the offering if any are purchased, other than those shares covered by the over-allotment option described below. The underwriting agreement also provides that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may be increased or the offering of common stock may be terminated. We have granted to the underwriters a 30-day option to purchase on a pro rata basis up to additional shares at the initial public offering price less the underwriting discounts and commissions. The option may be exercised only to cover any over-allotments of common stock. The underwriters propose to offer the shares of common stock initially at the public offering price on the cover page of this prospectus and to selling group members at that price less a concession of $ per share. The underwriters and selling group members may allow a discount of $ per share on sales to other broker/dealers. After the initial public offering, the public offering price and concession and discount to broker/dealers may be changed by the representatives. The following table summarizes the compensation and estimated expenses we will pay.
Per Share Total ----------------------------- ----------------------------- Without With Without With Over-allotment Over-allotment Over-allotment Over-allotment -------------- -------------- -------------- -------------- Underwriting Discounts and Commissions paid by us.. $ $ $ $ Expenses payable by us.. $ $ $ $
The underwriters have informed us that they do not expect discretionary sales to exceed 5% of the shares of common stock being offered. We, our officers and directors and substantially all of our existing stockholders and option holders have agreed not to offer, sell, contract to sell, pledge or otherwise dispose of, directly or indirectly, or file with the Securities and Exchange Commission a registration statement under the Securities Act of 1933 relating to, any shares of our common stock or securities convertible into or exchangeable or exercisable for any of our common stock, or publicly disclose the intention to make any such offer, sale, pledge, disposition or filing, without the prior written consent of Credit Suisse First Boston Corporation for a period of 180 days after the date of this prospectus, except in our case issuances pursuant to the exercise of employee stock options outstanding on the date hereof. The underwriters have reserved for sale, at the initial public offering price, up to shares of the common stock for employees, directors and certain other persons associated with us who have expressed an 75 interest in purchasing common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same terms as the other shares. We have agreed to indemnify the underwriters against certain liabilities under the Securities Act of 1933, or to contribute to payments which the underwriters may be required to make in that respect. We will make application to list the shares of common stock on The Nasdaq Stock Market's National Market under the symbol "FOGD." Prior to this offering, there has been no public market for the common stock. The initial public offering price will be determined by negotiation between us and the representatives. The principal factors to be considered in determining the public offering price include the following: . the information included in this prospectus and otherwise available to the representatives; . market conditions for initial public offerings; . the history and the prospects for the industry in which we will compete; . the ability of our management; . the prospects for our future earnings; . the present state of our development and our current financial condition; . the general condition of the securities markets at the time of this offering; and . the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies. Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners LLC has been named as a lead-manager or co-manager on 67 filed public offerings of equity securities, of which 37 have been completed, and has acted as a syndicate member in an additional 33 public offerings of equity securities. Thomas Weisel Partners LLC does not have any material relationship with us or any of our officers, directors or controlling persons, except with respect to its contractual relationship with us under the underwriting agreement entered into in connection with this offering. The representatives may engage in over-allotment, stabilizing transactions, syndicate covering transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934. . Over-allotment involves syndicate sales in excess of the offering size, which creates a syndicate short position. . Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. . Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. . Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by such syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. These stabilizing transactions, syndicate covering transactions and penalty bids may cause the price of the common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. 76 NOTICE TO CANADIAN RESIDENTS Resale Restrictions The distribution of the common stock in Canada is being made only on a private placement basis exempt from the requirement that we prepare and file a prospectus with the securities regulatory authorities in each province where trades of common stock are effected. Accordingly, any resale of the common stock in Canada must be made in accordance with applicable securities laws which will vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with available statutory exemptions or pursuant to a discretionary exemption granted by the applicable Canadian securities regulatory authority. Purchasers are advised to seek legal advice prior to any resale of the common stock. Representations of Purchasers Each purchaser of the common stock in Canada who receives a purchase confirmation will be deemed to represent to us and the dealer from whom such purchase confirmation is received that (i) such purchaser is entitled under applicable provincial securities laws to purchase such common stock without the benefit of a prospectus qualified under such securities laws, (ii) where required by law, that such purchaser is purchasing as principal and not as agent, and (iii) such purchaser has reviewed the text above under "Resale Restrictions." Rights of Action (Ontario Purchasers) The securities being offered are those of a foreign issuer and Ontario purchasers will not receive the contractual right of action prescribed by Ontario securities law. As a result, Ontario purchasers must rely on other remedies that may be available, including common law rights of action for damages or rescission or rights of action under the civil liability provisions of the U.S. federal securities laws. Enforcement of Legal Rights All of the issuer's directors and officers as well as the experts named herein may be located outside of Canada and, as a result, it may not be possible for Canadian purchasers to effect service of process within Canada upon the issuer or such persons. All or a substantial portion of the assets of the issuer and such persons may be located outside of Canada and, as a result, it may not be possible to satisfy a judgment against the issuer or such persons in Canada or to enforce a judgment obtained in Canadian courts against such issuer or such persons outside of Canada. Notice to British Columbia Residents A purchaser of the common stock to whom the Securities Act (British Columbia) applies is advised that such purchaser is required to file with the British Columbia Securities Commission a report within ten days of the sale of any common stock acquired by such purchaser pursuant to this offering. Such report must be in the form attached to British Columbia Securities Commission Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one such report must be filed in respect of common stock acquired on the same date and under the same prospectus exemption. Taxation and Eligibility for Investment Canadian purchasers of the common stock should consult their own legal and tax advisors with respect to the tax consequences of an investment in the common stock in their particular circumstances and with respect to the eligibility of the common stock for investment by the purchaser under relevant Canadian legislation. 77 LEGAL MATTERS The validity of the common stock offered will be passed upon for us by Brobeck, Phleger & Harrison LLP, Palo Alto, California. Attorneys at the firm of Brobeck, Phleger & Harrison LLP beneficially own an aggregate of 25,650 shares of our common stock. Pillsbury Madison & Sutro LLP, San Francisco and Palo Alto, California, is acting as counsel for the underwriters in connection with selected legal matters relating to the shares of common stock offered by this prospectus. EXPERTS The financial statements of Fogdog, Inc. as of December 31, 1997 and 1998 and for each of the three years in the period ended December 31, 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. The financial statements of Sports Universe, Inc. as of December 31, 1998 and for the period from February 9, 1998 (inception) through December 31, 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION We have filed with the Securities and Exchange Commission, Washington, D.C. 20549, under the Securities Act a registration statement on Form S-1 relating to the common stock offered. This prospectus does not contain all of the information set forth in the registration statement and its exhibits and schedules. For further information with respect to us and the shares we are offering pursuant to this prospectus, you should refer to the registration statement and its exhibits and schedules. Statements contained in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete, and you should refer to the copy of that contract or other document filed as an exhibit to the registration statement. You may read or obtain a copy of the registration statement at the commission's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the public reference room by calling the commission at 1-800-SEC-0330. The commission maintains a web site that contains reports, proxy information statements and other information regarding registrants that file electronically with the commission. The address of this web site is http://www.sec.gov. We intend to furnish holders of our common stock with annual reports containing, among other information, audited financial statements certified by an independent public accounting firm and quarterly reports containing unaudited condensed financial information for the first three quarters of each fiscal year. We intend to furnish other reports as we may determine or as may be required by law. 78 FOGDOG, INC. INDEX TO FINANCIAL STATEMENTS
Page ---- FOGDOG, INC. FINANCIAL STATEMENTS Report of Independent Accountants.......................................... F-2 Balance Sheet.............................................................. F-3 Statement of Operations.................................................... F-4 Statement of Stockholders' Equity (Deficit)................................ F-5 Statement of Cash Flows.................................................... F-6 Notes to Financial Statements.............................................. F-7 PRO FORMA CONSOLIDATED FINANCIAL INFORMATION Pro Forma Consolidated Financial Information............................... F-22 Pro Forma Consolidated Balance Sheet....................................... F-23 Pro Forma Consolidated Statements of Operations............................ F-24 Notes to Pro Forma Consolidated Financial Information...................... F-26 SPORTS UNIVERSE, INC. FINANCIAL STATEMENTS Report of Independent Accountants.......................................... F-27 Balance Sheet.............................................................. F-28 Statement of Operations.................................................... F-29 Statement of Stockholders' Deficit......................................... F-30 Statement of Cash Flows.................................................... F-31 Notes to Financial Statements.............................................. F-32
F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Fogdog, Inc. The reincorporation described in Note 10 to the financial statements has not been consummated as of September 24, 1999. When the reincorporation has been consummated, we will be in position to furnish the following report: "In our opinion, the accompanying balance sheet and the related statements of operations, of stockholders' equity (deficit), and of cash flows present fairly, in all material respects, the financial position of Fogdog, Inc. at December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above." PricewaterhouseCoopers LLP San Jose, California April 28, 1999, except for Note 10, which is as of September , 1999 F-2 FOGDOG, INC. BALANCE SHEET (in thousands, except per share amounts)
Pro Forma December 31, Stockholders' ---------------- June 30, Equity at 1997 1998 1999 June 30, 1999 ------- ------- -------- ------------- (unaudited) ASSETS Current assets: Cash and cash equivalents.......... $ 311 $ 1,694 $ 14,177 Short-term investments............. -- 423 423 Accounts receivable, net of allowances of $5, $35 and $64, respectively...................... 93 75 80 Merchandise inventory.............. -- -- 273 Prepaid expenses and other current assets............................ 14 178 1,354 ------- ------- -------- Total current assets............. 418 2,370 16,307 Property and equipment, net.......... 162 470 765 ------- ------- -------- Total Assets $ 580 $ 2,840 $ 17,072 ======= ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable................... $ 60 $ 705 $ 1,533 Notes payable to stockholders...... 155 -- -- Current portion of long-term debt.. 252 606 542 Other current liabilities.......... 123 423 1,429 ------- ------- -------- Total current liabilities........ 590 1,734 3,504 Long-term debt, less current portion............................. 3 189 498 Commitments (Note 4) Stockholders' equity (deficit): Convertible Preferred Stock, issuable in series, $0.001 par value, 14,200 and 30,060 shares authorized at December 31, 1998 and June 30, 1999 (unaudited), respectively; 2,679, 12,358 and 29,844 shares issued and outstanding at December 31, 1997 and 1998 and June 30, 1999 (unaudited), respectively; 5,000 shares authorized; no shares issued and outstanding pro forma (unaudited)....................... 3 13 30 $ -- Common Stock, $0.001 par value, 50,000 and 60,000 shares authorized at December 31, 1998 and June 30, 1999 (unaudited), respectively; 6,820, 7,329 and 7,585 shares issued and outstanding at December 31, 1997, 1998 and June 30, 1999 (unaudited), respectively; 100,000 shares authorized; 37,429 (unaudited) shares issued and outstanding pro forma............. 7 7 7 37 Additional paid-in capital......... 1,639 7,657 27,854 27,854 Unearned stock-based compensation.. -- (978) (2,391) (2,391) Accumulated deficit................ (1,662) (5,782) (12,430) (12,430) ------- ------- -------- -------- Total stockholders' equity (deficit)....................... (13) 917 13,070 $ 13,070 ------- ------- -------- ======== Total liabilities and stockholders' equity (deficit) $ 580 $ 2,840 $ 17,072 ======= ======= ========
The accompanying notes are an integral part of these financial statements. F-3 FOGDOG, INC. STATEMENT OF OPERATIONS (in thousands, except per share amounts)
Year Ended December Six Months 31, Ended June 30, ------------------------ --------------- 1996 1997 1998 1998 1999 ------ ------- ------- ------ ------- (unaudited) Net revenues: Merchandise....................... $ -- $ -- $ 195 $ -- $ 1,049 Commission........................ -- 11 123 37 35 Web development................... 677 1,030 447 328 -- ------ ------- ------- ------ ------- Total net revenues.............. 677 1,041 765 365 1,084 ------ ------- ------- ------ ------- Cost of revenues: Merchandise....................... -- -- 157 -- 821 Commission........................ -- -- 19 -- -- Web development................... 90 156 99 87 -- ------ ------- ------- ------ ------- Total cost of revenues.......... 90 156 275 87 821 ------ ------- ------- ------ ------- Gross profit........................ 587 885 490 278 263 ------ ------- ------- ------ ------- Operating expenses: Marketing and sales............... 686 1,285 2,399 449 4,345 Site development.................. 119 259 1,318 409 1,208 General and administrative........ 248 378 705 289 776 Amortization of stock-based compensation..................... -- -- 243 23 740 ------ ------- ------- ------ ------- Total operating expenses........ 1,053 1,922 4,665 1,170 7,069 ------ ------- ------- ------ ------- Operating loss...................... (466) (1,037) (4,175) (892) (6,806) Interest income (expense), net...... (3) (8) 29 (24) 158 Other income........................ -- -- 26 -- -- ------ ------- ------- ------ ------- Net loss............................ $ (469) $(1,045) $(4,120) $ (916) $(6,648) ====== ======= ======= ====== ======= Basic and diluted net loss per share.............................. $(0.09) $ (0.15) $ (0.64) $(0.17) $ (1.00) ====== ======= ======= ====== ======= Basic and diluted weighted average shares used in computation of net loss per share..................... 5,447 6,815 6,462 5,434 6,631 ====== ======= ======= ====== ======= Pro forma basic and diluted net loss per share (unaudited).............. $ (0.29) $ (0.23) ======= ======= Pro forma basic and diluted weighted average shares (unaudited)......... 14,411 28,463 ======= =======
The accompanying notes are an integral part of these financial statements. F-4 FOGDOG, INC. STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (in thousands)
Preferred Total Stock Common Stock Additional Unearned Stockholders' ------------- ------------- Paid-In Stock-Based Accumulated Equity Shares Amount Shares Amount Capital Compensation Deficit (Deficit) ------ ------ ------ ------ ---------- ------------ ----------- ------------- Balance at December 31, 1995................... -- $ -- 4,816 $ 5 $ 121 $ -- $ (148) $ (22) Issuance of Series A Preferred Stock, net... 1,733 2 -- -- 943 -- -- 945 Issuance of Common Stock.................. -- -- 1,997 2 26 -- -- 28 Net loss................ -- -- -- -- -- -- (469) (469) ------ ---- ----- --- ------- ------- -------- ------- Balance at December 31, 1996................... 1,733 2 6,813 7 1,090 -- (617) 482 Issuance of Series A Preferred Stock, net... 946 1 -- -- 527 -- -- 528 Issuance of warrants to purchase Series A Preferred Stock........ -- -- -- -- 21 -- -- 21 Issuance of Common Stock.................. -- -- 7 -- 1 -- -- 1 Net loss................ -- -- -- -- -- -- (1,045) (1,045) ------ ---- ----- --- ------- ------- -------- ------- Balance at December 31, 1997................... 2,679 3 6,820 7 1,639 -- (1,662) (13) Issuance of Series B Preferred Stock, net... 9,679 10 -- -- 4,770 -- -- 4,780 Issuance of Common Stock.................. -- -- 438 -- 23 -- -- 23 Unearned stock-based compensation........... -- -- -- -- 1,221 (1,221) -- -- Amortization of stock- based compensation..... -- -- -- -- -- 243 -- 243 Issuance of Common Stock for services........... -- -- 71 -- 4 -- -- 4 Net loss................ -- -- -- -- -- -- (4,120) (4,120) ------ ---- ----- --- ------- ------- -------- ------- Balance at December 31, 1998................... 12,358 13 7,329 7 7,657 (978) (5,782) 917 Issuance of Series C Preferred Stock, net (unaudited)............ 17,486 17 -- -- 17,920 -- -- 17,937 Issuance of Common Stock (unaudited)............ -- -- 36 -- 2 -- -- 2 Unearned stock-based compensation (unaudited)............ -- -- -- -- 2,154 (2,154) -- -- Amortization of stock- based compensation (unaudited)............ -- -- -- -- -- 740 -- 740 Issuance of warrants to purchase shares of Common Stock (unaudited)............ -- -- -- -- 12 -- -- 12 Issuance of Common Stock upon exercise of warrants (unaudited)... -- -- 220 -- 110 -- -- 110 Net loss (unaudited).... -- -- -- -- -- -- (6,648) (6,648) ------ ---- ----- --- ------- ------- -------- ------- Balance at June 30, 1999 (unaudited)............ 29,844 $ 30 7,585 $ 7 $27,855 $(2,392) $(12,430) $13,070 ====== ==== ===== === ======= ======= ======== =======
The accompanying notes are an integral part of these financial statements. F-5 FOGDOG, INC. STATEMENT OF CASH FLOWS (in thousands)
Six Months Year Ended Ended December 31, June 30, ----------------------- --------------- 1996 1997 1998 1998 1999 ----- ------- ------- ------ ------- (Unaudited) Cash flows from operating activities: Net loss........................... $(469) $(1,045) $(4,120) $ (916) $(6,648) Adjustments to reconcile net loss to net cash used in operating activities: Allowances for bad debt and sales returns......................... -- -- 30 -- 48 Depreciation and amortization.... 44 105 122 38 134 Amortization of stock-based compensation.................... -- -- 243 23 740 Non-employee stock-based expense......................... -- -- 4 -- 12 Changes in assets and liabilities: Accounts payable and other current liabilities........... 80 27 945 133 810 Accounts receivable............ (26) (17) (12) 13 (53) Other assets................... (18) 8 -- -- -- Merchandise inventory.......... -- -- -- -- (273) Prepaid expenses and other assets........................ (10) 7 (164) (19) (152) ----- ------- ------- ------ ------- Net cash used in operating activities.................. (399) (915) (2,952) (728) (5,382) ----- ------- ------- ------ ------- Cash flows from investing activities: Purchase of property and equipment......................... (137) (81) (269) (44) (318) Purchase of short-term investments....................... -- -- (423) -- -- ----- ------- ------- ------ ------- Net cash used in investing activities...................... (137) (81) (692) (44) (318) ----- ------- ------- ------ ------- Cash flows from financing activities: Proceeds from the sale of Common Stock............................. 28 -- 23 189 112 Proceeds from the sale of Preferred Stock............................. 945 528 4,455 4,471 17,937 Proceeds from (payments under) term loan.............................. 35 (70) 266 244 245 Payments under capital leases...... (14) (21) (15) -- (3) Proceeds from line of credit....... -- 237 186 -- -- Payments under software loan....... -- -- (58) -- (108) Proceeds from (payments under) notes payable to shareholders..... (23) 162 170 -- -- ----- ------- ------- ------ ------- Net cash provided by financing activities...................... 971 836 5,027 4,904 18,183 ----- ------- ------- ------ ------- Net increase (decrease) in cash and cash equivalents.................... 435 (160) 1,383 4,132 12,483 Cash and cash equivalents at the beginning of the period............. 36 471 311 311 1,694 ----- ------- ------- ------ ------- Cash and cash equivalents at the end of the period....................... $ 471 $ 311 $ 1,694 $4,443 $14,177 ===== ======= ======= ====== ======= Supplemental disclosure of cash flow information: Interest paid...................... $ 6 $ 14 $ 57 $ 29 $ 41 ===== ======= ======= ====== ======= Supplemental disclosure of noncash transactions: Conversion of note to Series B Preferred Stock................... $ -- $ -- $ 325 $ -- $ -- ===== ======= ======= ====== ======= Software purchased under loan agreement......................... $ -- $ -- $ 161 $ -- $ -- ===== ======= ======= ====== ======= Assets purchased under equipment line.............................. $ -- $ -- $ -- $ -- $ 340 ===== ======= ======= ====== =======
The accompanying notes are an integral part of these financial statements. F-6 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS (Information for the six months ended June 30, 1998 and 1999 is unaudited) Note 1--The Company and Summary of Significant Accounting Policies: The Company Fogdog, Inc. (the "Company") is an online retailer of sporting goods. The Company's online retail store, "fogdog.com," offers products, detailed product information and personalized shopping services over its web site "fogdog.com." During 1997 and 1998, the Company also provided web development services to sporting goods manufacturers, trade associations and retailers. The Company was incorporated in California in October 1994 as Cedro Group, Inc. and in November 1998, changed its name to Fogdog, Inc. Unaudited interim results The interim financial statements as of June 30, 1999 and for the six months ended June 30, 1998 and 1999 are unaudited. In the opinion of management, these interim financial statements have been prepared on the same basis as the audited financial statements and reflect all adjustments, consisting only of normal, recurring adjustments necessary for the fair presentation of the results of interim periods. The financial data and other information disclosed in these notes to the financial statements for the related periods are unaudited. The results of the interim periods are not necessarily indicative of the results to be expected for any future periods. 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and cash equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Short-term investments The Company's investments are classified as available-for-sale. Unrealized gains or losses have been insignificant for all periods. Merchandise inventory Inventory is stated at the lower of cost or market, determined on a first- in, first-out basis. Property and equipment Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the shorter of the estimated useful lives of the assets, generally three years, or the remaining lease term. Web development costs Web development costs primarily consist of costs to develop software which enables users to access information on the customer's web site. Web development costs incurred prior to technological feasibility F-7 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) are expensed as incurred and are included in site development expense. The Company defines establishment of the technological feasibility as the completion of a working model. Software development costs incurred subsequent to the establishment of technological feasibility throughout the period of market availability of the web site are capitalized. Costs eligible for capitalization have been insignificant for all periods presented. Intangible assets Purchased intangible assets are presented at cost, net of accumulated amortization, and are amortized using the straight line method over the estimated useful life of the assets. In October 1998, the Company purchased the mailing list, Internet domain name and client database from Sportscape.com for $55,000. The Company is amortizing the balance over a twelve month period. At December 31, 1998 and June 30, 1999, the balance of $46,000 and $18,000, respectively is included in other current assets. Revenue recognition Merchandise revenue is earned by the Company from the sale of sporting goods through its online retail store. Merchandise revenue is recognized upon the shipment of the merchandise, which occurs only after credit card authorization is obtained. For sales of merchandise, the Company is responsible for establishing prices, processing the orders, and forwarding the information to the manufacturer, distributor or third-party warehouse for shipment. For these transactions, the Company assumes credit risk and is responsible for processing returns. The Company provides for estimated returns at the time of shipment based on historical data. Commission revenue was earned by the Company from catalog partners for transactions processed through the Company's online retail store. Revenue was recognized when the order was transmitted to the catalog partner. In commission sales, the Company processed orders in exchange for a commission on the sale of the vendor's merchandise. At the conclusion of the sale, the Company forwarded the order information to the vendor, which then charged the customer's credit card and shipped the merchandise directly to the customer. In a commission sale transaction, the Company did not take title or possession of the merchandise, and the vendor assumed all the risk of credit card chargebacks. The Company also earned commission revenue from transactions processed on several client sites. Commission revenue from these transactions has been immaterial to date. Revenue from web development services was recognized when the client's site had either been placed on-line or completed to the client's satisfaction, the Company had the right to invoice the customer, collection of the receivable was probable and there were no significant obligations remaining. Advertising costs Advertising costs are expensed as in accordance with Statement of Position 93-7, "Reporting on Advertising Costs." Advertising expense for the years ended December 31, 1996, 1997, 1998 and the six months ended June 30, 1998 and 1999 were $12,000, $64,000, $541,000, $79,000, and $1,754,000, respectively. Site development costs Site development costs include costs incurred by the Company to develop and enhance the Company's web site. Site development costs are expensed as incurred. F-8 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) Net loss per share Basic net loss per share is computed by dividing the net loss available for the period by the weighted average number of shares of Common Stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted average number of common and potential common equivalent shares outstanding during the period. The calculation of diluted net loss per share excludes potential common shares if the effect is antidilutive. Potential common shares are composed of Common Stock subject to repurchase rights, incremental shares of Common Stock issuable upon the exercise of stock options, and warrants and upon conversion of Preferred Stock. The following table sets forth the computation of basic and diluted net loss per share for the periods indicated (in thousands, except per share amounts):
Year Ended December Six Months 31, Ended June 30, ------------------------ --------------- 1996 1997 1998 1998 1999 ------ ------- ------- ------ ------- (unaudited) Numerator: Net loss........................ $ (469) $(1,045) $(4,120) $ (916) $(6,648) ====== ======= ======= ====== ======= Denominator: Weighted average shares......... 5,447 6,815 7,069 6,934 7,364 Weighted average Common Stock subject to repurchase agreements..................... -- -- (607) (1,500) (734) ------ ------- ------- ------ ------- Denominator for basic and diluted calculation......... 5,447 6,815 6,462 5,434 6,631 ====== ======= ======= ====== ======= Basic and diluted net loss per share........................... $(0.09) $ (0.15) $ (0.64) $(0.17) $ (1.00) ====== ======= ======= ====== ======= The following table sets forth the weighted average potential shares of Common Stock that are not included in the diluted net loss per share calculation above because to do so would be antidilutive for the periods indicated (in thousands): Year Ended December Six Months 31, Ended June 30, ------------------------ --------------- 1996 1997 1998 1998 1999 ------ ------- ------- ------ ------- (unaudited) Weighted average effect of dilutive securities: Series A Preferred Stock........ 265 1,165 2,679 2,679 2,679 Series B Preferred Stock........ -- -- 5,270 807 9,679 Series C Preferred Stock........ -- -- -- -- 9,475 Warrants to purchase Series A Preferred Stock................ -- 1 116 99 134 Warrants to purchase Common Stock.......................... -- -- -- -- 77 Employee stock options.......... -- 786 1,000 1,215 3,326 Common Stock subject to repurchase agreements.......... -- -- 607 1,500 734 ------ ------- ------- ------ ------- 265 1,952 9,672 6,300 26,104 ====== ======= ======= ====== =======
F-9 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) Income taxes A current tax liability or asset is recognized for the estimated taxes payable or refundable on tax returns for the current year. A deferred tax liability or asset is recognized for the estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred tax assets is reduced, if necessary, by the amount of any benefits that, based on available evidence, are not expected to be realized. Pro forma net loss per share (unaudited) Pro forma net loss per share for the year ended December 31, 1998 and the six months ended June 30, 1999 is computed using the weighted average number of common shares outstanding, including the conversion of the Company's Convertible Preferred Stock into shares of the Company's Common Stock effective upon the closing of the Company's initial public offering, as if such conversion occurred at January 1, 1998 or at date of original issuance, if later. The resulting unaudited pro forma adjustment includes an increase in the weighted average shares used to compute basic and diluted net loss per share of 7,949,000 and 21,832,000 for the year ended December 31, 1998 and the six months ended June 30, 1999, respectively. The calculation of pro forma diluted net loss per share excludes Common Stock subject to repurchase agreements and incremental Common Stock issuable upon the exercise of stock options and warrants as the effect would be antidilutive. Comprehensive income Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from non-owner sources. During each of the three years ended December 31, 1998, and the six months ended June 30, 1998 and 1999 the Company has not had any significant adjustments to net loss that are required to be reported in comprehensive income (loss). Segment information Effective January 1, 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of Enterprise and Related Information." During each of the three years ended December 31, 1998 and the six months ended June 30, 1998 and 1999 the Company's management focused its business activities on the marketing and sale of sporting goods over the Internet. Since management's primary form of internal reporting is aligned with the marketing and sale of sporting goods, the Company believes it operates in one segment. Revenue from shipments to customers outside of the United States was 0%, 0%, 6%, 0% and 10% for the years ended December 31, 1996, 1997 and 1998 and the six months ended June 30, 1998, and 1999, respectively. Stock-based compensation The Company accounts for stock-based compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and complies with the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB 25, unearned compensation is based on the difference, if any, on the date of the grant, between the fair value of the Company's stock and the exercise price. Unearned compensation is amortized and expensed in accordance with Financial Accounting Standards Board Interpretation No. 28 using F-10 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) the multiple-option approach. The Company accounts for stock-based compensation issued to non-employees in accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." Concentration of risk Financial instruments which potentially subject the Company to concentration of credit risk consist primarily of cash equivalents, short-term investments and trade accounts receivable. Cash equivalents and short-term investments, primarily composed of investments in money market funds and certificates of deposits, are maintained with two institutions and the composition and maturities are regularly monitored by management. For accounts receivable, the Company maintains an allowance for uncollectible accounts receivable based upon the expected collectibility of all accounts receivable. Because of their short- term nature, the carrying value of all financial instruments approximate their respective fair value. At December 31, 1997, approximately 47% of accounts receivable represented amounts due from three different customers related to web development revenues. At December 31, 1998, two customers accounted for 21% and 15% of accounts receivable for commission-related revenues. Sales to these customers accounted for approximately 25% of revenues in 1997. At June 30, 1999, no customer represented more than 10% of outstanding accounts receivable. The Company relies on a limited number of product manufacturers and third- party distributors to fulfill a large percentage of products offered on the online retail store. While management believes that alternate suppliers could provide product at comparable terms, the loss of any one manufacturer or distributor could delay shipments and have a material adverse effect on the Company's business, financial position and results of operations. Recent accounting pronouncements In March 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is effective for financial statements for years beginning after December 15, 1998. SOP 98-1 provides guidance over accounting for computer software developed or obtained for internal use including the requirement to capitalize specified costs and amortization of such costs. The adoption of the provisions of SOP 98-1 during the fiscal year beginning January 1, 1999, did not have a material effect on the financial statements. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting standards of derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In July 1999, the Financial Accounting Standards Board issued SFAS No. 137, "Accounting with Derivative Instruments and Hedging Activities Deferral of the Effective Date of FASB Statement No. 133" ("SFAS 137"). SFAS 137 deferred the effective date until the first fiscal quarter ending June 30, 2000. The Company will adopt SFAS 133 in its quarter ending June 30, 2000. The Company has not engaged in hedging activities or invested in derivative instruments. F-11 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) Note 2--Balance Sheet Components (in thousands):
December 31, ------------ June 30, 1997 1998 1999 ----- ----- ----------- (unaudited) Prepaid expenses and other current assets: Prepaid advertising............................... $ -- $ -- $1,024 Other............................................. 14 178 330 ----- ----- ------ $ 14 $ 178 $1,354 ===== ===== ====== Property and equipment: Computer equipment and software................... $ 230 $ 627 $ 949 Office furniture and fixtures..................... 101 134 241 ----- ----- ------ 331 761 1,190 Less: accumulated depreciation.................... (169) (291) (425) ----- ----- ------ $ 162 $ 470 $ 765 ===== ===== ====== Other current liabilities: Customer deposits................................. $ 36 $ -- $ -- Accrued compensation.............................. 28 375 365 Deferred revenue.................................. 52 -- -- Accrued advertising............................... -- -- 1,024 Other............................................. 7 48 40 ----- ----- ------ $ 123 $ 423 $1,429 ===== ===== ======
Note 3--Long-Term Debt (in thousands): Long-term debt consists of the following:
December 31, ------------ June 30, 1997 1998 1999 ----- ----- ----------- (unaudited) Equipment term loan (a)............................ $ -- $ 134 $ 474 Line of credit (b)................................. 237 423 423 Equipment term loan (b)............................ -- 132 96 Software loan (c).................................. -- 103 47 Capital leases..................................... 18 3 -- ----- ----- ------ 255 795 1,040 Current portion of long-term debt.................. (252) (606) (542) ----- ----- ------ $ 3 $ 189 $ 498 ===== ===== ======
(a) In September 1998, the Company entered into a loan agreement with a bank which provided borrowings up to $800,000. Borrowings under the agreement are due on September 15, 2001 and bear interest at the prime rate plus one- half percent (8.25% at December 31, 1998 and June 30, 1999). Borrowings for software, furniture, fixtures or telephone equipment are limited to 75% of the invoice amount. The Company must meet certain financial covenants in connection with the loan agreement with which it was in compliance at December 31, 1998. As of June 30, 1999, the Company was in violation of one of its financial covenants for which a waiver from the bank was obtained. F-12 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) (b) In December 1997, the Company entered into a loan agreement with a bank which provided for a line of credit and a equipment term loan. Under the line of credit, the Company can borrow up to $500,000 and is required to keep cash on hand to cover the balance outstanding. At December 31, 1998 and June 30, 1999, the Company had short-term investments of $423,000 collateralized under the agreement. The line of credit bears interest at 8.75% and is renewable on a quarterly basis at the option of the Company. Interest on the line is payable monthly. Under the equipment term loan, the Company can borrow up to $150,000 to be used to purchase capital equipment, furniture, software or other equipment. The term loan bears interest at the prime rate plus one percent (8.75% at December 31, 1998 and June 30, 1999) and is payable in twenty-four equal installments, including interest, commencing on January 28, 1999. The Company must meet certain financial covenants in connection with the loan agreement with which it was in compliance at December 31, 1998. As of June 30, 1999, the Company was in violation of one of its financial covenants for which a waiver from the bank was obtained. (c) In October 1998, the Company entered into a loan agreement with a software company to purchase software. Borrowings under the agreement bear interest at 7.5% and are payable in equal monthly installments over a twelve month period beginning in October 1998. Note 4--Commitments: Operating leases The Company leases office space under noncancelable operating leases at two locations, expiring in April 2001 and July 2004. Rent expense totaled $44,000, $51,000, $157,000, $54,000 and $105,000 for the years ended December 31, 1996, 1997 and 1998 and the six months ended June 30, 1998 and 1999, respectively. The Company sublets one of the spaces for a total of $385,000 through April 2001. Future minimum lease payments under noncancelable operating leases are as follows (in thousands):
Years Ending December 31, ------------------------- 1999............................................................ $ 455 2000............................................................ 1,113 2001............................................................ 1,042 2002............................................................ 1,024 2003............................................................ 1,062 Thereafter...................................................... 633 ------ $5,329 ======
Distributor The Company maintains agreements with independent distributors to provide merchandise. The terms of these agreements are generally one to three years with optional extension periods. Annual minimum payments under these agreements are $344,000. Advertising As of June 30, 1999 the Company had commitments for online advertising of approximately $5.0 million. The Company is recognizing these fees as marketing and sales expenses on a straight-line basis over the terms of the related contracts. F-13 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) Other The Company has entered into employment agreements with five of its officers which provide for minimum annual salary levels ranging from $110,000 to $280,000, as well as bonuses of up to 20% of the base salary. Note 5--Income Taxes: The Company incurred net operating losses for each of the three years ended December 31, 1998 and accordingly, no provision for income taxes has been recorded. The tax benefit is reconciled to the amount computed using the federal statutory rate as follows (in thousands):
Year Ended December 31, --------------------- 1996 1997 1998 ----- ----- ------- Federal statutory benefit............................ $(159) $(355) $(1,400) State taxes, net of federal benefit.................. (28) (63) (247) Future benefits not currently recognized............. 187 418 1,550 Nondeductible compensation........................... -- -- 97 ----- ----- ------- $ -- $ -- $ -- ===== ===== =======
At December 31, 1998, the Company had approximately $4.3 million of federal and $4.7 million of state net operating loss carryforwards available to offset future taxable income which expire at various dates through 2019. Under the Tax Reform Act of 1986, the amount of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. Deferred tax assets and liabilities consist of the following (in thousands):
December 31, -------------- 1997 1998 ----- ------- Deferred tax assets: Net operating loss carryforwards........................... $ 604 $ 1,843 Accruals and allowances.................................... 45 354 ----- ------- Net deferred tax assets................................... 649 2,197 Valuation allowance......................................... (649) (2,197) ----- ------- $ -- $ -- ===== =======
The Company has incurred losses for the years ended December 31, 1997 and 1998. Management believes that based on the history of such losses and other factors, the weight of available evidence indicates that it is more likely than not that the Company will not be able to realize its deferred tax assets and thus a full valuation allowance has been recorded at December 31, 1997 and 1998. F-14 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) Note 6--Convertible Preferred Stock: Convertible Preferred Stock ("Preferred Stock") consists of the following (in thousands except per share amounts):
Proceeds Net of Shares Per Share Liquidation Issuance Series Authorized Outstanding Amount Amount Costs ------ ---------- ----------- --------- ----------- -------- A..................... 2,813 2,679 $0.56 $ 1,502 $ 1,473 B..................... 9,679 9,679 0.50 4,839 4,780 ------ ------ ------- ------- Balance at December 31, 1998................... 12,492 12,358 6,341 6,253 C..................... 17,569 17,486 1.03 18,000 17,937 ------ ------ ------- ------- Balance at June 30, 1999 (unaudited)............ 30,061 29,844 $24,341 $24,190 ====== ====== ======= =======
The holders of Convertible Preferred have various rights and preferences as follows: Dividends Holders of the Series A Preferred Stock are entitled to receive annual dividends of 8% per share, when and if declared by the Board of Directors prior to the declaration of dividends to holders of Common Stock. Holders of Series B Preferred Stock are entitled to receive annual dividends of 8% per share, when and if declared by the Board of Directors prior to the declaration of dividends to holders of Series A Preferred Stock and holders of Common Stock. Holders of Series C Preferred Stock are entitled to receive annual dividends of 8% per share, when and if declared by the Board of Directors prior to the declaration of dividends to holders of Series A Preferred Stock, holders of Series B Preferred Stock and holders of Common Stock. As of June 30, 1999, no dividends had been declared by the Board of Directors. Conversion Each share of Series A, Series B and Series C Preferred Stock is convertible into shares of Common Stock based on a formula which results in a one-for-one exchange ratio at June 30, 1999. This formula is subject to adjustment, as defined, which essentially provides adjustments for holders of the Preferred Stock in the event of stock splits or combinations. Such conversion is automatic upon the earlier of (i) the effective date of a public offering of Common Stock resulting in gross proceeds of at least $10,000,000 and at a price per share of at least $2.059 or (ii) written notice to the corporation of the preferred stockholders' intent to convert into shares of Common Stock. Liquidation In the event of liquidation, holders of the Series A Preferred Stock are entitled to a per share distribution in preference to holders of Common Stock equal to the Series A stated value of $0.5625 at December 31, 1998 plus any declared but unpaid dividends. The holders of Series B Preferred Stock are entitled to a per share distribution preference to holders of Common Stock and Series A Preferred Stock equal to the Series B stated value of $0.50 plus any declared but unpaid dividends. The holders of Series C Preferred Stock are entitled to a per share distribution preference to holders of Common Stock, Series A Preferred Stock and Series B Preferred Stock equal to the Series C stated value of $1.0294 plus any declared but unpaid dividends. In the event funds are sufficient to make a complete distribution to holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock as described above, the remaining assets will be distributed ratably among the holders of Common Stock and Series A Preferred Stock and Series B Preferred Stock, assuming conversion of F-15 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months Ended June 30, 1998 and 1999 is unaudited) all shares of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock into Common Stock. If distributions to holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock as described above would reach an aggregate of $1.125, $0.997 and $2.059 per share, respectively, the Common Stock holders would receive the remaining assets. Redemption In connection with the Series B Preferred Stock share issuance, holders of Series A Preferred Stock agreed to waive all mandatorily redeemable features associated with their Preferred Stock. The holders of the Series B and Series C have no redemption rights. Voting The holders of the Series A Preferred Stock and Series C Preferred Stock, voting as separate classes, are entitled to elect one director, each, to the Board. The holders of the Series B Preferred Stock, voting as a separate class, are entitled to elect two directors to the Board. Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common Stock, voting together as a single class, are entitled to elect two additional directors to the Board. In addition, the holders of the Common Stock, voting together as a class, are entitled to elect two directors. Additionally, except as required by law, the consent of at least 66-2/3% of the holders of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, each voting as separate classes are required to (i) amend the articles of incorporation, (ii) establish any class of capital stock with dividend or liquidation preferences senior to those of the Series A shares or Series B shares or Series C shares or (iii) increase the authorized number of Series A Preferred Stock or Series B Preferred Stock or Series C Preferred Stock. Without the consent of the holders of at least a majority of the number of Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, voting together as a single class, the Company cannot effect any liquidation. Warrants for Preferred Stock In connection with the loan agreement entered into in December 1997, the Company issued to the bank a warrant to purchase 44,445 shares of Series A Preferred Stock. The warrant may be exercised at any time between May 1, 1998 and December 24, 2002 at an exercise price of $0.56 per share. The warrant was recorded as a debt discount at its estimated fair value of $8,000. Amortization of the discount was recognized as interest expense over the term of the loan agreement. The warrant automatically converts to a warrant to purchase Common Stock upon the effective date of an initial public offering. In connection with the issuance of convertible promissory notes to certain holders of the Series A Preferred Stock in May 1998 and December 1997, the Company issued warrants to purchase 53,334 shares of Series A Preferred Stock. The warrants may be exercised at any time prior to December 26, 2002 at an exercise price of $0.56 per share. The warrants were recorded as a debt discount at its estimated fair value of $13,000. Amortization of the discount is being recognized as interest expense over the term of the promissory notes. The warrants automatically convert to warrants to purchase Common Stock upon the effective date of an initial public offering. In May 1998 and December 1997, the Company issued warrants to purchase 36,000 shares of Series A Preferred Stock to certain members of the Board of Directors for services. The warrants may be exercised at any time prior to May 22, 2003 and December 26, 2002 at an exercise price of $0.56 per share. The warrants automatically convert to warrants to purchase Common Stock upon the effective date of an initial public offering. The Company has not recorded any expense the estimated fair value of the warrants because such amounts were insignificant. F-16 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) Note 7--Common Stock: At December 31, 1997 and 1998, there were 6,820,000 and 7,329,000 shares outstanding, respectively, of Common Stock issued to the founders of the Company, affiliates and other nonrelated parties. At June 30, 1999, there were 7,585,000 shares outstanding of Common Stock. A portion of the shares sold are subject to a right of repurchase by the Company subject to vesting. At December 31, 1997 and 1998 and June 30, 1999, there were approximately 0, 1,305,000 and 895,000 shares, respectively, subject to repurchase. Under the terms of the loan agreements, the Company is prohibited from paying dividends without approval from the bank. In September 1997, the Board of Directors approved a two-for-one stock split of the Company's Common Stock and Preferred Stock with a corresponding adjustment to outstanding stock options. All common and preferred share and per share data in the accompanying financial statements have been adjusted retroactively to give effect to the stock split. During the year ended December 31, 1998, the Company issued 71,120 shares of Common Stock to consultants in exchange for services. In connection with these issuances, the Company recorded expenses of $4,000 based on the fair value of the Common Stock on the date of grant. The Company has reserved shares of Common Stock for issuance as follows (in thousands):
June 30, 1999 ----------- (unaudited) Conversion of Series A......................................... 2,679 Conversion of Series B......................................... 9,679 Conversion of Series C......................................... 17,486 Common Stock issued............................................ 7,585 Exercise of options under the Equity Incentive Plans........... 7,620 Exercise of warrants issued for Common Stock................... 122 Exercise of warrants issued for Series A Preferred Stock....... 134 Undesignated................................................... 14,695 ------ 60,000 ======
Warrants for Common Stock In March 1998, the Company issued fully-vested warrants to purchase 220,000 shares of Common Stock to certain investors for services provided. The warrants were exercisable at the option of the holder at any time prior to March 7, 1999 at an exercise price of $0.50 per share. The Company has not recorded any expense for the estimated fair value of the warrants because such amount was insignificant. The warrants were fully exercised in May 1999. In March 1999, the Company issued a fully-vested warrant to purchase 97,144 shares of Common Stock to a distributor in exchange for exclusivity rights. The warrant is exercisable at the option of the holder at any time prior to March 31, 2000 at an exercise price of $1.03 per share. The warrant is recorded as a marketing and sales expense at its estimated fair value of $26,000 over the term of the distribution agreement. In May 1999, the Company issued a fully-vested warrant to purchase 25,000 shares of Common Stock to a distributor in exchange for exclusivity rights. The warrant is exercisable at the option of the holder at any time prior to May 31, 2000, at an exercise price of $3.00 per share. The warrant is recorded as a marketing and sales expense at its estimated fair value of $8,000 over the term of the distribution agreement. F-17 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) Note 8--Stock Option Plan: In November 1996, the Board of Directors adopted the 1996 Stock Option Plan (the "Plan") providing for the issuance of incentive and nonstatutory stock options to employees, consultants and outside directors of the Company. The Plan was amended in April 1999 to increase the number of shares authorized for issuance to a total of 8,100,274. Options may be granted at an exercise price at the date of grant of not less than the fair market value per share for incentive stock options and not less than 85% of the fair market value per share for nonstatutory stock options, except for options granted to a person owning greater than 10% of the total combined voting power of all classes of stock of the Company, for which the exercise price of the option must be not less than 110% of the fair market value. The fair market value of the Company's Common Stock is determined by the Board of Directors or a committee thereof. Options granted under the Plan generally become exercisable at a rate of 25% after the first year and ratable each month over the next three years and expire no later than five years after the grant date. The following table summarizes information about stock option transactions under the Plan (in thousands, except per share amounts):
Year Ended December 31, Six Months --------------------------------- Ended June 30, 1997 1998 1999 ---------------- ---------------- ---------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price ------ -------- ------ -------- ------ -------- (unaudited) Outstanding at beginning of period.................... -- $ -- 1,798 $0.06 3,606 $0.06 Granted below fair value... -- -- 2,896 0.06 2,584 0.21 Granted at fair value...... 1,846 0.06 20 0.06 -- Exercised.................. (7) 0.06 (438) 0.06 (36) 0.06 Canceled................... (41) 0.06 (670) 0.06 (423) 0.21 ------ ----- ----- Outstanding at end of period.................... 1,798 0.06 3,606 0.06 5,731 0.11 ====== ===== ===== Options vested............. -- 756 593 ====== ===== ===== Weighted average fair value of options granted during the period................ $0.06 $0.48 $1.04 ===== ===== =====
At June 30, 1999, the Company had 1,445,402 shares available for future grant under the Plan. F-18 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) The following table summarizes the information about stock options outstanding and exercisable as of December 31, 1998 (in thousands, except per share amounts):
Options Outstanding and Exercisable -------------------------------- Weighted Average Remaining Weighted Contractual Average Number Life Exercise Outstanding (in years) Price Exercise Price ----------- ----------- -------- $0.06.......................................... 756 2.74 $0.06
The following table summarizes the information about stock options outstanding and exercisable as of June 30, 1999 (in thousands, except per share amounts):
Options Outstanding and Exercisable -------------------------------- Weighted Average Remaining Weighted Contractual Average Number Life Exercise Outstanding (in years) Price Exercise Price ----------- ----------- -------- $0.06.......................................... 593 3.80 $0.06
The weighted average remaining contractual life of stock options outstanding at December 31, 1998 and June 30, 1999 was 2.91 and 2.48 years, respectively. Fair value disclosures The Company applies the measurement principles of APB No. 25 in accounting for its stock option plan. Had compensation expense for options granted for the years ended December 31, 1997 and 1998 and the six months ended June 30, 1998 and 1999 been determined based on the fair value at the grant date as prescribed by SFAS No. 123, the Company's net loss and net loss per share would have decreased to the pro forma amounts indicated below (in thousands, except per share amounts):
Year Ended Six Months Ended December 31, June 30, ---------------- ----------------- 1997 1998 1998 1999 ------- ------- -------- -------- (unaudited) Net loss: As reported............................. $(1,045) $(4,120) $ (916) $ (6,648) ======= ======= ======= ======== Pro forma............................... $(1,048) $(4,018) $ (901) $ (6,186) ======= ======= ======= ======== Basic and diluted net loss per share: As reported............................. $ (0.15) $ (0.64) $ (0.17) $ (1.00) ======= ======= ======= ======== Pro forma............................... $ (0.15) $ (0.62) $ (0.17) $ (0.93) ======= ======= ======= ========
F-19 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) The Company calculated the minimum fair value of each option grant on the date of grant using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following assumptions:
Year Ended December 31, Six Months Ended June 30, ------------------------ -------------------------- 1997 1998 1998 1999 ----------- ----------- ------------ ------------ (unaudited) Risk-free interest rates.................. 5.13-5.64% 4.06-5.15% 5.13-5.15% 4.34-4.89% Expected lives (in years)................. 5 5 5 5 Dividend yield.......... 0% 0% 0% 0% Expected volatility..... 0% 0% 0% 0%
Because the determination of fair value of all options granted after such time as the Company becomes a public entity will include an expected volatility factor in addition to the factors described in preceding paragraph, the above results may not be representative of future periods. Unearned stock-based compensation In connection with certain stock option grants, during the year ended December 31, 1998 and the six months ended June 30, 1999, the Company recognized unearned stock-based compensation totaling $1,221,000 and $2,154,000, respectively, which is being amortized over the vesting periods of the related options, which is generally four years, using the multiple option approach. Amortization expense recognized for the year ended December 31, 1998 and the six months ended June 30, 1999 totaled approximately $243,000 and $740,000, respectively. In determining the fair market value on each grant date, the Company considered among other things, the relative level of revenues and other operating results, the absence of a public trading market for the Company's securities and the competitive nature of the Company's market. Note 9--Related Party Transactions: In May 1998 and December 1997, certain holders of Series A Preferred Stock received from the Company convertible promissory notes in exchange for $325,000. The notes bore interest at 8% per annum. The notes were converted to Series B Preferred Stock in June 1998. Note 10--Subsequent Events: Reincorporation In September 1999, the Company's Board of Directors authorized the reincorporation of the Company in the State of Delaware. As a result of the reincorporation, the Company is authorized to issue 100,000,000 shares of $0.001 par value Common Stock and 5,000,000 shares of $0.001 par value Preferred Stock. The Board of Directors has the authority to issue the undesignated Preferred Stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. The par value of the Preferred Stock and shares of Common Stock and Preferred Stock authorized in the consolidated balance sheet at December 31, 1997 and 1998 and in consolidated statement of stockholders' equity for each of the three years in the period ended December 31, 1998 have been retroactively adjusted to reflect the reincorporation. Stock option grant During August and September 1999, the Company granted options to purchase 1,890,350 shares of Common Stock to existing and new employees at a weighted average exercise price of $1.28. In connection with these stock option grants, the Company will recognize $6.1 million in unearned stock-based compensation that will be recognized over the related vesting periods. F-20 FOGDOG, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the six months ended June 30, 1998 and 1999 is unaudited) Acquisition In September 1999, the Company acquired all of the outstanding shares of Sports Universe, Inc. for 399,998 shares of Common Stock with an estimated fair value of $4.00 per share. The acquisition will be accounted for using the purchase method of accounting. The total purchase price of approximately $1.6 million will be allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values at the acquisition date. Series D Preferred Stock In September 1999, the Company issued 5,294,116 shares of Series D Preferred Stock ("Series D") at $2.89 per share resulting in cash proceeds of $15.3 million. Each share of Series D has voting rights equal to Common Stock at any time. Holders of Series D are entitled to receive annual dividends of 8% per share, when and if declared by the Board of Directors prior to the declaration of dividends to holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common Stock. The Series D is convertible at any time into Common Stock at a one-for-one exchange ratio. Such conversion is automatic upon the effective date of an initial public offering. In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series D Preferred Stock are entitled to receive, prior and in preference to any holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Common Stock, an amount equal to $2.89 per share, plus any declared but unpaid dividends. Holders of Series D are subject to all rights and preferences of previously issued series of preferred stockholders. For the nine months ending September 30, 1999, the Company will record a preferred stock dividend to reflect the beneficial conversion feature granted to the holders of the Series D. Strategic Agreement In September 1999, the Company entered into a two-year strategic distribution agreement with Nike USA, Inc. ("Nike") to distribute Nike products over the Company's web site. In exchange for certain online exclusivity rights, the Company granted Nike a fully-vested warrant to purchase 6,171,524 shares of Series C Preferred Stock at $1.03 per share. The warrant automatically converts to a warrant to purchase Common Stock upon the closing of an initial public offering. The Company will expense the estimated fair value of the warrant of approximately $24.0 million over the term of the distribution agreement as marketing and sales expense. 1999 Stock Plans In September 1999, the Company's Board of Directors approved the 1999 Stock Incentive Plan (the "1999 Plan"), which will serve as the successor plan to the 1996 Plan. The Board of Directors also approved a 1999 Employee Stock Purchase Plan (the "1999 ESPP"). These plans will become effective immediately prior to the completion of an initial public offering. The common stock reserved for future issuances under these plans will be 18% of the shares of Common Stock outstanding immediately after the initial public offering. Additionally, the share reserve in each plan will automatically increase on the first trading day in January each year, beginning with calendar year 2000, equal to the lesser of (i) the number of shares initially reserved for such increase in each respective plan, (ii) 4.25% and 0.75% of the then outstanding shares for the 1999 Plan and the 1999 ESPP, respectively, or (iii) an amount determined by the Board of Directors. F-21 FOGDOG, INC. PRO FORMA CONSOLIDATED FINANCIAL INFORMATION Effective September 3, 1999, Fogdog, Inc. ("Fogdog") merged with Sports Universe, Inc. ("Sports Universe"). Sports Universe sells equipment and apparel for wakeboarding, waterskiing, inline skating, surfing and skateboarding on the Internet. The merger was accounted for using the purchase method of accounting and accordingly the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values at the acquisition date. The total purchase price of approximately $1.6 million consisted of 399,998 shares of Fogdog Common Stock with an estimated fair value of approximately $4.00 per share and other acquisition related expenses of approximately $30,000, consisting primarily of payments for professional fees. The purchase price was allocated to net tangible liabilities assumed of $524,000 and goodwill of $2.2 million. The acquired goodwill will be amortized over its estimated useful life of two years. The following unaudited pro forma consolidated balance sheet gives effect to this merger as if it had occurred on June 30, 1999. The following unaudited pro forma consolidated statements of operations gives effect to this merger as if it had occurred on February 9, 1998 ("inception"), by consolidating the results of operations of Sports Universe from inception through December 31, 1998 and the six months ended June 30, 1999 with the results of operations of Fogdog. The unaudited pro forma consolidated statements of operations are not necessarily indicative of the operating results that would have been achieved had the transaction been in effect as of December 31, 1998 and should not be construed as being representative of future operating results. The historical financial statements of Fogdog and Sports Universe are included elsewhere in this Prospectus and the unaudited pro forma consolidated financial information presented herein should be read in conjunction with those financial statements and related notes. F-22 FOGDOG, INC. PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands)
June 30, 1999 ---------------------------------------------- Sports Universe, Fogdog, Inc. Inc. Adjustments Pro Forma ------------ --------- ----------- --------- ASSETS Current assets: Cash and cash equivalents...... $ 14,177 $ 21 $ -- $ 14,198 Short-term investments......... 423 -- -- 423 Accounts receivable, net....... 80 44 -- 124 Merchandise inventory.......... 273 20 -- 293 Prepaid expenses and other current assets................ 1,354 1 -- 1,355 -------- ----- ------ -------- Total current assets......... 16,307 86 -- 16,393 Property and equipment, net...... 765 47 -- 812 Goodwill......................... -- -- 2,154 (A) 2,154 -------- ----- ------ -------- Total assets................. $ 17,072 $ 133 $2,154 $ 19,359 ======== ===== ====== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable............... $ 1,533 $ 109 $ -- $ 1,642 Notes payable to shareholders.. -- 325 -- 325 Current portion of long-term debt.......................... 542 -- -- 542 Other current liabilities...... 1,429 223 30 (A) 1,682 -------- ----- ------ -------- Total current liabilities.... 3,504 657 30 4,191 Long-term debt, less current portion......................... 498 -- -- 498 Stockholders' equity (deficit): Convertible Preferred Stock.... 30 -- -- 30 Common Stock................... 7 6 (6)(A) 7 Additional paid-in capital..... 27,855 19 1,581 (A) 29,455 Unearned stock-based compensation.................. (2,392) -- -- (2,392) Accumulated deficit............ (12,430) (549) 549 (A) (12,430) -------- ----- ------ -------- Total stockholders' equity (deficit)................... 13,070 (524) 2,124 14,670 -------- ----- ------ -------- Total liabilities and stockholders' equity........ $ 17,072 $ 133 $2,154 $ 19,359 ======== ===== ====== ========
The accompanying notes are an integral part of these pro forma consolidated financial statements F-23 FOGDOG, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (in thousands, except per share amounts)
Six Months Ended June 30, 1999 --------------------------------------------- Sports Universe, Fogdog, Inc. Inc. Adjustments Pro Forma ------------ --------- ----------- --------- Net revenues..................... $ 1,084 $262 $ -- $ 1,346 Cost of revenues................. 821 155 -- 976 ------- ---- ----- ------- Gross profit..................... 263 107 -- 370 ------- ---- ----- ------- Operating expenses: Marketing and sales............ 4,345 67 -- 4,412 Site development............... 1,208 -- -- 1,208 General and administrative..... 776 103 -- 879 Amortization of stock-based compensation.................. 740 -- -- 740 Amortization of goodwill....... -- -- 539 (B) 539 ------- ---- ----- ------- Total operating expenses..... 7,069 170 539 7,778 ------- ---- ----- ------- Operating loss................... (6,806) (63) (539) (7,408) Interest income, net............. 158 -- -- 158 ------- ---- ----- ------- Net loss......................... $(6,648) $(63) $(539) $(7,250) ======= ==== ===== ======= Pro forma basic and diluted loss per share (C)................... $ (1.00) $ (1.03) ======= ======= Pro forma basic and diluted weighted average shares used in computation of pro forma net loss per share.................. 6,631 7,031 ======= =======
The accompanying notes are an integral part of these pro forma consolidated financial statements F-24 FOGDOG, INC. PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) (in thousands, except per share amounts)
Year Ended December 31, 1998 --------------------------------------------- Sports Universe, Fogdog, Inc. Inc. Adjustments Pro Forma ------------ --------- ----------- --------- Net revenues..................... $ 765 $ 179 $ -- $ 944 Cost of revenues................. 275 126 -- 401 ------- ----- ----- ------- Gross profit..................... 490 53 -- 543 ------- ----- ----- ------- Operating expenses: Marketing and sales............ 2,399 261 -- 2,660 Site development............... 1,318 -- -- 1,318 General and administrative..... 705 278 -- 983 Amortization of stock-based compensation.................. 243 -- -- 243 Amortization of goodwill....... -- -- 987 (B) 987 ------- ----- ----- ------- Total operating expenses..... 4,665 539 987 6,191 ------- ----- ----- ------- Operating loss................... (4,175) (486) (987) (5,648) Interest income, net............. 29 -- -- 29 Other income..................... 26 -- -- 26 ------- ----- ----- ------- Net loss......................... $(4,120) $(486) $(987) $(5,593) ======= ===== ===== ======= Pro forma basic and diluted loss per share (C)................... $ (0.64) $ (0.82) ======= ======= Pro forma basic and diluted weighted average shares used in computation of pro forma net loss per share.................. 6,462 6,819 ======= =======
The accompanying notes are an integral part of these pro forma consolidated financial statements F-25 FOGDOG INC. NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The following adjustments were applied to Fogdog's historical financial statements and those of Sports Universe to arrive at the pro forma consolidated financial information. (A) To record the purchase of Sports Universe by Fogdog including Common Stock, accrued professional fees and goodwill. (B) To record amortization of acquired goodwill totaling $2,154,000 over the estimated period of benefit of two years. (C) Pro forma basic and diluted net loss per share of the six month period ended June 30, 1999 and for the year ended December 31, 1998 was computed using the weighted average number of common and common equivalent shares outstanding. Pro forma common equivalent shares, composed of unvested restricted Common Stock, incremental Common Stock issuable upon the exercise of stock options, warrants, and outstanding Preferred Stock are included in diluted net loss per share to the extent such shares are dilutive. Differences between historical weighted average shares outstanding and pro forma weighted average shares outstanding used to compute net loss per share results form the inclusion of shares issued in conjunction with the acquisition as if such shares were outstanding as of February 9, 1998 (inception of Sports Universe). F-26 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Sports Universe, Inc. In our opinion, the accompanying balance sheet and the related statements of operations, of stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of Sports Universe, Inc. at December 31, 1998 and the results of its operations and its cash flows for the period from February 9, 1998 (inception) to December 31, 1998, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP San Jose, California September 8, 1999 F-27 SPORTS UNIVERSE, INC. BALANCE SHEET
December 31, June 30, 1998 1999 ------------ --------- ASSETS (Unaudited) Current assets: Cash................................................. $ 10,000 $ 21,000 Accounts receivable.................................. 9,000 44,000 Inventory............................................ -- 20,000 Other current assets................................. 1,000 1,000 --------- --------- Total current assets............................... 20,000 86,000 Property and equipment, net............................ 83,000 47,000 --------- --------- Total assets..................................... $ 103,000 $ 133,000 ========= ========= LIABILITIES AND STOCKHOLDERS' DEFICIT Current liabilities: Accounts payable..................................... $ 43,000 $ 109,000 Accrued liabilities.................................. 166,000 175,000 Capital lease obligations............................ 65,000 48,000 Loan from related parties............................ 312,000 325,000 --------- --------- Total current liabilities.......................... 586,000 657,000 --------- --------- Commitments (Note 5) Stockholders' deficit: Common stock Par value $0.001; 25,000,000 shares authorized; 785,000 and 6,346,000 shares outstanding........... 1,000 6,000 Additional paid-in capital........................... 2,000 19,000 Accumulated deficit.................................. (486,000) (549,000) --------- --------- Total stockholders' deficit........................ (483,000) (524,000) --------- --------- Total liabilities and stockholders' deficit...... $ 103,000 $ 133,000 ========= =========
The accompanying notes are an integral part of these financial statements F-28 SPORTS UNIVERSE, INC. STATEMENT OF OPERATIONS
Period from February Six 9, Months 1998 (inception) Ended through June 30, ----------------------- 1999 -------- December 31, June 30, 1998 1998 ------------ --------- (Unaudited) Net revenues: Product................... $ 142,000 $ 21,000 $225,000 Web design and other...... 37,000 7,000 37,000 ------------ --------- -------- Total net revenues...... 179,000 28,000 262,000 ------------ --------- -------- Cost of revenues: Product................... 122,000 16,000 139,000 Web design and other...... 4,000 1,000 16,000 ------------ --------- -------- Total cost of revenues.. 126,000 17,000 155,000 ------------ --------- -------- Gross profit................ 53,000 11,000 107,000 ------------ --------- -------- Operating expenses: Marketing and sales....... 261,000 179,000 67,000 General and administrative........... 278,000 147,000 103,000 ------------ --------- -------- Total operating expenses............... 539,000 326,000 170,000 ------------ --------- -------- Net loss.................... $ (486,000) $(315,000) $(63,000) ============ ========= ========
The accompanying notes are an integral part of these financial statements F-29 SPORTS UNIVERSE, INC. STATEMENT OF STOCKHOLDERS' DEFICIT
Common Stock Additional ----------------- Paid-In Accumulated Stockholders' Shares Amount Capital Deficit Deficit --------- ------ ---------- ----------- ------------- Issuance of common stock at inception........... 785,000 $1,000 $ 2,000 $ -- $ 3,000 Net loss................ -- -- -- (486,000) (486,000) --------- ------ ------- --------- --------- Balance at December 31, 1998................... 785,000 1,000 2,000 (486,000) (483,000) Issuance of common stock (unaudited)............ 5,611,000 5,000 17,000 -- 22,000 Repurchase of common stock (unaudited)...... (50,000) -- -- -- -- Net loss (unaudited).... -- -- -- (63,000) (63,000) --------- ------ ------- --------- --------- Balance at June 30, 1999 (unaudited)............ 6,346,000 $6,000 $19,000 $(549,000) $(524,000) ========= ====== ======= ========= =========
The accompanying notes are an integral part of these financial statements F-30 SPORTS UNIVERSE, INC. STATEMENT OF CASH FLOWS
Period from February 9, 1998 Six (inception) through Months -------------------------------- Ended December 31, June 30, June 30, 1998 1998 1999 ---------------- -------------- -------- (Unaudited) Cash flows from operating activities: Net loss.......................... $ (486,000) $ (315,000) $(63,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization... 36,000 15,000 24,000 Gain on sale of fixed assets.... -- -- (6,000) Changes in assets and liabilities: Accounts receivable........... (9,000) (5,000) (35,000) Inventory..................... -- -- (20,000) Other current assets.......... (1,000) (1,000) -- Accounts payable.............. 43,000 9,000 88,000 Accrued liabilities........... 166,000 128,000 9,000 -------------- -------------- -------- Net cash used in operating activities................. (251,000) (169,000) (3,000) -------------- -------------- -------- Cash flows from investing activities: Acquisition of property and equipment........................ (49,000) (47,000) -- Proceeds from sale of computer equipment........................ -- -- 18,000 -------------- -------------- -------- Net cash (used in) provided by investing activities.... (49,000) (47,000) 18,000 -------------- -------------- -------- Cash flows from financing activities: Payments on capitalized lease obligations...................... (7,000) (1,000) (17,000) Payments on loans from related parties.......................... (64,000) (41,000) (8,000) Proceeds on loans from related parties.......................... 378,000 277,000 21,000 Issuance of common stock.......... 3,000 2,000 -- -------------- -------------- -------- Net cash provided by (used in) financing activities... 310,000 237,000 (4,000) -------------- -------------- -------- Net increase in cash................ 10,000 21,000 11,000 Cash at beginning of period......... -- -- 10,000 -------------- -------------- -------- Cash at end of period............... $ 10,000 $ 21,000 $ 21,000 ============== ============== ======== Non-cash investing activities: Computer equipment leases......... $ 71,000 $ 71,000 -- Conversion of employee compensation to common stock..... -- -- $ 22,000
The accompanying notes are an integral part of these financial statements F-31 SPORTS UNIVERSE, INC. NOTES TO FINANCIAL STATEMENTS (Information for the period from inception through June 30, 1998 and the six months ended June 30, 1999 is unaudited) Note 1--The Company and Summary of Significant Accounting Policies: The Company Sports Universe, Inc. (the "Company"), was incorporated in Delaware on February 9, 1998 ("Inception") for the purpose of selling equipment and apparel for wakeboarding, waterskiing, inline skating, snowboarding, surfing and skateboarding on the Internet. 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 amount of assets liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Revenue recognition The Company's revenues are derived primarily from sales of products over the Internet. Revenues related to product sales are recognized upon shipment by the Company or one of its distribution partners. The Company also derives revenues from Web design, Web hosting, promotion sales and advertising on its web site. The Company recognizes revenue on Web design and Web hosting as the service is provided to the customer and no ongoing obligation exists, and advertising revenue is recognized over the period the advertising is displayed. Restricted cash The Company has cash restricted for use for certain service providers that process customer credit card orders. This cash is used to pay the service providers for amounts not paid for by credit card vendors related to customer orders. As of December 31, 1998 and June 30, 1999 (unaudited), the Company had restricted cash of $3,000 and $7,000, respectively, included in cash. Inventory Inventory is stated at lower of cost or market, cost being determined by the first-in, first-out method. Property and equipment Property and equipment are stated at historical cost. Depreciation is computed using straight-line method over the estimated useful lives of the assets. Computer equipment and office furniture and fixtures are depreciated over three and five years, respectively. For computer equipment under capital leases, the net present value of future lease payments is capitalized at the inception of the lease and amortized over the estimated useful lives of the related asset. From Inception to June 30, 1998 and December 31, 1998 and for the six months ended June 30, 1999 the Company had depreciation and amortization expense of $15,000, $37,000, and $23,000, respectively. The capital leases all have bargain purchase options which allows the Company to purchase the equipment below fair value at the end of the lease. Advertising costs Advertising costs are expensed as incurred in accordance with Statement of Position 93-7, "Reporting on Advertising Costs". Advertising costs from Inception to June 30, 1998 and December 31, 1998 and for the six-month period ended June 30, 1999 (unaudited) were $19,000, $35,000 and $1,000, respectively. F-32 SPORTS UNIVERSE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the period from inception through June 30, 1998 and the six months ended June 30, 1999 is unaudited) Concentration of risks Financial instruments that potentially subject the Company to a concentration of credit risk are cash and accounts receivable. Cash is deposited with a high quality financial institution. The Company's accounts receivable are derived from revenue earned from customers located in the United States and are dominated in U.S. dollars. Accounts receivable balances are typically settled through customer credit cards and, as a result, the majority of accounts receivable are collected upon processing of credit card transactions. No customer accounts for more than 10% of the revenues or accounts receivable as of June 30, 1999 or December 31, 1998. The Company has a limited number of distribution partners one of which fills a material portion of Company's customer orders. The Company has a distribution agreement with this distribution partner. The loss of this distribution partner could have material adverse effect on Company's statement of operations. Fair value of financial instruments The Company's financial instruments, including cash, accounts receivables, accounts payable, accrued expenses and related party loans, have carrying amounts which approximate fair value due to relatively short maturity of these instruments. Interim financial information The accompanying balance sheet as of June 30, 1999 and the statements of operations and of cash flows for the six-month period ended June 30, 1999 and from Inception to June 30, 1998 are unaudited. In the opinion of management, these statements have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for the fair presentation of the results of the interim periods. The financial data and other information disclosed in these notes to financial statements related to these periods is unaudited. The results for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. Note 2--Balance Sheet Components:
December 31, June 30, 1998 1999 ------------ ----------- (Unaudited) Property and equipment: Computer equipment...... $ 39,000 $ 39,000 Computer equipment under a capital lease........ 71,000 36,000 Furniture and office equipment.............. 10,000 10,000 -------- -------- 120,000 85,000 Less: accumulated depreciation and amortization........... (37,000) (38,000) -------- -------- $ 83,000 $ 47,000 ======== ======== Accrued expenses: Web design.............. $ 62,000 $ 56,000 Advertising expenses.... 33,000 19,000 Legal expenses.......... 47,000 52,000 Payroll expense......... -- 19,000 Rent.................... 21,000 25,000 Other................... 3,000 4,000 -------- -------- $166,000 $175,000 ======== ========
F-33 SPORTS UNIVERSE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the period from inception through June 30, 1998 and the six months ended June 30, 1999 is unaudited) Note 3--Related Party Transactions: The Company had loans from two of its key employees totaling $240,000 and $237,000 as of June 30, 1999 and December 31, 1998, respectively. These borrowings relate to certain operating expenses which were paid by the employee and cash infusions made which were made to the Company. These related party loans do not have a stated maturity and are non-interest bearing. The Company also had convertible debt with certain investors in the amount of $85,000 and $75,000 as of June 30, 1999 and December 31, 1998, respectively. The note holder has the option to convert the debt into common stock or to be paid in cash one year after issuance of the note. The note automatically converts to common shares if the Company receives financing at a rate based upon the fair value of the common stock at the date of conversion, as defined in the agreement. The notes carried an annual interest rate of 10%. Note 4--Income Taxes: The Company incurred a net operating loss for the period from Inception to December 31, 1998 and accordingly, no provision for income taxes has been recorded. The tax benefit is reconciled to the amount computed using the federal statutory rate as follows:
From Inception to December 31, 1998 ----------------- Federal statutory benefit.................................. $(157,000) State taxes, net of federal benefit........................ (28,000) Future benefits not currently recognized................... 185,000 --------- $ -- =========
At December 31, 1998, the Company had approximately $461,000 of federal and $462,000 of state net operating loss carryforwards available to offset future taxable income which expire at various dates through 2013. Under the Tax Reform Act of 1986, the amount of and benefits from net operating loss carryforwards may be impaired or limited in certain circumstances. Events which cause limitations in the amount of net operating losses that the Company may utilize in any one year include, but are not limited to, a cumulative ownership change of more than 50%, as defined, over a three year period. Note 5--Commitments: Rent expense under non-cancelable operating lease agreements for the six- month period ended June 30, 1999 and from Inception to June 30, 1998 and December 31, 1998 were $7,000, $22,000 and $47,000, respectively. Future minimum lease payments related to office facilities and computer equipment under non-cancelable operating and capital leases are $44,000 for 1999, $19,000 for 2000 and $4,000 for 2001. There are no minimum lease payments due after March 2001. Note 6--Common Stock: The Company's Articles of Incorporation, as amended, authorize the Company to issue common stock, $.001 par value. For the six-months ended June 30, 1999, the Company issued 6,346,000 shares of Common F-34 SPORTS UNIVERSE, INC. NOTES TO FINANCIAL STATEMENTS--(Continued) (Information for the period from inception through June 30, 1998 and the six months ended June 30, 1999 is unaudited) Stock to both employees and non-related parties, respectively. A portion of these shares, issued to employees are subject to a right of repurchase by the Company, which lapses generally over a one-year period. At June 30, 1999, there were 735,000 shares subject to repurchase. Note 7--Subsequent Events: On September 3, 1999 the Company merged with Fogdog Acquisition Corp., a wholly owned subsidiary of Fogdog, Inc. F-35 The inside backcover of the prospectus includes: The following text placed in the center of the page and the Fogdog Sports logo below the text: THE DOG KNOWS SPORTS [Fogdog Sports Logo] Circling the text described above and the Fogdog Sports logo are the following, clockwise starting with the top of the page in the center: [PICTURE OF SOCCER CLEAT EXPERT ADVICE PAGE] The word "EXPERTISE" appears above the picture of the soccer cleat expert advice page. [PICTURE OF RUNNING SHOE SELECTION PAGE] The word "SELECTION" appears above the picture of the running shoe selection page. [PICTURE OF BULLETIN BOARD IN THE OUTDOOR COMMUNITY PAGE] The word "COMMUNITY" appears above the picture of the bulletin board in the outdoor community page. [CLOSE-UP PICTURE OF A JACKET] The words "DETAILED IMAGERY" appear above the close-up picture of a jacket. [PICTURE OF PRODUCT INFORMATION FOR SOCCER CLEAT PAGE] The words "PRODUCT INFORMATION" appear above the picture of the product information for soccer cleat page. [PICTURE OF COMPARISON CHART FOR CLIMBING FOOTWEAR PAGE] The words "COMPARISON CHARTS" appear above the picture of the comparison chart for climbing footwear page. [PICTURE OF FOGDOG FETCH BASEBALL AND SOFTBALL BAT CONFIGURATOR PAGE] The word "CONFIGURATOR" appears above the picture of the Fogdog Fetch baseball and softball configurator page. [PICTURE OF CALLAWAY GOLF BRAND PAGE] The words "TOP BRANDS" appear above the picture of the Callaway Golf brand page, which includes the Callaway logo. The back cover of the prospectus contains Fogdog Sport's logo. [LOGO OF FOG DOG SPORTS] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than the underwriting discounts payable by us in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fees and the Nasdaq National Market listing fee. SEC Registration Fee................................................ $16,680 NASD Filing Fee..................................................... 6,500 Nasdaq National Market Listing Fee.................................. * Printing and Engraving Expenses..................................... * Legal Fees and Expenses............................................. * Accounting Fees and Expenses........................................ * Blue Sky Fees and Expenses.......................................... * Transfer Agent Fees................................................. * Miscellaneous....................................................... * ------- Total............................................................. *
- -------- * To be filed by amendment Item 14. Indemnification of Directors and Officers Section 145 of the Delaware General Corporation Law authorizes a court to award or a corporation's board of directors to grant indemnification to directors and officers in terms sufficiently broad to permit the indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933, as amended (the "Securities Act"). Article VII, Section 6 of our bylaws provides for mandatory indemnification of our directors and officers and permissible indemnification of employees and other agents to the maximum extent permitted by the Delaware General Corporation Law. Our certificate of incorporation provides that, subject to Delaware law, our directors will not be personally liable for monetary damages for breach of the directors' fiduciary duty as directors to Fogdog Sports and its stockholders. This provision in the certificate of incorporation does not eliminate the directors' fiduciary duty, and in appropriate circumstances equitable remedies such as injunctive or other forms of non-monetary relief will remain available under Delaware law. In addition, each director will continue to be subject to liability for breach of the director's duty of loyalty to the company or our stockholders for acts or omissions not in good faith or involving intentional misconduct, for knowing violations of law, for actions leading to improper personal benefit to the director, and for payment of dividends or approval of stock repurchases or redemptions that are unlawful under Delaware law. The provision also does not affect a director's responsibilities under any other law, such as the federal securities laws or state or federal environmental laws. We have entered into indemnification agreements with our officers and directors, a form of which will be filed with the Securities and Exchange Commission as an exhibit to our registration statement on Form S-1 (No. 333- ). The indemnification agreements provide our officers and directors with further indemnification to the maximum extent permitted by the Delaware General Corporation Law. Reference is also made to Section 7 of the underwriting agreement contained in exhibit 1.1 hereto, indemnifying our officers and directors against certain liabilities, and section 1.11 of the Third Amended and Restated Registration Rights Agreement contained in exhibit 4.2 hereto, indemnifying the parties thereto, including controlling stockholders, against liabilities. Item 15. Recent Sales of Unregistered Securities During the past three years, the registrant has issued unregistered securities to a limited number of persons as described below: (a) Since inception, the registrant has issued and sold an aggregate of 1,700,000 shares of its common stock to Brett M. Allsop in exchange for services rendered. II-1 (b) Since inception, the registrant has issued and sold an aggregate of 1,700,000 shares of its common stock to Robert S. Chea in exchange for services rendered. (c) Since inception, the registrant has issued and sold an aggregate of 1,700,000 shares of its common stock to Andrew Y. Chen in exchange for services rendered. (d) Since inception, the registrant has issued and sold an aggregate of 300,000 shares of its common stock to Michael Allsop for an aggregate consideration of $10,000. (e) Since inception, the registrant has issued and sold an aggregate of 300,000 shares of its common stock to James Allsop for an aggregate consideration of $10,000. (f) Since inception, the registrant has issued and sold an aggregate of 300,000 shares of its common stock to Jon Allsop for an aggregate consideration of $10,000. (g) Since inception, the registrant has issued and sold an aggregate of 315,792 shares of its common stock to Marcy E. von Lossberg in exchange for services rendered. (h) Since inception, the registrant has issued and sold an aggregate of 331,746 shares of its common stock to Robert Maxfield for an aggregate consideration of $18,661. (i) Since inception, the registrant has issued and sold an aggregate of 165,872 shares of its common stock to Frederick M. Gibbons for an aggregate consideration of $9,330. (j) In September 1996, the registrant issued and sold 1,733,332 shares of its Series A preferred stock to Novus Ventures, L.P., the Robert Maxfield Separate Property Trust, William Romans and Frederick Gibbons for an aggregate purchase price of $974,999. (k) In May 1997, the registrant issued and sold 933,336 shares of its Series A preferred stock to Marianne Allsop, Richard K. Morse, Lazy A Land Company LLC, Jamey Allsop, Skye Allsop and BSJR, Inc. for an aggregate purchase price of $525,001. (l) In October 1997, the registrant issued and sold 12,600 shares of its Series A preferred stock to Enterprise Law Group for an aggregate purchase price of $7,088. (m) In December 1997, the registrant issued to Imperial Bank warrants to purchase up to 44,445 shares of its Series A preferred stock at an exercise price of $0.5625 per share. (n) In December 1997, the registrant issued to Novus Ventures, L.P., Robert Maxfield and Frederick Gibbons warrants to purchase up to an aggregate of 44,667 shares of its Series A preferred stock at an exercise price of $0.5625 per share and convertible promissory notes in aggregate principal amount of $162,500 accruing interest at a rate of 8% per annum. (o) In May 1998, the registrant issued to Novus Ventures, L.P., Robert Maxfield and Frederick Gibbons warrants to purchase up to an aggregate of 44,667 shares of its Series A preferred stock at an exercise price of $0.5625 per share and convertible promissory notes in aggregate principal amount of $162,500 accruing interest at a rate of 8% per annum. (p) In June 1998, Novus Ventures, L.P., Robert Maxfield and Frederick Gibbons converted the principal of the convertible promissory notes, a total of $325,000, into an aggregate of 651,933 shares of the registrant's Series B preferred stock. (q) In June 1998, the registrant issued and sold 9,026,767 shares of its Series B preferred stock to entities affiliated with Whitney Equity Partners and entities affiliated with Draper Fisher (now Draper Fisher Jurvetson Management) for an aggregate purchase price of $4,500,000, which included $75,000 of cancellation of indebtedness. (r) In August 1998, the registrant issued and sold 71,120 shares of its common stock to A&R Partners, Inc. in exchange for past services valued at $3,912. II-2 (s) In November 1998, the registrant issued to Patricia M. Baehr Residual Trust, Borenstein Family Trust, and Makena Partners, L.P. warrants to purchase up to 220,000 shares of its common stock at an exercise price of $0.50 per share. In February 1999, Sequoia Partners exercised such warrants and purchased 220,000 shares of the registrant's common stock at an aggregate purchase price of $110,000. (t) In March 1999, the registrant issued to TSI Soccer warrants to purchase up to 97,144 shares of its common stock at an aggregate exercise price of $100,000. (u) In March and April 1999, the registrant issued and sold 17,485,916 shares of its Series C preferred stock to Novus Ventures, L.P., entities affiliated with Vertex Technologies, Glynn Investment Co., LLC, Intel Corporation, entities affiliated with Venrock Associates, entities affiliated with Draper Fisher Jurvetson, entities affiliated with Whitney Equity Partners, entities affiliated with Sprout Group L.P., entities affiliated with DLJ Capital Corp., entities affiliated with Marquette Venture Partners and certain other individual investors for an aggregate purchase price of $18,000,000. (v) In August 1999, in connection with the acquisition of Sports Universe, Inc., the registrant issued 399,998 shares of its common stock in exchange for all outstanding shares of Sports Universe, Inc.'s capital stock. (w) In September 1999, the registrant issued to Nike USA, Inc. a warrant to purchase up to 6,171,524 shares of its Series C preferred stock at an exercise price of $1.03 per share. (x) In September 1999, prior to the filing of the Registration Statement, the registrant issued and sold 5,294,116 shares of its Series D preferred stock to entities affiliated with Draper Fisher Jurvetson, entities affiliated with Whitney Equity Partners, entities affiliated with Venrock Associates, entities affiliated with Sprout Group L.P., entities affiliated with Marquette Venture Partners, Vertex Technology Fund (II) Ltd., entities affiliated with Worldview, Boston Millennia Partners, L.P., entities affiliated with Lycos Ventures, Hikari Tsushin, Inc., Aman Ventures L.L.C., Smedvig and certain individual investors for an aggregate purchase price of $15,300,000. (y) In September 1999, the registrant issued to Fromuth warrants to purchase up to 50,000 shares of its common stock at an exercise price of $3.00 per share. (z) In May 1999, the registrant issued to distribution partners warrants to purchase up to 25,000 shares of its common stock at an exercise price of $3.00 per share. (aa) Since its inception, the registrant has granted stock options to its employees, directors and consultants under its 1996 Amended and Restated Stock Option Plan, exercisable for up to an aggregate of 7,759,781 shares of its common stock, with exercise prices ranging from $0.055 to $0.88. None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and we believe that each transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2) thereof, Regulation D promulgated thereunder or Rule 701 pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. The recipients in each transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were affixed to the share certificates and instruments issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. II-3 Item 16. Exhibits and Financial Statement Schedules The exhibits listed in the exhibit Index are filed as part of this registration statement. (a) Exhibits
Exhibit Number Description of Document ------- ----------------------- 1.1* Form of Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation, to be effective upon consummation of this offering. 3.2 Amended and Restated Bylaws, to be effective upon consummation of this offering. 4.1* Form of registrant's Specimen Common Stock Certificate. 4.2 Third Amended and Restated Registration Rights Agreement, dated March 3, 1999, April 16, 1999, and September 23, 1999, by and among the registrant and the parties who are signatories thereto. 4.3 Warrant to Purchase Series A Preferred Stock, dated December 24, 1997, by and between the registrant and Imperial Bank. 4.4* Warrant to Purchase Series C Preferred Stock, dated September 23, 1999, by and between the registrant and Nike USA, Inc. 5.1* Opinion of Brobeck, Phleger & Harrison LLP, counsel for the registrant, with respect to the common stock being registered. 10.1 Registrant's Amended and Restated 1996 Stock Option Plan. 10.2* Registrant's 1999 Stock Incentive Plan. 10.3* Registrant's 1999 Employee Stock Purchase Plan. 10.4 Form of registrant's Directors and Officers' Indemnification Agreement. 10.5+ Agreement, dated June 30, 1999, by and between the registrant and America Online Inc. 10.6 Amended and Restated Loan Agreement, dated September 16, 1998, by and between the registrant and Imperial Bank. 10.7 Sublease, dated July 14, 1999, by and between the registrant and Ampex Corporation. 10.8 Letter Agreement, dated December 9, 1997, by and between the registrant and Robin Smith. 10.9* Employment Agreement, dated June 2, 1998, by and between the registrant and Timothy Harrington. 10.10 Employment Agreement, dated June 12, 1998, by and between the registrant and Robert Chea. 10.11 Amended and Restated Employment Agreement, dated April 5, 1999, by and between the registrant and Brett Allsop. 10.12 Letter Agreement, dated August 23, 1999, by and between the registrant and Timothy Joyce. 10.13+ Order Fulfillment Services Agreement, dated September 17, 1999, by and between the registrant and Keystone Fulfillment, Inc. 10.14+ Letter Agreement dated September 17, 1999, by and between the registrant and Nike USA, Inc. 21.1 Subsidiaries of the Registrant. 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 23.3* Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1). 24.1 Power of Attorney. Reference is made to Page II-6. 27.1 Financial Data Schedule for Sports Universe, Inc. (In EDGAR format only) 27.2 Financial Data Schedule for FogDog, Inc.
- -------- * To be filed by amendment + Confidential Treatment Requested (b) Financial Statement Schedule II-4 Item 17. Undertakings We hereby undertake to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the Delaware General Corporation Law, our certificate of incorporation or our bylaws, indemnification agreements entered into between the company and our officers and directors, the underwriting agreement, or otherwise, we have been advised that in the opinion of the commission such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. If a claim for indemnification against such liabilities (other than the payment by us of expenses incurred or paid by any of our directors, officers or controlling persons 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, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by us 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: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by us 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-5 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-1 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Redwood City, State of California, on this 27th day of September, 1999. /s/ Timothy P. Harrington By: _________________________________ Timothy P. Harrington Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints, jointly and severally, Timothy P. Harrington and Marcy E. von Lossberg, and each one of them, his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him and in his 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 sign any registration statement for the same offering covered by this registration statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all 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 in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that each of said attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has executed this power of attorney as of the date indicated. Pursuant to the requirements of the Securities Act of 1933, as amended, this registration statement has been signed by the persons whose signatures appear below, which persons have signed such registration statement in the capacities and on the dates indicated:
Signature Title Date --------- ----- ---- /s/ Timothy P. Harrington Chief Executive Officer September 27, 1999 _______________________________ (Principal Executive Timothy P. Harrington Officer) and Director /s/ Brett M. Allsop President, International September 27, 1999 _______________________________ Division and Chairman of Brett M. Allsop the Board /s/ Marcy E. von Lossberg Chief Financial Officer September 27, 1999 _______________________________ (Principal Accounting Marcy E. von Lossberg Officer)
II-6
Signature Title Date --------- ----- ---- Director _______________________________ Thomas E. Clarke /s/ Frederick M. Gibbons Director September 27, 1999 _______________________________ Frederick M. Gibbons /s/ Peter J. Huff Director September 27, 1999 _______________________________ Peter J. Huff /s/ Robert R. Maxfield Director September 27, 1999 _______________________________ Robert R. Maxfield /s/ Warren J. Packard Director September 27, 1999 _______________________________ Warren J. Packard /s/ Ralph O. Parks Director September 27, 1999 _______________________________ Ralph O. Parks /s/ Ray A. Rothrock Director September 27, 1999 _______________________________ Ray A. Rothrock /s/ Lloyd D. Ruth Director September 27, 1999 _______________________________ Lloyd D. Ruth
II-7
Exhibit Number Description of Document ------- ----------------------- 1.1* Form of Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation, to be effective upon consummation of this offering. 3.2 Amended and Restated Bylaws, to be effective upon consummation of this offering. 4.1* Form of registrant's Specimen Common Stock Certificate. 4.2 Third Amended and Restated Registration Rights Agreement, dated March 3, 1999, April 16, 1999, and September 23, 1999, by and among the registrant and the parties who are signatories thereto. 4.3 Warrant to Purchase Series A Preferred Stock, dated December 24, 1997, by and between the registrant and Imperial Bank. 4.4* Warrant to Purchase Series C Preferred Stock, dated September 23, 1999, by and between the registrant and Nike USA, Inc. 5.1* Opinion of Brobeck, Phleger & Harrison LLP, counsel for the registrant, with respect to the common stock being registered. 10.1 Registrant's Amended and Restated 1996 Stock Option Plan. 10.2* Registrant's 1999 Stock Incentive Plan. 10.3* Registrant's 1999 Employee Stock Purchase Plan. 10.4 Form of registrant's Directors and Officers' Indemnification Agreement. 10.5+ Agreement, dated June 30, 1999, by and between the registrant and America Online Inc. 10.6 Amended and Restated Loan Agreement, dated September 16, 1998, by and between the registrant and Imperial Bank. 10.7 Sublease, dated July 14, 1999, by and between the registrant and Ampex Corporation. 10.8 Letter Agreement, dated December 9, 1997, by and between the registrant and Robin Smith. 10.9* Employment Agreement, dated June 2, 1998, by and between the registrant and Timothy Harrington. 10.10 Employment Agreement, dated June 12, 1998, by and between the registrant and Robert Chea. 10.11 Amended and Restated Employment Agreement, dated April 5, 1999, by and between the registrant and Brett Allsop. 10.12 Letter Agreement, dated August 23, 1999, by and between the registrant and Timothy Joyce. 10.13+ Order Fulfillment Services Agreement, dated September 17, 1999, by and between the registrant and Keystone Fulfillment, Inc. 10.14+ Letter Agreement dated September 17, 1999, by and between the registrant and Nike USA, Inc. 21.1 Subsidiaries of the Registrant. 23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 23.3* Consent of Brobeck, Phleger & Harrison LLP (contained in their opinion filed as Exhibit 5.1). 24.1 Power of Attorney. Reference is made to Page II-6. 27.1 Financial Data Schedule for Sports Universe, Inc. (In EDGAR format only) 27.2 Financial Data Schedule for FogDog, Inc.
- -------- * To be filed by amendment + Confidential Treatment Requested EX-3.1 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION EXHIBIT 3.1 SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF FOGDOG, INC. The undersigned, Timothy J. Joyce and Robert S. Chea, hereby certify that: ONE: They are the duly elected, qualified and acting President and --- Secretary, respectively, of Fogdog, Inc., a Delaware corporation. TWO: The Certificate of Incorporation of said corporation was --- originally filed in the Office of the Secretary of State of the State of Delaware on September 3, 1999 and the Amended and Restated Certificate of Incorporation of said corporation was originally filed in such office on September __, 1999 and the Amendment to the Amended and Restated Certificate of Incorporation was filed in such office on September __, 1999. THREE: The Amended and Restated Certificate of Incorporation of said ----- corporation is amended and restated to read in its entirety as follows: ARTICLE I The name of this corporation is Fogdog, Inc. (the "Corporation"). ARTICLE II The address of the Corporation's registered office in the State of Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, Delaware 19801. The name of the Corporation's registered agent at such address is the Corporation Service Company. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the "GCL"). ARTICLE IV The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares that the Corporation is authorized to issue is One Hundred Five Million (105,000,000). One Hundred Million (100,000,000) shares shall be Common Stock, par value $0.001 per share, and Five Million (5,000,000) shares shall be Preferred Stock, par value $0.001 per share. The Preferred Stock may be issued from time to time in one or more series, without further stockholder approval. The Board of Directors of the Corporation is hereby authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon each series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or of any of them. The rights, privileges, preferences and restrictions of any such additional series may be subordinated to, pari passu ---------- with (including, without limitation, inclusion in provisions with respect to liquidation and acquisition preferences, redemption and/or approval of matters by vote), or senior to any of those of any present or future class or series of Preferred Stock or Common Stock. The Board of Directors is also authorized to increase or decrease the number of shares of any series prior or subsequent to the issue of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE V In furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation. In addition, the Bylaws may be amended by the affirmative vote of holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of voting stock of the Corporation entitled to vote at an election of directors. ARTICLE VI The number of directors of the Corporation shall be determined by resolution of the Board of Directors. Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. Advance notice of stockholder nominations for the election of directors and of any other business to be brought before any meeting of the stockholders shall be given in the manner provided in the Bylaws of this Corporation. At each annual meeting of stockholders, directors of the Corporation shall be elected to hold office until the expiration of the term for which they are elected, or until their successors have been duly elected and qualified; except that if any such election shall not be so held, such election shall take place at a stockholders' meeting called and held in accordance with the GCL. The directors of the Corporation shall be divided into three (3) classes as nearly equal in size as is practicable, hereby designated Class I, Class II and Class III. For the purposes hereof, the initial Class I, Class II and Class III directors shall be those directors so designated by a resolution of the Board of Directors. At the first annual meeting of stockholders following the closing of the initial public offering of the Corporation's Common Stock, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three (3) years. At the second annual meeting of stockholders following the closing of the initial public offering of the Corporation's Common Stock, the term of office of the Class II directors shall 2 expire and Class II directors shall be elected for a full term of three (3) years. At the third annual meeting of stockholders following the initial public offering of the Corporation's Common Stock, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three (3) years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three (3) years to succeed the directors of the class whose terms expire at such annual meeting. If the number of directors is hereafter changed, each director then serving as such shall nevertheless continue as a director of the Class of which he is a member until the expiration of his current term and any newly created directorships or decrease in directorships shall be so apportioned among the classes as to make all classes as nearly equal in number as is practicable. Vacancies occurring on the Board of Directors for any reason may be filled by vote of a majority of the remaining members of the Board of Directors, even if less than a quorum, at any meeting of the Board of Directors. A person so elected by the Board of Directors to fill a vacancy shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been duly elected and qualified. A director may be removed from office by the affirmative vote of the holders of 66 2/3% of the outstanding shares of voting stock of the Corporation entitled to vote at an election of directors, provided that such removal is for cause. ARTICLE VII Stockholders of the Corporation shall take action by meetings held pursuant to this Amended and Restated Certificate of Incorporation and the Bylaws and shall have no right to take any action by written consent without a meeting. Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. Special meetings of the stockholders, for any purpose or purposes, may only be called by the Board of Directors of the Corporation. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE VIII To the fullest extent permitted by applicable law, this Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and agents (and any other persons to which Delaware law permits this Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the GCL, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to action for breach of duty to the Corporation, its stockholders, and others. No director of the Corporation shall be personally liable to the Corporation or any stockholder for monetary damages for breach of fiduciary duty as a director, except for any matter in respect of which such director shall be liable under Section 174 of the GCL or any amendment thereto or shall be liable by reason that, in addition to any and all other requirements for such liability, such director (1) shall have breached the director's duty or loyalty to the 3 Corporation or its stockholders, (2) shall have acted in manner involving intentional misconduct or a knowing violation of law or, in failing to act, shall have acted in a manner involving intentional misconduct or a knowing violation of law, or (3) shall have derived an improper personal benefit. If the GCL is hereafter amended to authorize the further elimination or limitation of the liability of a director, the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the GCL, as so amended. Each person who was or is made a party or is threatened to be made a party to or is in any way involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter a "proceeding"), including any appeal therefrom, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or a direct or indirect subsidiary of the Corporation, or is or was serving at the request of the Corporation as a director or officer of another entity or enterprise, or was a director or officer of a foreign or domestic corporation which was predecessor corporation of the Corporation or of another entity or enterprise at the request of such predecessor corporation, shall be indemnified and held harmless by the Corporation, and the Corporation shall advance all expenses incurred by any such person in defense of any such proceeding prior to its final determination, to the fullest extent authorized by the GCL. In any proceeding against the Corporation to enforce these rights, such person shall be presumed to be entitled to indemnification and the Corporation shall have the burden of proving that such person has not met the standards of conduct for permissible indemnification set forth in the GCL. The rights to indemnification and advancement of expenses conferred by this Article VIII shall be presumed to have been relied upon by the directors and officers of the Corporation in serving or continuing to serve the Corporation and shall be enforceable as contract rights. Said rights shall not be exclusive of any other rights to which those seeking indemnification may otherwise be entitled. The Corporation may, upon written demand presented by a director or officer of the Corporation or of a direct or indirect subsidiary of the Corporation, or by a person serving at the request of the Corporation as a director or officer of another entity or enterprise, enter into contracts to provide such persons with specified rights to indemnification, which contracts may confer rights and protections to the maximum extent permitted by the GCL, as amended and in effect from time to time. If a claim under this Article VIII is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expenses of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce the right to be advanced expenses incurred in defending any proceeding prior to its final disposition where the required undertaking, if any, has been tendered to the Corporation ) that the claimant has not met the standards of conduct which make it permissible under the GCL for the Corporation to indemnify the claimant for the amount claimed, but the claimant shall be presumed to be entitled to indemnification and the Corporation shall have the burden of proving that the claimant has not met the standards of conduct for permissible indemnification set forth in the GCL. If the GCL is hereafter amended to permit the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such 4 amendment, the indemnification rights conferred by this Article VIII shall be broadened to the fullest extent permitted by the GCL, as so amended. ARTICLE IX The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles V, VI, VII, VIII and IX of this Amended and Restated Certificate of Incorporation may not be repealed or amended in any respect without the affirmative vote of holders at least 66-2/3% of the outstanding voting stock of the Corporation entitled to vote at election of directors. FOUR: The foregoing amendment and restatement has been duly adopted ---- by the Corporation's Board of Directors in accordance with the applicable provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware. FIFTH: The foregoing amendment and restatement was approved by the ----- holders of the requisite number of shares of the Corporation in accordance with Section 228 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the undersigned have executed this certificate on September ___, 1999. __________________________________________ Timothy J. Joyce President __________________________________________ Robert S. Chea Secretary 5 EX-3.2 3 AMENDED AND RESTATED BYLAWS EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF FOGDOG, INC. ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, ---------- County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places ---------- both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of ---------- directors shall be held at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders shall be held at such date ---------- and time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. At each annual meeting, the stockholders shall elect directors to succeed those 1 directors whose terms expire in that year and shall transact such other business as may properly be brought before the meeting. Section 3. Written notice of the annual meeting stating the place, ---------- date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the ---------- corporation shall prepare and make available, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or ---------- purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may only be called by the Board. Section 6. Written notice of a special meeting stating the place, ---------- date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not fewer than ten (10) nor more than sixty (60) days before the date of the meeting, to each stockholder entitled to vote at such meeting. 2 Section 7. Business transacted at any special meeting of stockholders ---------- shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and ---------- outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, either the Chairman of the Board, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted that might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the ---------- holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required, in which case such express provision shall govern and control the decision of such question. Section 10. Unless otherwise provided in the certificate of ----------- incorporation each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no 3 proxy shall be voted on after three (3) years from its date, unless the proxy provides for a longer period. Section 11. Nominations for election to the Board of Directors must ----------- be made by the Board of Directors or by a committee appointed by the Board of Directors for such purpose or by any stockholder of any outstanding class of capital stock of the corporation entitled to vote for the election of directors. Nominations by stockholders must be preceded by notification in writing received by the secretary of the corporation not less than one-hundred twenty (120) days prior to any meeting of stockholders called for the election of directors. Such notification shall contain the written consent of each proposed nominee to serve as a director if so elected and the following information as to each proposed nominee and as to each person, acting alone or in conjunction with one or more other persons as a partnership, limited partnership, syndicate or other group, who participates or is expected to participate in making such nomination or in organizing, directing or financing such nomination or solicitation of proxies to vote for the nominee: (a) the name, age, residence, address, and business address of each proposed nominee and of each such person; (b) the principal occupation or employment, the name, type of business and address of the corporation or other organization in which such employment is carried on of each proposed nominee and of each such person; (c) the amount of stock of the corporation owned beneficially, either directly or indirectly, by each proposed nominee and each such person; and 4 (d) a description of any arrangement or understanding of each proposed nominee and of each such person with each other or any other person regarding future employment or any future transaction to which the corporation will or may be a party. The presiding officer of the meeting shall have the authority to determine and declare to the meeting that a nomination not preceded by notification made in accordance with the foregoing procedure shall be disregarded. Section 12. At any meeting of the stockholders, only such business ----------- shall be conducted as shall have been brought before the meeting (a) pursuant to the corporation's notice of meeting, (b) by or at the direction of the Board of Directors or (c) by any stockholder of the corporation who is a stockholder of record at the time of giving of the notice provided for in this Bylaw, who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Bylaw. For business to be properly brought before any meeting by a stockholder pursuant to clause (c) above of this Section 12, the stockholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not less than one hundred twenty (120) days prior to the date of the meeting. A stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, and the name and address of the beneficial owner, if any, on whose behalf the proposal is made, (c) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder of 5 record and by the beneficial owner, if any, on whose behalf of the proposal is made and (d) any material interest of such stockholder of record and the beneficial owner, if any, on whose behalf the proposal is made in such business. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 12. The presiding officer of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the procedures prescribed by this Section 12, and if such person should so determine, such person shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Notwithstanding the foregoing provisions of this Section 12, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section 12. Section 13. Effective upon the closing of the corporation's initial ----------- public offering of securities pursuant to a registration statement filed under the Securities Act of 1933, as amended, the stockholders of the Corporation may not take action by written consent without a meeting but must take any such actions at a duly called annual or special meeting in accordance with these Bylaws and the Certificate of Incorporation. ARTICLE III DIRECTORS Section 1. The number of directors of this corporation that shall ---------- constitute the whole board shall be determined by resolution of the Board of Directors; provided, however, that no decrease in the number of directors shall have the effect of shortening the term of an 6 incumbent director. The Board of Directors shall be classified, with respect to the time for which they severally hold office, into three classes, as nearly equal in number as possible, as determined by the Board of Directors, one class ("Class I") to hold office initially for a term expiring at the annual meeting to be held in 2000, another class ("Class II") to hold office initially for a term expiring at the annual meeting of stockholders held in 2001 and another class ("Class III") to hold office initially for a term expiring at the annual meeting of stockholders to be held in 2002, with the members of each class to hold office until their successors are elected and qualified. At each annual meeting of stockholders, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. Section 2. Vacancies and newly created directorships resulting from ---------- any increase in the authorized number of directors may be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next election of the class for which such directors were chosen and until their successors are duly elected and qualified or until earlier resignation or removal. If there are no directors in office, then an election of directors may be held in the manner provided by statute. Section 3. The business of the corporation shall be managed by or ---------- under the direction of its Board of Directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The Board of Directors of the corporation may hold ---------- meetings, both regular and special, either within or without the State of Delaware. 7 Section 5. The first meeting of each newly elected Board of Directors ---------- shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the Board of Directors may be held ---------- without notice at such time and at such place as shall from time to time be determined by the board. Section 7. Special meetings of the board may be called by the ---------- Chairman of the Board or the president on twelve (12) hours' notice to each director either personally or by telephone, telegram, facsimile or electronic mail; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of a majority of the Board unless the Board consists of only one director, in which case special meetings shall be called by the Chairman of the Board, the president or secretary in like manner and on like notice on the written request of the sole director. A written waiver of notice, signed by the person entitled thereto, whether before or after the time of the meeting stated therein, shall be deemed equivalent to notice. Section 8. At all meetings of the board a majority of the directors ---------- shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be 8 otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of ---------- incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. Section 10. Unless otherwise restricted by the certificate of ----------- incorporation or these bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. COMMITTEES OF DIRECTORS Section 11. The Board of Directors may, by resolution passed by a ----------- majority of the whole board, designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the corporation. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence of disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or 9 they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority in reference to amending the certificate of incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation; and, unless the resolution or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 12. Each committee shall keep regular minutes of its meetings ----------- and report the same to the Board of Directors when required. COMPENSATION OF DIRECTORS Section 13. Unless otherwise restricted by the certificate of ----------- incorporation or these bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the 10 corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. REMOVAL OF DIRECTORS Section 14. Unless otherwise restricted by the certificate of ----------- incorporation or bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of shares entitled to vote at an election of directors. ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the ---------- certificate of incorporation or of these bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice (except as provided in Section 7 of Article III of these Bylaws), but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telephone, telegram or facsimile. Section 2. Whenever any notice is required to be given under the ---------- provisions of the statutes or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS 11 Section 1. The officers of the corporation shall be chosen by the ---------- Board of Directors and shall be a president, a chief financial officer and a secretary. The Board of Directors may elect from among its members a Chairman of the Board. The Board of Directors may also choose one or more vice-presidents, assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these bylaws otherwise provide. Section 2. The Board of Directors at its first meeting after each ---------- annual meeting of stockholders shall choose a president, a chief financial officer, and a secretary and may choose vice presidents. Section 3. The Board of Directors may appoint such other officers and ---------- agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. Section 4. The salaries of all officers of the corporation shall be ---------- fixed by the Board of Directors or any committee established by the Board of Directors for such purpose. The salaries of agents of the corporation shall, unless fixed by the Board of Directors, be fixed by the president or any vice- president of the corporation. Section 5. The officers of the corporation shall hold office until ---------- their successors are chosen and qualify. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors. THE CHAIRMAN OF THE BOARD Section 6. The Chairman of the Board, if any, shall preside at all ---------- meetings of the Board of Directors and of the stockholders at which he/she shall be present. He/she shall have 12 and may exercise such powers as are, from time to time, assigned to him/her by the Board and as may be provided by law. Section 7. In the absence of the Chairman of the Board, the ---------- president, shall preside at all meetings of the Board of Directors and of the stockholders at which he shall be present. He shall have and may exercise such powers as are, from time to time, assigned to him by the Board and as may be provided by law. THE PRESIDENT AND VICE-PRESIDENTS Section 8. The president shall be the chief executive officer of the ---------- corporation unless such title is assigned to another officer of the corporation; and in the absence of the Chairman of the Board he/she shall preside at all meetings of the stockholders and the Board of Directors; he/she shall have general and active management of the business of the corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. Section 9. The president or any vice president shall execute bonds, ---------- mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. Section 10. In the absence of the president or in the event of his ----------- inability or refusal to act, the vice-president, if any, (or in the event there be more than one vice-president, the vice-presidents in the order designated by the directors, or in the absence of any designation, then in the order of their election) shall perform 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- 13 presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. THE SECRETARY AND ASSISTANT SECRETARY Section 11. The secretary shall attend all meetings of the Board of ----------- Directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He/she shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision he/she shall be. He/she shall have custody of the corporate seal of the corporation and he/she, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. Section 12. The assistant secretary, or if there be more than one, ----------- the assistant secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE CHIEF FINANCIAL OFFICER Section 13. The chief financial officer shall be the chief financial ----------- officer and treasurer of the corporation, shall have the custody of the corporate funds and securities and shall 14 keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the Board of Directors. Section 14. He/she shall disburse the funds of the corporation as may ----------- be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the corporation. Section 15. Along with the president or any vice president, he/she ----------- shall be authorized to execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the corporation. Section 16. If required by the Board of Directors, he/she shall give ----------- the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his/her office and for the restoration to the corporation, in case of his/her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his/her control belonging to the corporation. Section 17. The assistant treasurer, or if there shall be more than ----------- one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election) shall, in the absence of the chief financial officer or in the event of his inability or refusal to act, perform the duties and exercise the powers 15 of the chief financial officer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VI CERTIFICATE OF STOCK Section 1. Every holder of stock in the corporation shall be entitled ---------- to have a certificate, signed by, or in the name of the corporation by, the Chairman of the Board of Directors, or the president or a vice-president and the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him/her in the corporation. Certificates may be issued for partly paid shares and in such case upon the face or back of the certificates issued to represent any such partly paid shares, the total amount of the consideration to be paid therefor, and the amount paid thereon shall be specified. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualification, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, 16 optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Any of or all 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 upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he/she were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 2. The Board of Directors may direct a new certificate or ---------- certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his/her legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFER OF STOCK Section 3. Upon surrender to the corporation or the transfer agent of ---------- the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a 17 new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXING RECORD DATE Section 4. In order that the corporation may determine the ---------- stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 5. The corporation shall be entitled to recognize the ---------- exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 18 ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, ---------- subject to the provisions of the certificate of incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out ---------- of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purposes as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. CHECKS Section 3. All checks or demands for money and notes of the ---------- corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate. FISCAL YEAR Section 4. The fiscal year of the corporation shall be fixed by ---------- resolution of the Board of Directors. SEAL Section 5. The Board of Directors may adopt a corporate seal having ---------- inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, 19 Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. INDEMNIFICATION Section 6. The corporation shall, to the fullest extent authorized ---------- under the laws of the State of Delaware, as those laws may be amended and supplemented from time to time, indemnify any director made, or threatened to be made, a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of being a director of the corporation or a predecessor corporation or, at the corporation's request, a director or officer of another corporation, provided, however, that the corporation shall indemnify any such agent in connection with a proceeding initiated by such agent only if such proceeding was authorized by the Board of Directors of the corporation. The indemnification provided for in this Section 6 shall: (i) not be deemed exclusive of any other rights to which those indemnified may be entitled under any bylaw, agreement or vote of stockholders or disinterested directors or otherwise, both as to action in their official capacities and as to action in another capacity while holding such office, (ii) continue as to a person who has ceased to be a director, and (iii) inure to the benefit of the heirs, executors and administrators of such a person. The corporation's obligation to provide indemnification under this Section 6 shall be offset to the extent of any other source of indemnification or any otherwise applicable insurance coverage under a policy maintained by the corporation or any other person. Expenses incurred by a director of the corporation in defending a civil or criminal action, suit or proceeding by reason of the fact that he is or was a director of the corporation (or was serving at the corporation's request as a director or officer of another corporation) shall be paid by the corporation in advance of the final disposition of such action, suit or proceeding upon 20 receipt of an undertaking by or on behalf of such director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized by relevant sections of the General Corporation Law of Delaware. Notwithstanding the foregoing, the corporation shall not be required to advance such expenses to an agent who is a party to an action, suit or proceeding brought by the corporation and approved by a majority of the Board of Directors of the corporation which alleges willful misappropriation of corporate assets by such agent, disclosure of confidential information in violation of such agent's fiduciary or contractual obligations to the corporation or any other willful and deliberate breach in bad faith of such agent's duty to the corporation or its stockholders. The foregoing provisions of this Section 6 shall be deemed to be a contract between the corporation and each director who serves in such capacity at any time while this bylaw is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or theretofore existing or any action, suit or proceeding theretofore or thereafter brought based in whole or in part upon any such state of facts. The Board of Directors in its discretion shall have power on behalf of the corporation to indemnify any person, other than a director, made a party to any action, suit or proceeding by reason of the fact that he, his testator or intestate, is or was an officer or employee of the corporation. To assure indemnification under this Section 6 of all directors, officers and employees who are determined by the corporation or otherwise to be or to have been "fiduciaries" of any employee benefit plan of the corporation which may exist from time to time, Section 145 of the General Corporation Law of Delaware shall, for the purposes of this Section 21 6, be interpreted as follows: an "other enterprise" shall be deemed to include such an employee benefit plan, including without limitation, any plan of the corporation which is governed by the Act of Congress entitled "Employee Retirement Income Security Act of 1974," as amended from time to time; the corporation shall be deemed to have requested a person to serve an employee benefit plan where the performance by such person of his duties to the corporation also imposes duties on, or otherwise involves services by, such person to the plan or participants or beneficiaries of the plan; excise taxes assessed on a person with respect to an employee benefit plan pursuant to such Act of Congress shall be deemed "fines." ARTICLE VIII AMENDMENTS Section 1. These bylaws may be altered, amended or repealed or new ---------- bylaws may be adopted by the affirmative vote of holders of at least 66-2/3% vote of the outstanding voting stock of the corporation. These bylaws may also be altered, amended or repealed or new bylaws may be adopted by the Board of Directors, when such power is conferred upon the Board of Directors by the certificate of incorporation. The foregoing may occur at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting. If the power to adopt, amend or repeal bylaws is conferred upon the Board of Directors by the certificate of incorporation it shall not divest or limit the power of the stockholders to adopt, amend or repeal bylaws. 22 CERTIFICATE OF ADOPTION BY THE SECRETARY OF FOGDOG, INC. The undersigned, Robert S. Chea, hereby certifies that he is the duly elected and acting Secretary of Fogdog, Inc., a Delaware corporation (the "Corporation"), and that the Amended and Restated Bylaws attached hereto constitute the Bylaws of said Corporation as duly adopted by the Board of Directors and the Stockholders of the Corporation and as in effect on the date hereof. IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name this _____ day of September, 1999. ___________________________________ Robert S. Chea Secretary 23 EX-4.2 4 3RD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.2 FOGDOG, INC. -------------------------- THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT -------------------------- September 24, 1999
TABLE OF CONTENTS Page 1. Registration Rights......................................................................................1 1.1 Definitions.....................................................................................1 1.2 Requests for Registration.......................................................................2 1.3 Company Registration............................................................................5 1.4 Obligations of the Company......................................................................6 1.5 Furnish Information.............................................................................7 1.6 Expenses of Demand Registration.................................................................8 1.7 Intentionally Omitted...........................................................................8 1.8 Expenses of Company Registration................................................................8 1.9 Underwriting Requirements.......................................................................8 1.10 Delay of Registration...........................................................................9 1.11 Indemnification.................................................................................9 1.12 Reports Under the 1934 Act.....................................................................11 1.13 Form S-3 Registration..........................................................................11 1.14 Assignment of Registration Rights..............................................................12 1.15 Limitations on Subsequent Registration Rights..................................................13 1.16 "Market Stand-Off"Agreement....................................................................13 1.17 Termination of Registration Rights.............................................................14 2. Miscellaneous...........................................................................................14 2.1 Successors and Assigns.........................................................................14 2.2 Prior Agreement................................................................................14 2.3 Governing Law..................................................................................14 2.4 Counterparts...................................................................................14 2.5 Titles and Subtitles...........................................................................15 2.6 Notices........................................................................................15 2.7 Expenses.......................................................................................15 2.8 Amendments and Waivers.........................................................................15 2.9 Severability...................................................................................15 2.10 Aggregation of Stock...........................................................................15 2.11 Entire Agreement...............................................................................15
i THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT THIS THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT is made as of the 24th day of September, 1999, by and among Fogdog, Inc., a California corporation (the "Company"), the parties listed on the signature page hereto under the caption "Investors" (the "Investors"), the parties listed on the signature page hereto under the caption "Existing Investors" (the "Existing Investors") and the parties listed on the signature page hereto under the caption "Founders" (the "Founders"). RECITALS -------- WHEREAS, the Existing Investors and the Founders hold shares of the Company's Common Stock (the "Common Stock"), Series A Preferred Stock (the "Series A Preferred Stock"), Series B Preferred Stock (the "Series B Preferred Stock"), Series C Preferred Stock (the "Series C Preferred Stock") and a Warrant to Purchase Series C Preferred Stock and possess certain rights pursuant to an Amended and Restated Registration Rights Agreement dated as of April 16, 1999, as amended, by and among the Company, the Existing Investors and Founders (the "Prior Agreement"); and WHEREAS, the Existing Investors and Founders desire to terminate the Prior Agreement in its entirety and to accept the rights created pursuant hereto in lieu of the rights granted to them under the Prior Agreement; and WHEREAS, the Investors are parties to the Series D Preferred Stock Purchase Agreement dated as of even date herewith among the Company and the Investors (the "Purchase Agreement"), and the Company's and such Investors' obligations under the Purchase Agreement are conditioned upon the execution of this Agreement by such Investors, the Existing Investors, the Founders and the Company; NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Existing Investors who are parties to the Prior Agreement hereby agree that the Prior Agreement shall be superseded and replaced in its entirety by this Agreement, and the parties hereto hereby further agree as follows: 1. Registration Rights. The Company covenants and agrees as follows: ------------------- 1.1 Definitions. For purposes of this Section 1: (a) The term "Act" means the Securities Act of 1933, as amended. (b) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. (c) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.14 hereof. (d) The term "1934 Act" shall mean the Securities Exchange Act of 1934, as amended. (e) The term "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document. (f) The term "Registrable Securities" means (i) Common Stock issuable or issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, (ii) Common Stock issued to the Existing Investors as of the date hereof, (iii) Common Stock issued to holders of warrants to purchase shares of Series A Preferred Stock and the Common Stock issuable upon exercise thereof in existence on the date hereof, (iv) shares of Common Stock issuable upon the conversion of the Series C Preferred Stock issuable upon the exercise of a warrant or warrants, (v) Common Stock issued to the Founders and Timothy P. Harrington (for purposes only of Sections 1.3, 1.8, 1.9, and 1.11 of this Agreement) and (vi) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in (i) through (v) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which such person's rights under this Section 1 are not assigned. (g) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities. (h) The term "SEC" shall mean the Securities and Exchange Commission. 1.2 Requests for Registration. ------------------------- (1) (a) If the Company shall receive, at any time after six (6) months from the effective date of the first registration statement for a public offering of securities of the Company with an aggregate value of not less than $10,000,000 (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction), a written request from the Holders of at least sixty-six and two-thirds percent (66-2/3%) of the Registrable Securities then outstanding, then the Company shall: (i) within ten (10) days of the receipt thereof, give written notice of such request to all Holders; and (ii) use its best efforts to effect as soon as practicable, the registration under the Act of all Registrable Securities which the Holders request to be 2 registered, subject to the limitations of subsection 1.2(1)(b), within sixty (60) days of the mailing of such notice by the Company in accordance hereof. (b) Any Registration Statement filed pursuant to this Section 1.2(1) may include securities of the Company other than Registrable Securities. If the Holders initiating the registration request hereunder ("Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to subsection 1.2(1)(a) and the Company shall include such information in the written notice referred to in subsection 1.2(1)(a). The underwriter will be selected by the Company and shall be reasonably acceptable to a majority in interest of the Initiating Holders. In such event, the right of any Holder to include such Holder's Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)), enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2(1), if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities of the Company are first entirely excluded from the underwriting. (c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2(1), a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders; provided, however, that the Company may not utilize this right more than two times. (d) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2(1): (i) After the Company has effected two registrations pursuant to this Section 1.2(1) and such registrations have been declared or ordered effective; (ii) During the period starting with the date thirty (30) days prior to the Company's good faith estimate of the date of filing of, and ending on a date 3 one hundred and eighty (180) days after the effective date of a registration subject to Section 1.3 or Section 1.2(2) hereof; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (iii) If the Initiating Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.13 below. (2) (a) If the Company shall receive, at any time after six (6) months from the effective date of the first registration statement for a public offering of securities of the Company, a written request from Nike USA, Inc. ("Nike"), then the Company shall: (i) within ten (10) days of the receipt thereof, give written notice of such request to all other Holders; and (ii) use its best efforts to effect as soon as practicable, the registration under the Act of all Registrable Securities which the Holders request to be registered, subject to the limitations of subsection 1.2(2)(b), within sixty (60) days of the mailing of such notice by the Company in accordance hereof. (b) Any Registration Statement filed pursuant to this Section 1.2(2) may include securities of the Company other than Registrable Securities and may include Registrable Securities held by other Holders. If Nike intends to distribute the Registrable Securities covered by its request by means of an underwriting, Nike shall so advise the Company as a part of its request made pursuant to subsection 1.2(2)(a) and the Company shall include such information in the written notice referred to in subsection 1.2(2)(a). The underwriter will be selected by the Company and shall be reasonably acceptable to Nike. In such event, the right of any Holder to include such Holder's Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Holders) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 1.4(e)), enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 1.2(2), if the underwriter advises Nike in writing that marketing factors require a limitation of the number of shares to be underwritten, then Nike shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder; provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities of the Company are first entirely excluded from the underwriting and, provided further, that no such cutback will prevent Nike from having the minimum number of Registrable Securities (as set forth in and as limited by the Company's warrant issued to Nike dated 4 September 24, 1999 (the "Warrant")) requested to be sold in such offering (and all other Holders shall be so subordinated). (c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2(2), a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than one hundred twenty (120) days after receipt of the request of Nike; provided, however, that the Company may not utilize this right more than two times. (d) The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to this Section 1.2(2): (i) After the Company has effected three registrations pursuant to this Section 1.2(2) and such registrations have been declared or ordered effective; (ii) During the period starting with the date thirty (30) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred and eighty (180) days after the effective date of a registration subject to Section 1.3 or Section 1.2(1) hereof; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (iii) If Nike or the other Holders propose to dispose of shares of Registrable Securities that may be immediately registered on Form S-3 pursuant to a request made pursuant to Section 1.13 below; or (iv) If Nike can sell the maximum number of Registrable Securities as set forth in and as limited by the Warrant without an effective registration statement pursuant to Rule 144. (e) Nike covenants and agrees that the maximum number of the Company's securities that Nike can sell pursuant to this Agreement shall be limited by the express terms of the Warrant and applicable securities laws. To the extent Nike can sell its Registrable Securities pursuant to Rule 144 or pursuant to the Sections 1.2(1), 1.3 and/or Section 1.13 herein, the Company's obligations pursuant to this Section 1.2(2) shall be accordingly reduced. Nike covenants and agrees that it will waive its rights under this Section 1.2(2) upon receipt of an opinion of counsel, in a form reasonably acceptable to Nike, indicating that Nike could sell with the applicable time frames set forth in the Warrant all of its Registrable Securities under Rule 144. 1.3 Company Registration. If (but without any obligation to do so) the Company -------------------- proposes to register (including for this purpose a registration effected by the Company for shareholders other than the Holders) any of its stock or other securities under the Act in 5 connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered or an SEC Rule 145 transaction), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 2.6, the Company shall, subject to the provisions of Section 1.9, use its best efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 Obligations of the Company. Whenever required under this Section 1 to -------------------------- effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or until the distribution contemplated in the Registration Statement has been completed or in the case of a Nike demand registration statement pursuant to Section 1.2(2) hereof, until all such Nike Registrable Securities are sold or capable of being sold under Rule 144; provided, however, that (i) such 120-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold, provided that Rule 415, or any successor rule under the Act, permits an offering on a continuous or delayed basis, and provided further that applicable rules under the Act governing the obligation to file a post-effective amendment permit, in lieu of filing a post-effective amendment which (i) includes any prospectus required by Section 10(a)(3) of the Act or (ii) reflects facts or events representing a material or fundamental change in the information set forth in the registration statement, the incorporation by reference of information required to be included in (i) and (ii) above to be contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the registration statement. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such 6 other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders; provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed. (h) Provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration. (i) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities (only if such offering is underwritten) and (ii) a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 1.5 Furnish Information. It shall be a condition precedent to the obligations ------------------- of the Company to take any action pursuant to this Section 1 with respect to the Registrable 7 Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6 Expenses of Demand Registration. All expenses other than underwriting ------------------------------- discounts and commissions and fees and expenses of counsel to the Holders incurred in connection with registrations, filings or qualifications pursuant to Section 1.2, including (without limitation) all registration, filing and qualification fees, printers' and accounting fees, and fees and disbursements of counsel for the Company shall be borne by the Company, provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses. 1.7 INTENTIONALLY OMITTED. --------------------- 1.8 Expenses of Company Registration. The Company shall bear and pay all -------------------------------- expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.14), including (without limitation) all registration, filing, and qualification fees, and printers and accounting fees and the reasonable fees and expenses of one counsel to the Holders selected by them, but excluding underwriting discounts and commissions relating to Registrable Securities. 1.9 Underwriting Requirements. In connection with any offering involving an ------------------------- underwriting of shares of the Company's capital stock, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters), and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by shareholders to be included in such offering under Section 1.3 exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling shareholders according to the total amount of securities entitled to be included therein owned by each selling shareholder or in such other proportions as shall mutually be agreed to by such selling shareholders). For purposes of the preceding parenthetical concerning apportionment, for any selling shareholder which is a 8 holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and shareholders of such holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling shareholder," and any pro rata reduction with respect to such "selling shareholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling shareholder," as defined in this sentence. 1.10 Delay of Registration. No Holder shall have any right to obtain or --------------------- seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.11 Indemnification. In the event any Registrable Securities are included in --------------- a registration statement under this Section 1: (a) The Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this subsection 1.11(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) Each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in 9 respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this subsection 1.11(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that (i) the indemnity agreement contained in this subsection 1.11(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld, and (ii) in no event shall the obligations of indemnity of any Holder under this subsection 1.11(b) exceed the net proceeds from the offering received by such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.11 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.11, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.11, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.11. (d) If the indemnification provided for in this Section 1.11 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. 10 (e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control. (f) The obligations of the Company and Holders under this Section 1.11 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.12 Reports Under the 1934 Act. With a view to making available to the -------------------------- Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.13 Form S-3 Registration. In case the Company shall receive from any Holder --------------------- or Holders holding at least twenty-five percent (25%) of the Registrable Securities then outstanding a written request or requests that the Company effect a registration on Form S-3 the reasonably anticipated price to the public of which would be at least $3,000,000, and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: 11 (a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (b) use its best efforts to effect, as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.13: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $3,000,000; (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 1.13; provided, however, that the Company shall not utilize this right more than once in any six (6) month period; (4) if the Company has already effected four registrations on Form S-3 for the Holders pursuant to this Section 1.13; or (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with a registration requested pursuant to Section 1.13, including (without limitation) all registration, filing, qualification, printer's and accounting fees and the fees and disbursements of counsel for the Company, but excluding any underwriters' discounts or commissions associated with Registrable Securities, shall be borne by the Company. Registrations effected pursuant to this Section 1.13 shall not be counted as demands for registration or registrations effected pursuant to Section 1.2 or 1.3. (d) The Company shall not be obligated to effect any registration pursuant to this Section 1.13 if the Company delivers to the Holders requesting registration under this Section 1.13 an opinion, in form and substance acceptable to such Holders, of counsel satisfactory to such Holders, that the Registrable Securities so requested to be registered may be sold or transferred pursuant to Rule 144(k) under the Act. 1.14 Assignment of Registration Rights. The rights to cause the Company to --------------------------------- register Registrable Securities pursuant to this Section 1 may be assigned by a Holder to a transferee or assignee of such securities provided only (a) the transfer involves Registrable Securities with an aggregate value of not less than $500,000, or (b) the transfer is to the 12 constituent partners or members, retired partners or members, or shareholders of a Holder, any family member or trust for the benefit of any individual holder or any member of any Investor that is a limited liability company who agree to act through a single representative, provided that the Company is given a written notice at the time of or within a reasonable time after such transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned, and, provided further, that the transferee or assignee of such rights assumes the obligations of such Holder under this Section 1. 1.15 Limitations on Subsequent Registration Rights. From and after the date of --------------------------------------------- this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the outstanding Registrable Securities enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.2 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such holder's securities will not reduce the amount of the Registrable Securities of the Holders which is included or (b) to make a demand registration which could result in such registration statement being declared effective prior to the date set forth in subsection 1.2(1)(a) or within one hundred twenty (120) days of the effective date of any registration effected pursuant to Section 1.2(1). 1.16 "Market Stand-Off" Agreement. Each signatory to this Agreement hereby ---------------- agrees that, during the period of duration specified by the Company and an underwriter of Common Stock or other securities of the Company, following the effective date of a registration statement of the Company filed under the Act, it shall not, to the extent requested by the Company and such underwriter, directly or indirectly sell, offer to sell, contract to sell (including, without limitation, any short sale), grant any option to purchase or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any securities of the Company held by it at any time during such period except common stock included in such registration; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers common stock to be sold on its behalf to the public in an underwritten offering; (b) all officers and directors of the Company enter into similar agreements; and (c) such market stand-off time period shall not exceed one hundred eighty (180) days. In order to enforce the foregoing covenant, the Company may impose stop- transfer instructions with respect to the Registrable Securities of each signatory to this Agreement (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period. Nike covenants and agrees that the obligations in this Section 1.16 shall be in addition to and not in lieu of its obligations under the Warrant. 13 Notwithstanding the foregoing, the obligations described in this Section 1.16 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms which may be promulgated in the future. 1.17 Termination of Registration Rights. ---------------------------------- (a) No Holder shall be entitled to exercise any right provided for in this Section 1 after five (5) years following the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public. (b) In addition, the right of any Holder to request registration or inclusion in any registration pursuant to this Agreement shall terminate on the closing of the first Company-initiated registered public offering of Common Stock of the Company if all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any ninety (90)-day period, or on such date after the closing of the first Company-initiated registered public offering of Common Stock of the Company as all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any ninety (90)-day period. 2. Miscellaneous. ------------- 2.1 Successors and Assigns. Except as otherwise provided herein, the terms and ---------------------- conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 2.2 Prior Agreement. Effective upon the execution and delivery of this --------------- Agreement by all parties thereto, the Prior Agreement and Sections 5 and 6 of the Letter Agreement with Nike dated September 17, 1999 hereby shall be terminated and shall be of no further force and effect and shall be superseded and replaced in its entirety by this Agreement. The Company and Nike agree that the terms of the Warrant are hereby incorporated by reference herein as set forth in their entirety herein. 2.3 Governing Law. This Agreement shall be governed by and construed under the ------------- laws of the State of California. 2.4 Counterparts. This Agreement may be executed in two or more counterparts, ------------ each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14 2.5 Titles and Subtitles. The titles and subtitles used in this Agreement are -------------------- used for convenience only and are not to be considered in construing or interpreting this Agreement. 2.6 Notices. Unless otherwise provided, any notice required or permitted under ------- this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified or upon deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 2.7 Expenses. If any action at law or in equity is necessary to enforce or -------- interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 2.8 Amendments and Waivers. Any term of this Agreement may be amended and the ---------------------- observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Registrable Securities then outstanding; provided, however, that any amendment or waiver that would be detrimental to the Holders of the Series C Preferred Stock or Series D Preferred Stock then outstanding shall require the written consent of a majority of the Series C Preferred Stock or Series D Preferred Stock then outstanding; and provided further, however, that any amendment or waiver that is detrimental to a holder of the Series C Preferred Stock or Series D Preferred Stock in a manner different than any other holder of Preferred Stock shall also require the written consent of such holder of Series C Preferred Stock or Series D Preferred Stock, as applicable. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities then outstanding, each future holder of all such Registrable Securities, and the Company. 2.9 Severability. If one or more provisions of this Agreement are held to be ------------ unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 2.10 Aggregation of Stock. All shares of Registrable Securities held or -------------------- acquired by affiliated entities or persons or entities under common management shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 2.11 Entire Agreement. This Agreement (including the Exhibits hereto, if any) ---------------- and the Warrant constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof. 15 IN WITNESS WHEREOF, the parties hereto have executed this Third Amended and Restated Registration Rights Agreement as of the date first written above. FOGDOG, INC. By: /s/ Tim Harrington ------------------------------------ SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT PURCHASERS: HIKARI TSUSHIN, INC. By: /s/ Masahide Saito __________________________________ Masahide Saito, Director AMAN VENTURES L.L.C. By: /s/ William J. Bell __________________________________ William J. Bell General Partner BOSTON MILLENNIA PARTNERS, L.P. By: /s/ A. Dana Callow, Jr. __________________________________ A. Dana Callow, Jr. Managing General Partner LYCOS VENTURES, L.P. By: Lycos Triangle Partners, LLC, its general partner [signature illegible] ____________________________________ By:_________________________________ Its:________________________________ SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT LYCOS VENTURES CO-INVESTMENT FUND, L.P. By: Lycos Triangle Partners, LLC, its general partner [signature illegible] ___________________________________________ By: ______________________________________ Its: _____________________________________ WORLDVIEW TECHNOLOGY PARTNERS II, L.P. By: Worldview Capital II, L.P., its General Partner By: Worldview Equity I, L.L.C., its General Partner /s/ Michael Orsak __________________________________________ By: Michael Orsak - Member WORLDVIEW TECHNOLOGY INTERNATIONAL II, L.P. By: Worldview Capital II, L.P., its General Partner By: Worldview Equity I, L.L.C., its General Partner /s/ Michael Orsak __________________________________________ By: Michael Orsak - Member WORLDVIEW STRATEGIC PARTNERS II, L.P. By: Worldview Capital II, L.P., its General Partner By: Worldview Equity I, L.L.C., its General Partner /s/ Michael Orsak __________________________________________ By: Michael Orsak - Member SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT VENROCK ASSOCIATES By: [signature illegible] _____________________________ Name: Title: General Partner VENROCK ASSOCIATES II, L.P. By: [signature illegible] ______________________________ Name: Title: General Partner VERTEX TECHNOLOGY FUND (II), LTD. [signature illegible] __________________________________ By:_______________________________ Its:______________________________ SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT J.H. WHITNEY III, L.P. By: J.H. Whitney Equity Partners III, L.L.C. Its General Partner By: /s/ Michael Brooks _____________________________________ Michael Brooks Managing Member WHITNEY STRATEGIC PARTNERS III, L.P. By: J.H. Whitney Equity Partners III, L.L.C. Its General Partner By: /s/ Michael Brooks ______________________________________ Michael Brooks Managing Member DRAPER FISHER ASSOCIATES FUND IV, L.P. [signature illegible] _________________________________________ By:______________________________________ Its:_____________________________________ DRAPER FISHER PARTNERS IV, L.L.C. [signature illegible] _________________________________________ By:______________________________________ Its:_____________________________________ SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT DLJ CAPITAL CORP. /s/ Alexander Rosen _________________________________________ By: Alexander Rosen Its: Attorney In Fact DLJ ESC II, L.P. By: DLJ LBO Plans Management Corporation Its: Manager /s/ Alexander Rosen _________________________________________ By: Alexander Rosen Its: Attorney In Fact SPROUT CAPITAL VIII, L.P. By: DLJ Capital Corp. Its: Managing General Partner /s/ Alexander Rosen _________________________________________ By: Alexander Rosen Its: Attorney In Fact SPROUT VENTURE CAPITAL, L.P. By: DLJ Capital Corp. Its: Managing General Partner /s/ Alexander Rosen _________________________________________ By: Alexander Rosen Its: Attorney In Fact SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT MARQUETTE VENTURE PARTNERS III, L.P. By: MARQUETTE III, L.L.C. Its: General Partner /s/ Lloyd D. Ruth _________________________________________ By: James B. Daverman or Lloyd D. Ruth Its: Authorized Signatory MV VENTURE PARTNERS II, SERIES 9 [signature illegible] _________________________________________ By:______________________________________ Its:_____________________________________ ICON INTERNATIONAL, INC. /s/ Lance Lunzberg _________________________________________ By: Mr. Lance Lunzberg Its: President PEDER SMEDVIG CAPITAL VENTURE III AS [signature illegible] _________________________________________ By:______________________________________ (Please print) Its:_____________________________________ WARREN T. LAZAROW /s/ Warren T. Lazarow _________________________________________ SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT EXISTING SHAREHOLDERS: VENROCK ASSOCIATES By: [signature illegible] __________________________________ Name: Title: General Partner VENROCK ASSOCIATES II, L.P. By: [signature illegible] __________________________________ Name: Title: General Partner VERTEX TECHNOLOGY FUND (II), LTD. [signature illegible] ______________________________________ By:___________________________________ Its:__________________________________ NOVUS VENTURES, L.P. a Delaware limited partnership By: DT Associates, a Delaware General Partner By: [signature illegible] ___________________________________ Its:__________________________________ SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT J.H. WHITNEY III, L.P. By: J.H. Whitney Equity Partners III, L.L.C. Its General Partner By: /s/ Michael Brooks _____________________________________ Michael Brooks Managing Member WHITNEY STRATEGIC PARTNERS III, L.P. By: J.H. Whitney Equity Partners III, L.L.C. Its General Partner By: /s/ Michael Brooks ______________________________________ Michael Brooks Managing Member DRAPER FISHER ASSOCIATES FUND IV, L.P. [signature illegible] _____________________________________ By:__________________________________ Its:_________________________________ DRAPER FISHER PARTNERS IV, L.L.C. [signature illegible] ____________________________________ By:_________________________________ Its:________________________________ SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT BSJR, INC. [signature illegible] ______________________________________ By:___________________________________ Its:__________________________________ SPROUT CAPITAL VIII, L.P.. [signature illegible] ______________________________________ By:___________________________________ Its:__________________________________ SPROUT VENTURE CAPITAL, L.P. [signature illegible] _______________________________________ By:____________________________________ Its:___________________________________ /s/ Brett M. Allsop _______________________________________ BRETT M. ALLSOP /s/ Robert S. Chea _______________________________________ ROBERT S. CHEA /s/ Andrew Y. Chen _______________________________________ ANDREW Y. CHEN /s/ Timothy P. Harrington _______________________________________ TIMOTHY P. HARRINGTON /s/ Marcy van Lossberg _______________________________________ MARCY VAN LOSSBERG /s/ Michael G. Allsop _______________________________________ MICHAEL G. ALLSOP /s/ James D. Allsop _______________________________________ JAMES D. ALLSOP /s/ John I. Allsop _______________________________________ JOHN I. ALLSOP [signature illegible] _______________________________________ Nike USA, Inc. SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT SIGNATURE PAGE TO THIRD AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT EX-4.3 5 WARRANT TO PURCHASE SERIES A PREFERRED STOCK EXHIBIT 4.3 THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE STOCK Corporation: Cedro Group, Inc., a California Corporation Number of Shares: 44,445 (subject to Section 1.9) Class of Stock: Series A Preferred (subject to Section 1.9) Initial Exercise Price: $0.5625 per share (subject to Section 1.9) Issue Date: December 24, 1997 Expiration Date: December 24, 2002 THIS WARRANT CERTIFIES THAT, in consideration of the payment of $1.00 and for other good and valuable consideration, IMPERIAL BANK or registered assignee ("Holder") is entitled to purchase the number of fully paid and nonassessable shares of the class of securities (the "Shares") of the corporation (the "Company") at the initial exercise price per Share (the "Warrant Price") all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth of this Warrant. ARTICLE 1. EXERCISE -------- 1.1 Method of Exercise. Holder may exercise this Warrant by delivering ------------------ this Warrant and a fully executed Notice of Exercise in substantially the form attached as Appendix I to the principal office of' the Company, but such exercise shall not occur prior to May 1, 1998. Unless Holder is exercising the conversion right set forth in Section 1.2. Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchased. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in ---------------- Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities, otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Section 1.5. 1.3 Omitted. ------- 1.4 Omitted. ------- 1.5 Fair Market Value. If the Shares are traded regularly in a public ----------------- market, the fair market value of the Shares shall be the closing price of the Shares (or the closing price of the Company's stock into which the Shares are convertible) reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If tile Shares are not regularly traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If tile valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. 1.6 Delivery of Certificate and New Warrant. Promptly after Holder --------------------------------------- exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.7 Replacement of Warrants. On receipt of evidence reasonable ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, or surrender and cancellation of this Warrant, the Company at its expense shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 1.8 Repurchase on Sale, Merger, or Consolidation of the Company. ----------------------------------------------------------- 1.8.1. "Acquisition". For the purpose of this Warrant, "Acquisition" ----------- means any sale, license, or other disposition of all or substantially all of the assets (including intellectual property) of the Company or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.8.2. Assumption of Warrant. If upon the closing of any Acquisition --------------------- the successor entity assumes the obligations of this Warrant, then this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Shares were outstanding on the record date for the Acquisition and subsequent closing. The Warrant Price shall be adjusted accordingly. The Company shall use reasonable efforts to cause the surviving corporation to assume the obligations of this Warrant. 1.8.3. Nonassumption. If upon the closing of any Acquisition the ------------- successor entity does not assume the obligations of this Warrant and Holder has not otherwise exercised this Warrant in full, then the unexercised portion of this Warrant shall be deemed to have been automatically converted pursuant to Section 1.2 and thereafter Holder shall participate in the Acquisition oil the same terms as other holders of the same class of securities of the Company. 1.9 Adjustment in Underlying Preferred Stock Price and Exercise Price. If ----------------------------------------------------------------- on or before February 28, 1998, (i) the Company provides Holder with reasonably satisfactory written 2 evidence of receipt by Company of signed, definitive term sheets for a minimum of $2,000,000 in new equity from investors reasonably acceptable to Holder ("Investors"), and (ii) on or before April 30, 1998 the Company sells and issues to Investors preferred stock and/or securities convertible into preferred stock with aggregate gross proceeds to the Company of at least $2,000,000 in cash, this Warrant shall concurrent with the issuance of such securities automatically be adjusted to instead be exercisable for shares of the same series and class of preferred stock and bearing the same rights, preferences, and privileges, of such shares of stock with the Warrant Price hereunder adjusted to equal the per share purchase price of such stock, and the number of such shares subject to this Warrant adjusted to equal (i) Twenty-five Thousand Dollars ($25,000), divided by (ii) such modified per share Warrant Price. ARTICLE 2. ADJUSTMENTS TO THE SHARES ------------------------- 2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a ---------------------------- dividend on its common stock payable in common stock, or other securities, subdivides the outstanding common stock into a greater amount of common stock, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to Holder would have been entitled had Holder owned the Shares of record as of the date the dividend or subdivision occurred. 2.2 Reclassification, Exchange or Substitution. Subject to Section 1.8, ------------------------------------------ upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company's Articles of Incorporation upon the closing of a registered public offering, of the Company's common stock. The Company or its successor shall promptly, issue to Holder a new Warrant for such new securities or other property. The new Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, without limitations adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the new Warrant. The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events. 2.3 Adjustments for Combinations, Etc. Except for the stock split, and --------------------------------- related amendment to the Company's Articles of Incorporation contemplated by the amendment to the Company's Articles of Incorporation approved by the Company's Board of Directors at its meeting of December 16, 1997, if the Outstanding Shares are Subdivided (by stock split or otherwise) into a greater number of Shares then the number of Shares subject to purchase hereunder shall automatically increase proportionally, and the Warrant Price per Share shall automatically decrease proportionately, with the increase in the number of Shares. If the outstanding Shares are decreased (by reverse stock split or otherwise) into a lesser number of shares then the number of Shares subject to purchase hereunder shall automatically decrease 3 proportionately, and the Warrant Price per Share shall automatically increase proportionately, with the decrease in the number of Shares. 2.4 Adjustments for Diluting Issuances. The Shares will have the exact ---------------------------------- same anti-dilution protection under the Company's Articles of Incorporation as all other Shares of the same class and series. 2.5 No Impairment. The Company shall not, by amendment of its Articles of ------------- Incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying all the provisions of this Article 2 and in taking all such action as may be necessary or appropriate to protect Holder's rights under this Article against impairment. If the Company takes any action affecting the Shares or its common stock other than as described above that adversely affects Holder's rights under this Warrant, the Warrant Price shall be adjusted downward and the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant Price of this Warrant is unchanged. 2.6 Certificate as to Adjustments. Upon each adjustment of the Warrant ----------------------------- Price the Company, at its expense shall promptly compute such adjustment and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY. -------------------------------------------- 3.1 Representations and Warranties. The Company hereby represents and ------------------------------ warrants to the Holder as follows: (a) The initial Warrant Price referenced on the first page of this Warrant is not greater than the fair market value of the Shares as of the date of this Warrant. (b) All Shares which may be issued upon the exercise of the purchase right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state Securities laws. 3.2 Notice of Certain Events. If the Company proposes at any time (a) to ------------------------ declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the 4 company's securities for cash, then, in connection with each such event, the Company shall give Holder (1) at least 20 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the matters referred to in (c) and (d) above at least 20 days prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 3.3 Information Rights. So long as the Holder holds this Warrant and/or ------------------ any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all communiques to the shareholders of the Company, (b) within one hundred and twenty (120) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by Independent public accountants of recognized standing and (c) within forty-five (45) days after the end of each of the first three quarters of each fiscal year, the Company's quarterly, unaudited financial statements. 3.4 Registration Under Securities Act of 1933, as amended. The Company ----------------------------------------------------- shall use its best efforts to amend the Registration Rights Agreement dated September 11, 1996 to add Holder as a party thereto and in connection therewith to grant Holder rights under Section 3 Piggy back Registration, ARTICLE 4. MISCELLANEOUS. ------------- 4.1 Legends. This Warrant and the Shares (and the securities issuable, ------- directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933), AS AMENDED, AND MAY NOT BE SOLD. PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 4.2 Compliance with Securities Laws on Transfer. This Warrant and the ------------------------------------------- Shares issuable upon exercise this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it 5 has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale. 4.4 Transfer Procedure. Subject to the provisions of Section 4.2, Holder ------------------ may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant (or the securities issuable, directly or indirectly, upon conversion of the Shares, if any) by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder, if applicable). Unless the Company is filing financial information with the SEC pursuant to the Securities Exchange Act of 1934, the Company shall have the right to refuse to transfer any portion of this Warrant to any person who directly competes with the Company. 4.5 Notices. All notices and other communications from the Company to the ------- Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such Holder from time to time. 4.6 Waiver. This Warrant and any term hereof may be chanced, waived, ------ discharged or terminated only by an instrument in writing signed by the party against which enforcement of such chance, waiver, discharge or termination is sought. 4.7 Attorneys' Fees. In the event of an dispute between the parties --------------- concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 4.8 Governing Law. This Warrant shall be governed by and construed in ------------- accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. CEDRO GROUP, INC. By: ------------------------------------------- Name: ----------------------------------------- Title: ---------------------------------------- 6 APPENDIX I NOTICE OF EXERCISE ------------------ 1. The undersigned hereby elects to purchase ________________ shares of the Common Stock of Cedro Group, Inc, pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant. This conversion is exercised with respect to of the Shares covered by the Warrant. [Strike paragraph that does not apply,] 2. Please issue a certificate or certificates representing said shares in the name of the undersigned or in such other name as is specified below: Chief Financial Officer Controllers Department Imperial Bank P.O. Box 92991 Los Angeles, CA 90009 or registered assignee The undersigned represents it is acquiring the shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. IMPERIAL BANK or registered assignee - ------------------------------------ (Signature) - ------------------------------------ (Date) 7 EX-10.1 6 AMENDED AND RESTATED 1996 STOCK OPTION PLAN EXHIBIT 10.1 AMENDED AND RESTATED CEDRO GROUP, INC. 1996 STOCK OPTION PLAN AMENDED AND RESTATED CEDRO GROUP, INC. 1996 STOCK OPTION PLAN TABLE OF CONTENTS 1. PURPOSE..................................................... 1 2. SHARES SUBJECT TO THE PLAN.................................. 1 3. TERM OF PLAN................................................ 1 4. PARTICIPANTS................................................ 1 4.1. Eligibility................................................ 1 4.2. Participants............................................... 2 4.3. Legal Representatives...................................... 2 5. GENERAL TERMS............................................... 2 5.1. Option Agreement........................................... 2 5.2. Exercise Price............................................. 2 5.3. Payment of Exercise Price; Taxes........................... 3 5.4. Conditions to Exercise..................................... 3 5.5. No Employment Agreement.................................... 3 5.6. Restrictions on Transfer................................... 4 5.7. Cancellation of Option when Employment Terminates.......... 4 5.8. Market Standoff Requirement................................ 4 6. TERMS OF OPTION AGREEMENTS.................................. 4 6.1. Limitation on Incentive Stock Option Grants................ 4 6.2. Duration of Option......................................... 5 6.3. Exercisability............................................. 6 6.4. Exercise of Option......................................... 6 6.5. Transferability of Option.................................. 6 6.6. Notice of Disqualifying Disposition of Incentive Options... 7 6.7. Adjustments to Option Rights............................... 7 6.8. Identification of Incentive Options........................ 7 7. SHARE REPURCHASE RIGHT...................................... 7 7.1. Right to Repurchase Shares................................. 7 7.2. Termination of Employment or Other Relationship............ 7 7.3. Exercise of Share Repurchase Option........................ 8 7.4. Share Repurchase Price..................................... 8 7.5. Effect of Failure to Exercise Share Repurchase Right....... 8 7.6. Payment for Shares and Return of Shares.................... 8 7.7. Assignment of Share Repurchase Right....................... 8 7.8. Legends.................................................... 8 7.9. "Current Market Price"..................................... 9 8. RIGHT OF FIRST REFUSAL...................................... 9 8.1. Restriction on Transfer.................................... 9 8.2. Right of First Refusal..................................... 9 8.3. Notice of Proposed Transfer................................ 9 8.4. Exercise of Right of First Refusal......................... 10 -i- 8.5. Exchanges or Other Transfers.............................. 10 8.6. Failure to Exercise Right of First Refusal................ 10 8.7. Transferees of the Transfer Shares........................ 10 8.8. Special Transfers......................................... 10 8.9. Assignment of the Right of First Refusal.................. 12 8.10. Termination of Right of First Refusal..................... 12 8.11. Legends................................................... 12 9. SHARE DEPOSIT............................................... 12 9.1. Deposit................................................... 12 9.2. Copies of Notices......................................... 12 9.3. Delivery of Shares and Purchase Price..................... 12 9.4. Attorney-in-Fact.......................................... 13 9.5. Ownership of the Shares................................... 13 9.6. Release of Certificates................................... 13 9.7. Powers and Rights of Custodian............................ 13 10. ADMINISTRATION AND AMENDMENT OF THE PLAN................... 14 10.1. Administration............................................ 14 10.2. Rights and Powers......................................... 14 10.3. Termination; Amendment.................................... 14 10.4. Requirements of Rule 16b-3................................ 14 11. ADJUSTMENT OF AND CHANGES IN STOCK......................... 15 11.1. Recapitalizations......................................... 15 11.2. Liquidation............................................... 15 11.3. Reorganizations in Which the Company Disappears........... 15 11.4. Reorganizations in Which Company Survives................. 16 11.5. Other Changes............................................. 16 11.6. No Fractional Shares...................................... 16 12. SUSPENSION OF OPTIONS TO SATISFY SECURITIES LAWS........... 16 12.1. Power to Suspend.......................................... 16 12.2. Minimum Period............................................ 16 12.3. Maximum Period............................................ 16 12.4. Option Grants During Suspension........................... 17 12.5. Option Termination During Period of Suspension............ 17 12.6. Allocation of Exercise Rights Before Suspension........... 17 12.7. All Options Must Be Suspended............................. 17 12.8. Advice of Counsel......................................... 17 12.9. Sunset Provision.......................................... 17 13. INFORMATION TO PARTICIPANTS................................ 17 13.1. Information Provided...................................... 17 13.2. Information confidential.................................. 17 14. TAX STATUS................................................. 17 15. MISCELLANEOUS.............................................. 18 15.1. Additional Actions and Documents.......................... 18 15.2. Successors and Assigns.................................... 18 15.3. No Third-Party Beneficiaries.............................. 18 15.4. Amendments, Waivers, and Consents......................... 18 15.5. Notice.................................................... 18 15.6. Dispute Resolution........................................ 19 15.7. Jurisdiction and Venue.................................... 20 -ii- 15.8. Governing Law............................................. 20 15.9. Plan Governs.............................................. 20 -iii- AMENDED AND RESTATED CEDRO GROUP, INC. 1996 STOCK OPTION PLAN ---------------------- 1. PURPOSE The purpose of this 1996 Stock Option Plan is to advance the interests of CEDRO GROUP, INC., a California corporation (the "Company"), by giving the Company's employees and others who perform substantial services on behalf of the Company incentive through ownership of the Company's common stock to continue in the service of the Company and thereby to help the Company compete effectively with other enterprises for the services of qualified individuals. This Plan is intended to be an employee stock option plan within the meaning of Section 408 of the California Corporations Code. 2. SHARES SUBJECT TO THE PLAN Subject to adjustment as provided in Article 11, the Company is authorized to issue options ("Options") to purchase up to 1,345,137 shares of its common stock ("Shares"). Any unpurchased Shares that are subject to an Option that terminates for any reason other than exercise shall, unless this Plan has been terminated, become available for future grant under this Plan. The Company shall at all times reserve for issuance pursuant to this Plan a number of its authorized but unissued Shares equal to the number of Shares issuable under this Plan. Exercise of an Option shall decrease the number of Shares available for grant under this Plan. 3. TERM OF PLAN This Plan shall become effective upon its adoption by the Board of Directors of the Company (the "Board"). Within 12 months after the date of such adoption, this Plan shall be approved by the shareholders of the Company in the degree and manner required under applicable state and federal law. No Option shall become exercisable unless and until such shareholder approval has been obtained. Unless sooner terminated under Article 10 or 11, this Plan shall terminate upon the earlier of (a) the tenth anniversary of its adoption by the Board or (b) the date on which all Shares available for issuance under this Plan have been issued. Any Option outstanding under this Plan at the time of its termination shall remain in effect in accordance with its terms and conditions and those of this Plan. 4. PARTICIPANTS 4.1. ELIGIBILITY. The following persons shall be eligible to receive Options under this Plan: (a) any employee (an "Employee") of the Company or any present or future parent or subsidiary corporation of the Company (an "Affiliate") as defined in Sections 424(e) and (f) of the Internal Revenue Code of 1986, as amended (the "Code"), respectively, (b) any person who is engaged by the Company or an Affiliate to render consulting services and is compensated for such services, Employee (a "Consultant") and (c) any director of the Company or an Affiliate who is not an Employee, whether compensated for such services or not (an "Outside Director"). Only Employees are eligible to receive Options that are intended to be incentive options ("Incentive Options") within 1 the meaning of Section 422 of the Code. Employees, Consultants, and Outside Directors are eligible to receive Options that are not intended to be Incentive Options ("Nonstatutory Options"). 4.2. PARTICIPANTS. The Board shall have the authority in its sole discretion to select the Employees, Consultants and Outside Directors to whom Options may from time to time be granted under this Plan ("Participants"). 4.3. LEGAL REPRESENTATIVES. As used in this Plan, the term "Participant" includes any person who acquires the legal right to exercise a Participant's Options by reason of the death or incompetence of the Participant. 5. GENERAL TERMS 5.1. OPTION AGREEMENT. Grants of Options shall be evidenced by a written option agreement ("Option Agreement"), which shall contain the provisions that this Plan requires and may contain additional provisions that do not conflict with this Plan as the Board deems appropriate. Each Option Agreement shall be signed by the Participant and an officer of the Company designated by the Board. The form of Option Agreement for use pursuant to this Plan is attached to this Plan. The Board may modify said form as it deems appropriate, subject to the provisions of this Plan. Option Agreements need not have identical terms, but each Option Agreement shall be subject to this Plan. 5.2. EXERCISE PRICE. 5.2.1. GENERAL RULE. The exercise price of each Incentive Option shall not be less than the fair market value of the Shares, as the Board may determine, on the date the Option is granted. The exercise price of each Nonstatutory Option shall not be less than 85% of the fair market value of the Shares, as the Board may determine, on the date the Option is granted. It is the Company's policy that the exercise price of Nonstatutory Options be at least the fair market value of the Shares on the date the Option is granted except in unusual circumstances. 5.2.2. TEN PERCENT SHAREHOLDERS. The exercise price of each Option granted to a Participant who, at the time the Option is granted, owns, as that term is defined in Section 424(d) of the Code, stock possessing more than 10% of the combined voting power of all stock of the Company or of its Affiliates, shall be at least 110% of the fair market value of the Shares, as the Board may determine, on the date the Option is granted. 5.2.3. DETERMINATION OF FAIR MARKET VALUE. The Board's determination of fair market value shall be final and conclusive for the purposes of this Plan. In determining fair market value, the Board may, but is not obligated to, obtain and rely upon an independent appraisal. If the Company's common stock is publicly traded, the fair market value of the Shares as of any date shall be -2- determined as follows: (a) if such stock is listed on a stock exchange or national market system, fair market value shall be the closing sales price of a share of the Company's common stock (or the closing bid price if no sales were reported), as quoted on such exchange or system for the last market trading day before the time of determination; or (b) if such stock is quoted on the NASDAQ System (but not on its National Market System) or regularly quoted by a recognized securities dealer but selling prices are not reported, fair market value shall be the mean between the high and low asked prices for such stock for the last market trading day before the time of determination. 5.3. PAYMENT OF EXERCISE PRICE; TAXES. 5.3.1. FORM OF PAYMENT. The Participant shall pay the per Share exercise price in full at the time of exercise by bank cashier's check or, with the approval of the Board, a promissory note or shares of common stock of the Company, or any combination of the foregoing such that the aggregate fair market value of such stock (as determined by the Board) plus cash and notes equals the total exercise price. 5.3.2. PROMISSORY NOTES. The Company may require a promissory note to be with full recourse, to be adequately secured by collateral other than the Shares purchased, and to bear interest at market or above market rates (if such rates are not usurious). It is the Company's policy not to accept promissory notes except in unusual circumstances. Inability to pay cash is not necessarily an unusual circumstance. 5.3.3. WITHHOLDING TAXES. The Participant shall pay by bank cashier's check or other form of payment acceptable to the Company, the amount of any state or federal income or other tax that the Company is required to pay or withhold upon exercise of an Option unless the incidence of such tax cannot lawfully be placed on the Participant. 5.4. CONDITIONS TO EXERCISE. No Option may be exercised if the transfer of Shares upon such exercise or the method of payment of consideration for such Shares would constitute a violation of any applicable securities or other law or regulation. Unless the Shares are registered under the Securities Act of 1933 and any applicable state securities law, as a condition to exercising an Option, the Participant shall provide the Company with such written assurances as the Company deems appropriate for the Option grant and exercise to qualify for exemption from registration. Such assurances may include, among others, a representation that the Participant intends to hold the Shares for investment and not for distribution to the public. The Company has no obligation to register the Options or Shares under the Securities Act of 1933 or any other law. 5.5. NO EMPLOYMENT AGREEMENT. No Option Agreement, nor anything contained in this Plan, shall alter a Participant's status as an "at will" employee of the Company, confer upon any Participant any right to continue in the employ of the Company, or limit the right of the Company to terminate a Participant's employment at any time and for any or no reason. -3- 5.6. RESTRICTIONS ON TRANSFER. If transfer of the Shares is restricted under any applicable law, each certificate-representing such Shares shall bear a legend in form and substance satisfactory to the Company reflecting that such Shares are so restricted. The Company may also place a notation on any certificate representing Shares purchased upon exercise of an Incentive Option. To enforce any restrictions on transfer of the Shares, the Company may set forth in its stock transfer records a "stop transfer" order with respect to the Shares. The Company shall not be liable for any refusal to transfer the Shares on the books of the Company unless the transfer complies with all terms land conditions of any restrictions imposed on such Shares. 5.7. CANCELLATION OF OPTION WHEN EMPLOYMENT TERMINATES. If a Participant exercises an Option after his or her employment or other relationship terminates, the Company may pay to the Participant an amount equal to the then Current Market Price (as defined in Section 7.9) of the Shares less the exercise price of the Shares in lieu of issuing such Shares. The Company shall not be obligated to deliver such amount to the Participant unless the Participant accepts such payment in full satisfaction of his or her rights under the Option exercised. 5.8. MARKET STANDOFF REQUIREMENT. Each Participant shall, upon the request of the Company or the underwriters managing any public offering of the Company's securities, refrain from selling or disposing of any Shares without the prior written consent of the Company and such underwriters, as the case may be, for such -period of time (not to exceed 180 days) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the underwriters may specify. The Participant and the Company shall cause any certificates representing the Shares to bear a legend in substantially the following form: SALE, TRANSFER, OR HYPOTHECATION OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS PROHIBITED FOR A PERIOD OF TIME FOLLOWING A PUBLIC OFFERING OF THE STOCK OF THE CORPORATION PURSUANT TO THE 1996 STOCK OPTION PLAN OF THE CORPORATION. The legend shall be removed upon any resale of the Shares to the public in an offering registered with the SEC or pursuant to Rule 144. 6. TERMS OF OPTION AGREEMENTS 6.1. LIMITATION ON INCENTIVE OPTION GRANTS. The aggregate fair market value (determined at the time the Option is granted) of the Shares for which one or more Incentive Options granted under this Plan (or any other incentive stock option plan of the Company or any Affiliate) become exercisable by a Participant for the first time during any calendar year shall not exceed $100,000 or such other amount, if any, as may be permitted for incentive stock options under Section 422 of the Code as it may be amended from time to time. To the extent that any one or more Incentive Options violate this limitation, such excess Options shall be treated as Nonstatutory Options. For purposes of this Section 6.1. Incentive Options shall be taken into account in the order in which they were granted, and the -4- fair market value of the Shares shall be determined as of the time the Option with respect to such Shares was granted. 6.2. DURATION OF OPTION. 6.2.1. GENERAL RULE. Except as provided in this Section 6.1 and Section 6.3, Options shall be exercisable only for so long as the Participant has the same relationship with the Company as an Employee, Consultant or Outside Director as the Participant had when the Option was granted, but not longer than 10 years after the date the Option is granted. 6.2.2. EXERCISE FOLLOWING TERMINATION OF EMPLOYMENT. Upon termination of a Participant's employment or other relationship with the Company by reason of the Participant's death or disability (within the meaning of Section 22(e)(3) of the Code), the Participant or the Participant's estate or any person who acquires the right to exercise the option by bequest or inheritance, may exercise the Option at any time within one year after such termination, but only to the extent that the Option is exercisable for vested shares on the date of such termination and does not otherwise expire. Upon termination of a Participant's employment or other relationship with the Company by reason of the Participant's disability other than as defined in Section 22(e)(3) of the Code, the Participant may exercise the Option at any time within one year after termination, but only to the extent that the Option is exercisable for vested shares on the date of such termination and does not otherwise expire. Upon termination of a Participant's employment or other relationship with the Company for any other reason, the Participant may exercise the Option at any time within 30 days after such termination, but only to the extent that the Option is exercisable for vested shares on the date of such termination and does not otherwise expire. Employment shall not be considered terminated in the case of (a) sick leave; (b) military leave; (c) any other leave of absence approved by the Board; or (d) transfers between locations of the Company or between the Company or its Affiliates. For Consultants, employment terminates when such Consultant ceases to render services on a periodic basis to the Company or any Affiliate. 6.2.3. EFFECT OF CHANGE OF RELATIONSHIP. If a Participant's, employment or other relationship with the Company terminates but the Participant continues to be eligible under Section 4.1 of this Plan, the Board may, in its sole discretion, elect to permit one or more of the Participant's Options to continue as if the Participant's employment or other relationship had not terminated, except that any such continued Option shall be a Nonstatutory Stock Option if the Participant is no longer an Employee. 6.2.4. TEN PERCENT SHAREHOLDERS. Any Option granted to a Participant who, at the time the Option is granted, owns, as that term is defined in Section 424(d) of the Code, stock possessing more than 10% of the combined voting power of all stock of the Company or of its Affiliates, shall be exercisable as described in this Section 6.1, but for no longer than 5 years after the date the Option is granted. -5- 6.3. EXERCISABILITY. 6.3.1. MINIMUM VESTING RATE. All Options granted under this Plan shall become exercisable at a rate that, when considered in conjunction with all other then unexercisable options to purchase common stock of the Company held by the optionee, is not slower than in cumulative annual increments of 20% per year from the date of grant. Nothing in this Plan requires Options to be exercisable immediately upon grant. 6.3.2. EFFECT OF LEAVE OF ABSENCE. The rate at which Options become exercisable shall be suspended during any leave of absence that lasts for more than 60 days unless the Board determines otherwise. A leave of absence shall not extend the term of the Option. Options may be exercised during a leave of absence only to the extent that the Options are exercisable on the date the leave of absence begins unless the Board determines otherwise. EXAMPLE: Assume that an option vests in five cumulative annual increments of 20% each on January 1 of each year. The first 20% vested on January 1, 1996. During 1996, the optionee takes a six month leave of absence. The remaining increments, instead of continuing to vest on January 1, will instead vest on July 1, with the second increment vesting on July 1, 1997. 6.3.3. ELECTION TO RECEIVE RESTRICTED STOCK. If permitted in the Option Agreement, a Participant may, at the Participant's election, exercise an Option before it would otherwise be exercisable. Shares received upon an early exercise shall be deemed nonvested, and shall vest at the time the Options pursuant to which the Shares were issued would otherwise have become exercisable. Nonvested Shares are subject to repurchase pursuant to Article 7 at the exercise price of the Option pursuant to which they were issued instead of the Current Market Price. 6.4. EXERCISE OF OPTION. To exercise an Option for all or part of the Shares, the Participant must do the following: (a) provide the Chief Financial Officer of the Company with a written notice of exercise that specifies the number of Shares for which the Option is being exercised; (b) pay the total exercise price for that number of Shares and any withholding taxes as provided in Section 5.3; (c) provide the Company with any written representations as required under Section 5.4; and (d) furnish to the Company appropriate documentation that the person(s) exercising the Option, if other than the Participant named in the Option Agreement, have the right to do so. 6.5. TRANSFERABILITY OF OPTION. Options shall be transferable only by will or the laws of descent and distribution. Only the Participant may exercise the Options during the Participant's lifetime, except as provided in subsection 6.2.2. Any other purported transfer or assignment of any Option shall be void and of no effect. -6- 6.6. NOTICE OF DISQUALIFYING DISPOSITION OF INCENTIVE OPTIONS. Participants shall give the Company written notice of any disposition of any Share acquired pursuant to exercise of an Incentive Option if such disposition occurs before the second anniversary of the date the Option was granted or the first anniversary of the date of purchase of the Share disposed of, whichever occurs later. A disposition includes any sale, exchange, gift, or other transfer or attempted transfer of legal title. The notice shall include the Participant's name, the number of Shares disposed of and the dates and prices the Shares were both acquired and disposed of. 6.7. ADJUSTMENTS TO OPTION RIGHTS. Subject to the general limitations of this Plan, the Board may adjust the exercise price, term, or any other provision of an Option by canceling and regranting the Option or by amending or substituting the Option. Options that have been so adjusted may have higher or lower exercise prices, have longer or shorter terms, or be subject to different rights and restrictions than prior Options. The Board may also adjust the number of Options granted to a Participant by canceling outstanding Options or granting additional Options. Except for adjustments necessary to ensure compliance with any applicable state or federal law, or adjustments deemed appropriate to reflect a change in a Participant's duties, employment status, or other relationship with the Company, no such adjustment shall impair a Participant's rights under any Option Agreement without the consent of the Participant. 6.8. IDENTIFICATION OF INCENTIVE OPTIONS. Each Option Agreement shall state whether or not the Option is intended to qualify as an Incentive Option. If only a portion of an Option is intended to so qualify, (a) the Option Agreement shall so state, and (b) the Option Agreement shall not require that the number of Incentive Options exercised reduces the size of the Nonstatutory Option portion, or vice-versa. 7. SHARE REPURCHASE RIGHT 7.1. RIGHT TO REPURCHASE SHARES. In the event the Participant's employment or other relationship with the Company terminates for any reason, with or without cause, the Company or its assignee may, without the necessity of notice from the Participant, purchase all or, with the Participant's consent, part of the Participant's nonvested Shares under the terms and conditions of this Article 7 (the "Share Repurchase Right"). 7.2. TERMINATION OF EMPLOYMENT OR OTHER RELATIONSHIP. For purposes of this Plan, the phrase "employment or other relationship" refers to the Participant's employment or other relationship with the Company on the date the Option is granted, as follows: (a) If the Participant was a full-time Employee, the Participant's employment will be deemed terminated for the purpose of this Plan if the Participant becomes a part-time Employee, a Consultant, or an Outside Director. (b) If the Participant was a part-time Employee, the Participant's employment will be deemed terminated for the purpose of this Plan if the Participant becomes a -7- Consultant or Outside Director but not if the Participant becomes a full-time Employee. (c) If the Participant was a Consultant or Outside Director, the Participant's relationship will be deemed terminated for the purpose of this Plan if the nature of such relationship changes, unless the Participant becomes a full-time Employee. 7.3. EXERCISE OF SHARE REPURCHASE OPTION. The Company or its assignee shall exercise the Share Repurchase Right by giving written notice (the "Repurchase Notice") to the Participant. If some or all of the Participant's Shares are held by a transferee when the Participant's employment or other relationship with the Company terminates, the Company may repurchase the transferred Shares by giving a Repurchase Notice to the transferee. The Share Repurchase Right shall expire 60 days after the Participant gives written notice to the Company of its right to purchase the Shares. 7.4. SHARE REPURCHASE PRICE. The price at which the Company may repurchase nonvested Shares shall be the price at which they were originally issued pursuant to the Option. 7.5. EFFECT OF FAILURE TO EXERCISE SHARE REPURCHASE RIGHT. If the Company declines to exercise the Share Repurchase Right after a deemed termination of a Participant's employment or other relationship with the Company, it may exercise the Share Repurchase Right upon a subsequent termination of the new employment or other relationship. 7.6. PAYMENT FOR SHARES AND RETURN OF SHARES. Shares shall be deemed repurchased when the Participant or other holder of the Shares receives a Repurchase Notice. All rights accorded a holder of such Shares, other than the right to payment therefor, shall cease at that time. If there has been a Custodian appointed pursuant to Article 9, the Company shall deliver the purchase price of any Shares so purchased to the Custodian at the same time as the Company delivers the Repurchase Notice. If no Custodian has been appointed, the Company shall deliver the purchase price of any Shares so purchased to the holder thereof upon tender of the certificates representing such Shares to the Company's transfer agent. For purposes of the foregoing, cancellation of any purchase money indebtedness of the Participant to the Company shall be treated as payment to the Participant in cash to the extent of the unpaid principal and any accrued interest canceled. 7.7. ASSIGNMENT OF SHARE REPURCHASE RIGHT. The Company may assign the Share Repurchase Right to one or more persons as may be selected by the Board. Any such assignee shall pay the Company upon assignment of the right (unless the assignee is a 100% owned subsidiary of the Company or is the parent of the Company owning 100% of the Company) cash per Share equal to the difference between the exercise price and the Current Market Price of the Share if the exercise price is less than Current Market Price. 7.8. LEGENDS. Unless a public market exists for the Shares, each certificate representing the Shares shall bear a legend in form and substance satisfactory to the Company to the effect that the Shares are subject to the Share Repurchase Right. -8- 7.9. "CURRENT MARKET PRICE," "Current Market Price" means the fair market value of the Company's common stock for the purpose of any employee benefit plan of the Company, including this Plan, or any arm's length transaction, as most recently determined by the Board of Directors or any committee thereof If the Board of Directors or any committee thereof has not determined the fair market value of the Company's common stock within the previous year, or if the board of Directors determines that the circumstances of the Company have changed materially from the last determination of fair market value, the Board of Directors shall make a new determination of fair market value. The fair market value of the Shares will be the price that a shareholder would receive for the Shares based on the following assumptions: (a) Either 100% of the stock of the Company will be sold, or the assets of the Company will be sold as a going concern subject to all obligations and liabilities, whichever assumption will produce the greater value, for cash as of the date giving rise to the Company's right to buy the Shares. (b) Any income tax consequences to the transaction will be deferred indefinitely. (c) The Company is not under pressure to sell and the buyer is not under pressure to buy. (d) The Company will continue to be operated in the manner that it has been operated to the date of sale. 8. RIGHT OF FIRST REFUSAL 8.1. RESTRICTION ON TRANSFER. Except as expressly permitted in an Option Agreement or this Plan, a Participant shall not transfer, encumber or dispose of any Shares or any interest in the Shares. Unless expressly permitted in this Plan, a Participant shall not transfer (voluntarily or involuntarily), encumber, or dispose of any nonvested Shares or any interest therein. If nonvested Shares are to be transferred notwithstanding the provisions of this Plan, the price at which the Company may repurchase such Shares pursuant to any provision of this Agreement shall be the exercise price of the Shares. 8.2. RIGHT OF FIRST REFUSAL. In the event a Participant proposes to sell, exchange, transfer, pledge or otherwise dispose of any Shares (whether voluntarily or involuntarily) (collectively referred to sometimes herein as a "Transfer"), the Company or its assignees shall have the right to purchase such Shares under the terms and conditions of this Article 8 (the "Right of First Refusal"). 8.3. NOTICE OF PROPOSED TRANSFER. Before any proposed Transfer of Shares, a Participant must deliver to the Company at its principal office (a) a written notice describing the proposed Transfer and stating the name of the proposed transferee, the number of Shares to be transferred, and the consideration for which the Shares are to be transferred (a "Transfer Notice") and (b) a written offer signed by the proposed transferee (if the proposed transfer is voluntary) to acquire the Shares on the terms specified in the Transfer Notice, subject only to the Right of First Refusal. -9- 8.4. EXERCISE OF RIGHT OF FIRST REFUSAL. If the Company exercises the Right of First Refusal, the Company and the Participant shall immediately consummate the sale of the Shares to the Company at the purchase price and on the terms set forth in the Transfer Notice. To exercise the Right of First Refusal, the Company shall deliver to the Participant a notice of exercise of the Right of First Refusal within 60 days after the date the Company receives the Transfer Notice. Shares shall be deemed purchased by the Company when the Participant or other holder of the Shares receives such notice of exercise of the Right of First Refusal. All rights accorded a holder of such Shares, other than the right to payment therefor, shall cease at that time. The Company shall pay the purchase price of any Shares so purchased within 5 business days after tender of the certificates representing such Shares to the Company's transfer agent. For this purpose, cancellation of any promissory note from the Participant to the Company shall be treated as payment to the Participant in cash to the extent of the unpaid principal and any accrued interest canceled. If the Company purchases any Shares pursuant to the Right of First Refusal, it must purchase all of the Shares proposed to be transferred. 8.5. EXCHANGES OR OTHER TRANSFERS. When the consideration specified in a Transfer Notice is property other than cash, the Company may nonetheless pay the purchase price for the Shares in cash. If the consideration so specified has a readily ascertainable fair market value, the purchase price of the Shares shall be an amount equal to the fair market value of such consideration. If the specified consideration does not have a readily ascertainable fair market value, the purchase price shall be the Current Market Price of the Shares determined as of the date the Company receives the Transfer Notice. 8.6. FAILURE TO EXERCISE RIGHT OF FIRST REFUSAL. If the Company fails to exercise in full the Right of First Refusal within 60 days from the date the Company receives the Transfer Notice, the Participant may not later than 120 days following delivery to the Company of the Transfer Notice, conclude a Transfer of the Shares to the proposed transferee named in the Transfer Notice on the terms and conditions described in the Transfer Notice. Any proposed Transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed Transfer by the Participant, shall again be subject to the Right of First Refusal and shall require compliance by the Participant with the procedure described in this Article 8. 8.7. TRANSFEREES OF THE TRANSFER SHARES. All transferees of any Shares or any interest therein, other than the Company, shall be required as a condition of such Transfer to agree in writing (in a form satisfactory to the Company) that such transferee shall receive and hold such Shares or interests subject to the provisions of this Plan, including without limitation Article 7 providing for the Share Repurchase Right with respect to nonvested Shares and Article 8 providing for the Right of First Refusal. Any sale or Transfer of any Shares shall be void unless the provisions of this Article 8 are met. 8.8. SPECIAL TRANSFERS. 8.8.1. CREDITORS' PROCEEDINGS. Upon any proposed Transfer of the Shares in connection with any receivership, bankruptcy, extension, readjustment, stay, composition, or other creditors' proceeding regarding a Participant, or the taking of any of the Shares by legal process (such as levy -10- of execution), the Right of First Refusal shall expire 60 days after the Company receives a Transfer Notice from the Participant. The time during which the Company may not exercise its Right of First Refusal shall be tolled or extended during any time when the Company may be prohibited or restricted from exercising the Right of First Refusal under applicable laws or by court ruling. If the Company or its assignee does not exercise the Right of First Refusal, the Shares may be transferred only pursuant to the proceeding or transaction that gave rise to the Right of First Refusal. Shares transferred pursuant to this subsection 8.8.1 shall continue to be subject to the provisions of the Option Agreement and this Plan, including without limitation Articles 7 and 8 of this Plan. 8.8.2. DISSOLUTION OF MARRIAGE. If a Participant divides his or her marital, joint, or community property in connection with a decree of divorce or a property settlement, the Participant shall use his or her best efforts to retain the Shares and transfer other assets to his or her spouse in lieu of the Shares. The other assets the Participant may transfer may include a promissory note from the Participant to the spouse. In the event of any distribution of Shares to the Participant's spouse pursuant to a decree of divorce or property-settlement agreement, the Company shall have, without the necessity of notice, an irrevocable option to purchase the nonvested Shares proposed to be transferred at their exercise price and the vested shares proposed to be transferred at their Current Market Price by giving a Repurchase Notice to the Participant. The option shall expire 60 days after the Company receives written notice of such distribution or intended distribution advising the Company of its right to purchase the Shares. If the transferee disagrees with the Company's determination of Current Market Price, the transferee may request that an appraisal be performed. Any appraisal shall be determined in accordance with the assumptions set forth in Section 7.9, Unless the Company and the transferee agree otherwise, the appraiser shall agree in writing to be neutral, shall have been a full-time business appraiser for the previous five years, and shall be an Accredited Senior Appraiser of the American Society of Appraisers. The Company and the transferee shall share the cost of the appraisal equally. 8.8.3. PLEDGE. A Participant may pledge Shares (including nonvested Shares) to the Company or a bank or other financial institution if the pledge or security agreement under which the Shares are pledged specifies that the pledgee shall not sell or transfer the Shares (other than to the Participant on termination of the pledge) without first offering them to the Company pursuant to Section 8.2. The price at which the Company may purchase any nonvested Shares shall be the exercise price of the Shares. 8.8.4. FAMILY TRANSFERS. A Participant may transfer Shares (including nonvested Shares) to the Participant's spouse, any parent, step-parent, child, or grandchild of the Participant, or the Participant's spouse, any other relative of the Participant or the Participant's spouse approved by the Board, or any trust for the exclusive benefit of the Participant or any such person, without first offering the same to the Company pursuant to Section 8.2. Shares so transferred shall remain subject to the Option Agreement and this Plan. The Right of First Refusal under subsection 8.8.1 shall then arise when the transferee (as opposed to the Participant) -11- proposes a Transfer in connection with a creditor's proceeding. The Share Repurchase Right shall arise when the Participant's employment or other similar relationship terminates, regardless of whether the Shares have been transferred. 8.9. ASSIGNMENT OF THE RIGHT OF FIRST REFUSAL. The Company may assign the Right of First Refusal to one or more persons as may be selected by the Board. 8.10. TERMINATION OF RIGHT OF FIRST REFUSAL. The Right of First Refusal shall terminate when a public market exists for the Shares. A public market shall be deemed to exist if any of the Company's shares of common stock have been registered pursuant to Section 5 of the Securities Act of 1933 or Section 12 of the Securities Exchange Act of 1934, and (a) such stock is listed on a national securities exchange or national market system or (b) such stock is traded in the over-the-counter market and prices therefor are published daily for 90 days in a recognized financial journal. 8.11. LEGENDS. Unless a public market exists for the Shares, each certificate representing the Shares shall bear a legend in form and substance satisfactory to the Company to the effect that the Shares are subject to the Right of First Refusal. 9. SHARE DEPOSIT 9.1. DEPOSIT. As security for the payment of any promissory note delivered in payment of Shares pursuant to Section 5.3, or for the delivery of certificates for nonvested Shares subject to repurchase pursuant to Article 7, the Company may require a Participant to deposit each certificate for Shares securing such promissory note, or representing such nonvested Shares, with the secretary of the Company or such other person as the Board may designate ("Custodian") along with two stock assignments duly endorsed (with date and number of shares blank) for each certificate. The Company may require the signatures to be guaranteed by a national bank or a member of a national Stock Exchange. The Custodian shall then hold the certificates pursuant to the instructions set forth in this Article 9 and as they may be modified in any Option Agreement. 9.2. COPIES OF NOTICES. The Company shall give the Custodian a copy of any Repurchase Notice or any other notice required or permitted under Article 5 or 7, at the same time it delivers such notices to the intended parties. The Company shall deliver the purchase price of Shares held by the Custodian along with any Repurchase Notice. 9.3. DELIVERY OF SHARES AND PURCHASE PRICE. Promptly upon receipt of a Repurchase Notice or notice pursuant to Article 5, the Custodian shall (a) date the stock assignments necessary for the transfer in question, (b) fill in the number of Shares being transferred, and (c) deliver the same, together with the certificate evidencing the Shares to be transferred, to the transfer agent of the Company. The Custodian shall deliver the purchase price payable in connection with the repurchase of Shares pursuant to Article 7 to the Participant promptly after receiving it from the Company or its assignee. -12- 9.4. ATTORNEY-IN-FACT. Each Participant, by accepting the Option Agreement, irrevocably constitutes and appoints the Custodian as the Participant's attorney-in-fact and agent to execute all documents necessary or appropriate to transfer Shares as contemplated in this Article 9. 9.5. OWNERSHIP OF THE SHARES. Each Participant shall have the full right to vote all Shares held by the Custodian and shall receive all distributions with respect to such Shares for so long as such Participant is the record owner of the Shares. 9.6. RELEASE OF CERTIFICATES. Upon a Participant's written request, the Custodian shall release the Share certificates and stock assignments with respect thereto if, and to the extent that, the restrictions on transfer of the Shares set forth in Articles 5 and 7 terminate. 9.7. POWERS AND RIGHTS OF CUSTODIAN. 9.7.1. CUSTODIAN'S RELIANCE. The Custodian shall be obligated only to perform such duties as are specifically set forth in this Plan and any applicable Option Agreement. The Custodian may rely and shall be protected in relying or refraining from acting on any instrument the Custodian reasonably believes to be genuine and to have been signed or presented by the proper party or parties. The Custodian shall not be personally liable for any act or omission as Custodian or as attorney-in-fact for a Participant while acting reasonably and in good faith. Any act or omission pursuant to the advice of counsel shall be deemed to be reasonable and in good faith. 9.7.2. THIRD-PARTY BENEFICIARY. The Custodian is an intended third-party beneficiary of this Plan. 9.7.3. WARNINGS AND COURT ORDER. The Custodian is expressly authorized to disregard any and all warnings given by a Participant or by any other person, other than orders or process of courts or arbitrators provided for in this Plan or the Option Agreement. The Custodian is expressly authorized to comply with and obey orders, judgments, or decrees of any court or the arbitrators provided for in this Plan. The Custodian shall not be liable to any person by reason of such compliance, even if such order, judgment, or decree is later reversed, modified, annulled, set aside, vacated, or found to have been entered without jurisdiction. 9.7.4. COUNSEL TO CUSTODIAN. The Custodian may employ legal counsel and such other experts as the Custodian deems necessary in connection with its duties and may pay such experts reasonable compensation. 9.7.5. RESIGNATION. The Custodian may resign by giving 10 days written notice to the Company. -13- 9.7.6. FURTHER INSTRUCTIONS. If the Custodian reasonably requires other or further instruments in connection with the share deposit, the Company shall furnish such instructions. 9.7.7. FEES. The Company shall pay all of the Custodian's fees and expenses in such amount as the Company and the Custodian may agree. 10. ADMINISTRATION AND AMENDMENT OF THE PLAN 10.1. ADMINISTRATION. This Plan shall be administered by the Board and/or by a duly appointed committee of the Board having such powers as the Board may delegate to such committee. All references to the Board in this Plan shall also mean the committee if one has been appointed. 10.2. RIGHTS AND POWERS. Subject to this Plan and, in the case of a committee, the specific rights and powers delegated by the Board to such committee, the Board shall have the authority and discretion to: (a) determine who shall be a Participant; (b) determine when Options are granted; (c) determine the terms and conditions of Option Agreements (which terms and conditions may differ among Agreements); (d) interpret this Plan; (e) adopt rules and regulations for implementing this Plan; and (f) take such other action as is appropriate to the administration of this Plan. All decisions, determinations, and interpretations of the Board shall be final and binding on all Participants. 10.3. TERMINATION; AMENDMENT. The Board may from time to time suspend this Plan, terminate this Plan, or amend this Plan as it deems desirable, without further action on the part of the shareholders of the Company. The approval of the shareholders shall be required, however, to (a) increase the total number of Shares that may be issued under this Plan (except as otherwise provided herein); (b) change the description of the persons eligible to be Participants; or (c) change the minimum exercise price. Except as provided in Article 11, or in an Option Agreement, the suspension, termination, or amendment of this Plan shall not, without the consent of the Participant, alter or impair any rights of the Participant under any Option Agreement. 10.4. UNILATERAL AMENDMENTS. Notwithstanding any other provision of this Plan or any Option Agreement, and in addition to the powers described in Section 6.7, the Committee may amend the Plan and any Option Agreement, -14- without the consent of any Participant, to the extent the Committee in the Committee's sole judgment deems necessary or appropriate to comply with the requirements for any exemption from the registration and qualification requirements of state and federal securities laws, or the requirements of any other law, including without limitation Securities and Exchange Commission Rule 701, California Corporations Code Section 25102(o), and any other rule, regulation court decision, or interpretation issued in connection with any such law. 10.5. REQUIREMENTS OF RULE 16B-3. In the event that the Company becomes subject to Section 16 of the Securities Exchange Act of 1934, this Plan shall be administered in accordance with Rule 16b-3 promulgated under such Act, or any successor rule. Unless the Board determines otherwise in a specific case, Options granted to persons subject to Section 16(b) of the Securities Exchange Act of 1934 must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 with respect to Plan transactions. In addition, to the extent necessary and desirable to comply with Rule 16b-3 or with Section 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain shareholder approval of any Plan amendment in such a manner and to such a degree as required. 11. ADJUSTMENT OF AND CHANGES IN STOCK 11.1. RECAPITALIZATIONS. If the number of the Company's outstanding shares of common stock is changed by any stock dividend, stock split, reverse stock split, combination, or reclassification, the number of Shares subject to this Plan and to outstanding Options, and the exercise price for such Shares, shall be equitably adjusted as determined by the Board. 11.2. LIQUIDATION. In the event of the proposed liquidation or dissolution of the Company, the Company shall notify the Participants at least 10 days before such proposed action is taken. All unexercised Options shall terminate immediately before such event. 11.3. REORGANIZATIONS IN WHICH THE COMPANY DISAPPEARS. 11.3.1. NOTICE OF REORGANIZATION. The Company shall give each holder of Options at least 10 days prior written notice of (a) a sale of all or substantially all of the Company's assets, (b) any reorganization, merger, or consolidation of the Company with any other corporation in which the Company is not the surviving entity (except for a transaction the principal purpose of which is to change the state in which the Company is incorporated), or (c) any other corporate reorganization or business combination in which the beneficial ownership of 50% or more of the Company's voting securities outstanding is transferred. 11.3.2. RIGHT TO CANCEL OPTIONS. If an exercisable Option is not exercised within 5 days before such event, the Company may cancel the Option by paying the Participant an amount equal to the fair market value of the consideration that the Participant would receive in exchange for the Shares underlying the Option, less the exercise price of the Option. -15- 11.3.3. EXPIRATION OF OPTIONS. Unless a successor corporation or parent or subsidiary thereof assumes the unexercised Options or substitutes options to purchase substantially equivalent securities of the successor or its parent or subsidiary for the Options outstanding at the time of the closing of such event, all outstanding Options shall terminate upon such event. 11.4. REORGANIZATIONS IN WHICH COMPANY SURVIVES. Upon any other merger or consolidation of the Company in which there is any adjustment in the common stock of the Company outstanding immediately before such merger or consolidation, there shall be substituted for each Share then subject to this Plan, the number and kind of shares of stock or other securities or property into which each outstanding share of common stock of the Company is converted by such merger or consolidation. 11.5. OTHER CHANGES. Upon any other relevant change in the capitalization of the Company, the Board may provide for an equitable adjustment to the number of Shares then subject to this Plan, to any Options granted under this Plan, and to the exercise price for such Shares as it deems appropriate. 11.6. NO FRACTIONAL SHARES. No right to purchase fractional Shares shall result from any adjustment in Options pursuant to, this Article 11. Upon any such adjustment, the Shares subject to Options of each Participant shall be rounded down to the nearest whole Share. Alternatively, in the Company's discretion, the Shares subject to Options of each Participant may be rounded up to the nearest whole Share. The Company shall give notice of any adjustment to each holder of Options that have been so adjusted. Such adjustment (whether or not such notice is given) shall be effective and binding for all purposes of this Plan. 12. SUSPENSION OF OPTIONS TO SATISFY SECURITIES LAWS 12.1. POWER TO SUSPEND. The Board may suspend the exercisability of outstanding Options from time to time if appropriate to satisfy an exemption from registration under the Securities Act (such as SEC Rule 504) or any state securities law. 12.2. MINIMUM PERIOD. The minimum period of suspension shall be long enough to ensure that, under applicable federal or state securities regulations (such as SEC Rule 502(a)), sales of stock made before the suspension will not be integrated with sales made after the suspension. 12.3. MAXIMUM PERIOD. The maximum period of suspension shall only be so long as needed to ensure that, under applicable federal or state securities regulations (such as SEC Rule 504(b)(2)(i)), sales made before the suspension will not be aggregated with sales made after the suspension, unless the Board, in its discretion, determines that such aggregation will not be detrimental to the best interests of the Company or the Participants. -16- 12.4. OPTION GRANTS DURING SUSPENSION. The Company may continue to grant Options during a period of suspension, provided that such Options are not exercisable until after the suspension. 12.5. OPTION TERMINATION DURING PERIOD OF SUSPENSION If an outstanding Option terminates during a period of suspension or during the 90 day period after the suspension, the Optionee shall have until 90 days after the suspension to exercise the Option, but in no event later than 10 years after the date of grant. 12.6. ALLOCATION OF EXERCISE RIGHTS BEFORE SUSPENSION. If the Board believes that a number of Participants wish to exercise Options to an extent that would result in non-compliance with an applicable federal or state securities exemption, the Board may limit the right to exercise outstanding Options and allocate such right among the Participants in a manner that the Board determines to be fair. 12.7. ALL OPTIONS MUST BE SUSPENDED. The Board shall not suspend any Options granted pursuant to this Plan under this Article 12 unless it suspends all such outstanding Options. 12.8. ADVICE OF COUNSEL. The Board may rely upon advice of counsel in determining whether to suspend exercisability of the outstanding Options and in determining the period of suspension. Nothing contained in this Plan requires the Board to determine the length of the suspension in advance. 12.9. SUNSET PROVISION. This Article 12 shall be void and of no force and effect beginning on the date the Company becomes subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. 13. INFORMATION TO PARTICIPANTS 13.1. INFORMATION PROVIDED. The Company shall provide to Participant on a periodic basis (but not less frequently than annually), financial statements of the Company. The Company may provide other information regarding the Company as determined by the Board in its discretion. 13.2. INFORMATION CONFIDENTIAL. No Participant shall disclose any confidential information about the Company disclosed to the Participant in his or her capacity as a holder of Options. A Participant may, however, disclose such information to his or her legal and financial advisers in connection with advice to be rendered by them to the Participant, or to any transferee of the Shares, but only if the advisor or transferee agrees not to further disclose such information or to use the information for the benefit of anyone other than the Participant, the transferee as a holder of the Shares, or the Company. 14. TAX STATUS The Company does not, by way of this Plan, any document, Option Agreement, or otherwise, represent or warrant to any person, including the Participants, that the grant or exercise of an -17- Option or the subsequent disposition of Shares obtained by the exercise of an Option pursuant to this Plan, or any other aspect of this Plan, will have any particular tax effect. 15. MISCELLANEOUS 15.1. ADDITIONAL ACTIONS AND DOCUMENTS. Each Participant shall execute and deliver such further documents and instruments and shall take such other further actions as may be required or appropriate to carry out the intent and purposes of this Plan or any Option Agreement. 15.2. SUCCESSORS AND ASSIGNS. All obligations imposed upon the Participants and all rights granted to the Company under this Plan, including without limitation the provisions of Articles 7 and 8, shall be binding upon each Participant's heirs, legal representatives, successors, and assigns. This Plan, and the Option Agreement with each Participant, shall be the sole and exclusive source of any and all rights that a Participant and his or her heirs, legal representatives, or successors shall have in respect to this Plan or any Options. 15.3. NO THIRD-PARTY, BENEFICIARIES. Except with respect to the Custodian referenced in Article 9, nothing in this Plan or any Option Agreement shall (a) confer any rights or remedies on any persons other than the parties and their respective successors and assigns, (b) relieve or discharge the obligation of any third person to any party, or (c) shall give any third person any right of subrogation or action against any party. 15.4. AMENDMENTS, WAIVERS, AND CONSENTS. Except as provided in this Plan, no Option Agreement shall be amended except in a writing signed by the Participant and the Company. No waiver or consent shall be binding except in a writing signed by the party making the waiver or giving the consent. No waiver of any provision of an Option Agreement or consent to any action shall constitute a waiver of any other provision or consent to any other action, whether or not similar. No waiver or consent shall constitute a continuing waiver or consent, except to the extent specifically set forth in writing. For the protection of all parties, amendments, waivers, and consents concerning Option Agreements that are not in writing and signed by the party to be bound may be enforced only if they are detrimentally relied upon and proved by clear and convincing evidence. Such evidence may not include the alleged reliance. 15.5. NOTICE. Any notice, instruction, or communication required or permitted to be given under this Plan or any Option Agreement to any party shall be in writing (which may include telex, telegram, telecopier, or other similar form of reproduction followed by a mailed hard copy) and shall be deemed given when actually received or, if earlier, five days after deposit in the United States Mail by certified mail, return receipt requested, postage prepaid, or two days after deposit with a nationally recognized air courier, fees prepaid, addressed to the principal office or residence of such party as shown on the books of the Company, or to such other address as such party may request by written notice. The Company and each Participant shall make an ordinary, good faith effort to ensure that the person to be given notice actually receives such notice. -18- 15.6. DISPUTE RESOLUTION. 15.6.1. NOTICE. A party to an Option Agreement who desires money damages or equitable relief from the other party because of a claim relating to Options, Shares, this Plan, or an Option Agreement shall give written notice to the other party of the facts constituting the breach or default (a "Dispute Notice"). This Section 15.6 is intended to cover all aspects of the relationship between the parties with respect to Options, Shares, this Plan, and any Option Agreement, including any claims, based on tort or other theories. Any additional claims the parties have against each other shall also be subject to this Section 15.6. 15.6.2. NEGOTIATION. For fifteen (15) days following delivery of a Dispute Notice (the "Negotiation Period") the parties shall negotiate to resolve the dispute in good faith. 15.6.3. MEDIATION. After the end of the Negotiation Period, either party may request non- binding mediation with the assistance of a neutral mediator from a recognized mediation service. The patty requesting the mediation shall arrange for the mediation services, subject to the approval of the other party which the other party shall not withhold unreasonably. Mediation shall take place in Santa Clara or San Mateo County, California. Mediation may be scheduled to begin any time after expiration of the Negotiation Period, but with at least 10 days notice to all parties. The parties shall participate in the mediation in good faith and shall devote reasonable time and energy to the mediation so as to promptly resolve the dispute or conclude that they cannot resolve the dispute. The party requesting the mediation shall bear the cost of mediation except as provided elsewhere in this Agreement. 15.6.4. ARBITRATION. If thirty (30) days after beginning mediation the parties have not resolved the dispute, either party may submit the dispute to final and binding arbitration pursuant to the commercial rules of the American Arbitration Association. The arbitrator(s) shall apply the substantive law of the State of California to the dispute, and shall have the power to interpret such law to the extent it is unclear. At the request of any party, the arbitrators, attorneys, parties to the arbitration, witnesses, experts, court reporters, or other persons present at the arbitration shall agree in writing to maintain the strict confidentiality of the arbitration proceedings. At the election of any party, arbitration shall be conducted by a three neutral arbitrators appointed in accordance with the commercial rules of the American Arbitration Association if (a) the amount in controversy is greater than $50,000 (exclusive of interest and attorneys fees), or (b) a party sought to be enjoined disputes that he or it has engaged in, or asserts that he or it should be able to engage in, the actions sought to be enjoined. In all other cases, the matter shall be arbitrated by a single neutral arbitrator. The parties surrender and waive the right to submit any dispute to a court or jury, or to appeal to a higher court. There shall be no arbitration of any claim that would otherwise be barred by a statute of limitations if the claim were to be brought in a court of law. The arbitrator shall not have the power to award punitive, consequential, indirect, or special damages. -19- 15.6.5. ARBITRABILITY. The arbitrators shall have the power to determine what disputes between the parties are the proper subject of arbitration. 15.6.6. PRELIMINARY REMEDIES. Notwithstanding this Section 15.6, a party may apply to a court of competent jurisdiction for prejudgment remedies and emergency relief in the form of a temporary restraining order pending final determination of a claim through arbitration in accordance with this Section 15.6. 15.6.7. COSTS AND ATTORNEYS FEES. If the arbitrator determines that the actions of a party or its counsel have unreasonably or unnecessarily delayed the resolution of the matter, the arbitrator may in its discretion require such party to pay all or part of cost of the mediation and arbitration proceedings payable by the other party and may require such party to pay all or part of the attorneys fees of the other party. This provision permits an award of attorneys fees against a party regardless of which party is the prevailing party. Otherwise, the parties shall share bear their own attorney's fees and share the costs of arbitration equally. 15.6.8. ENFORCEMENT. The award of the arbitrator shall be enforceable according to the applicable provisions of the California Code of Civil Procedure, sections 1280 et seq. A party who fails to participate in a negotiation, mediation, or arbitration instituted under this Section 15.6, or who admits to liability and the amount of damage, shall be deemed to have defaulted. Such default may be entered and enforced the same manner as a default in a civil lawsuit. 15.7. JURISDICTION AND VENUE. Each Participant consents to the personal jurisdiction of all federal and state courts in the state of the Participant's employment and the county of the Company's principal place of business, and agrees that venue shall lie exclusively in the county of the Participant's employment if the Participant is an Employee or former Employee at the time of the dispute, or otherwise in the county of the Company's principal place of business. 15.8. GOVERNING LAW. The rights and obligations of the parties shall be governed by, and this Plan and each Option Agreement shall be construed and enforced in accordance with, the laws of the State of California, excluding its conflict of laws rules to the extent such rules would apply the law of another jurisdiction. Incentive Options granted under this Plan shall be interpreted and administered in accordance with Section 422 of the Code. If any provision is susceptible of more than one interpretation, it shall be interpreted in a manner consistent with this Plan being an incentive stock option plan. If any provision of this Plan or any Option Agreement is found by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions shall continue to be fully effective. 15.9. PLAN GOVERNS. If there is any inconsistency between this Plan and any documents related to this Plan, including any Option Agreement, this Plan shall govern. Nothing in this Plan shall be construed to -20- constitute, or be evidence of, any right in favor of any person to receive Options hereunder or any obligation on the part of the Company to issue Options with respect to its common stock. -21- CERTIFICATE OF SECRETARY KNOW ALL BY THESE PRESENTS: That the undersigned does hereby certify that the undersigned is the Secretary of CEDRO GROUP, INC., a corporation duly organized and existing under and by virtue of the laws of the State of California; that the above and foregoing Amended and Restated Cedro Group, Inc, 1996 Stock Option Plan ("Plan") was duly and regularly adopted as such by the Board of Directors on December 17, 1996, and by the shareholders of said corporation on December 17, 1996; and that the above and foregoing Plan is now in full force and effect. Dated: ________________, 199___ --------------------------------------------- Robert Chea, Secretary -22- EX-10.4 7 DIRECTORS AND OFFICERS' INDEMNIFICATION AGREEMENT EXHIBIT 10.4 FOGDOG, INC. INDEMNIFICATION AGREEMENT THIS INDEMNIFICATION AGREEMENT (this "Agreement") is made and entered into this ____ day of _______, 1999 between Fogdog, Inc., a Delaware corporation (the "Company"), and ((Name)) ("Indemnitee"). WHEREAS, Indemnitee, a member of the Board of Directors or an officer, employee or agent of the Company, performs a valuable service in such capacity for the Company; WHEREAS, the stockholders of the Company have adopted Bylaws (the "Bylaws") providing for the indemnification of the officers, directors, employees and agents of the Company to the maximum extent authorized by Section 145 of the Delaware General Corporation Law, as amended (the "Code"); WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit contracts between the Company and the members of its Board of Directors, officers, employees or agents with respect to indemnification of such directors, officers, employees or agents; WHEREAS, in accordance with the authorization as provided by the Code, the Company either has purchased and presently maintains or intends to purchase and maintain a policy or policies of Directors and Officers Liability Insurance ("D & O Insurance") covering certain liabilities which may be incurred by its directors and officers in the performance of their duties as directors and officers of the Company; WHEREAS, as a result of developments affecting the terms, scope and availability of D & O Insurance there exists general uncertainty as to the extent of protection afforded members of the Board of Directors or officers, employees or agents by such D & O Insurance and by statutory and bylaw indemnification provisions; and WHEREAS, in order to induce Indemnitee to continue to serve as a member of the Board of Directors, officer, employee or agent of the Company, the Company has determined and agreed to enter into this contract with Indemnitee. NOW, THEREFORE, in consideration of Indemnitee's continued service as a director, officer, employee or agent after the date hereof, and for other good and valid consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. Indemnification of Indemnitee. The Company hereby agrees to hold ----------------------------- harmless and indemnify Indemnitee to the fullest extent authorized or permitted by the provisions of the Code, as may be amended from time to time. 2. Additional Indemnity. Subject only to the exclusions set forth in -------------------- Sections 3 and 6(c) hereof, the Company hereby further agrees to hold harmless and indemnify Indemnitee: (a) against any and all expenses (including attorneys' fees), witness fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Company) to which Indemnitee is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Indemnitee is, was or at any time becomes a director, officer, employee or agent of the Company or any subsidiary of the Company, or is or was serving or at any time serves at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and (b) otherwise to the fullest extent as may be provided to Indemnitee by the Company under the non-exclusivity provisions of Article VII, Section 6 of the Bylaws of the Company and the Code. 3. Limitations on Additional Indemnity. ----------------------------------- (a) No indemnity pursuant to Section 2 hereof shall be paid by the Company: i) in respect to remuneration paid to Indemnitee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; ii) on account of any suit in which judgment is rendered against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Company pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; iii) on account of Indemnitee's conduct which is finally adjudged to have been knowingly fraudulent or deliberately dishonest or to constitute willful misconduct; iv) on account of Indemnitee's conduct which is the subject of an action, suit or proceeding described in Section 6(c)(ii) hereof; v) on account of any action, claim or proceeding (other than a proceeding referred to in Section 7(b) hereof) initiated by the Indemnitee unless such action, claim or proceeding was authorized in the specific case by action of the Board of Directors; 2 vi) if a final decision by a Court having jurisdiction in the matter shall determine that such indemnification is not lawful (and, in this respect, both the Company and Indemnitee have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); and vii) except to the extent the aggregate of losses to be indemnified thereunder exceeds the sum of (a) such losses for which the Indemnitee is indemnified pursuant to Section 1 hereof and (b) any additional amount paid to the Indemnitee pursuant to any D & O Insurance purchased and maintained by the Company. (b) No indemnity pursuant to Section 1 or 2 hereof shall be paid by the Company if the action, suit or proceeding with respect to which a claim for indemnity hereunder is made arose from or is based upon any of the following: i) Any solicitation of proxies by Indemnitee, or by a group of which he was or became a member consisting of two or more persons that had agreed (whether formally or informally and whether or not in writing) to act together for the purpose of soliciting proxies, in opposition to any solicitation of proxies approved by the Board of Directors. ii) Any activities by Indemnitee that constitute a breach of or default under any agreement between Indemnitee and the Company. 4. Contribution. If the indemnification provided in Sections 1 and 2 ------------ hereof is unavailable by reason of a Court decision described in Section 3(a)(vi) hereof based on grounds other than any of those set forth in paragraphs (i) through (v) of Section 3 (a) hereof, then in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), the Company shall contribute to the amount of expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in such proportion as is appropriate to reflect (i) the relative benefits received by the Company on the one hand and Indemnitee on the other hand from the transaction from which such action, suit or proceeding arose, and (ii) the relative fault of the Company on the one hand and of Indemnitee on the other in connection with the events which resulted in such expenses, judgments, fines or settlement amounts, as well as any other relevant equitable considerations. The relative fault of the Company on the one hand and of Indemnitee on the other shall be determined by reference to, among other things, the parties' relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such expenses, judgments, fines or settlement amounts. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 4 were determined by pro rata allocation or any other method of allocation which does not take account of the foregoing equitable considerations. 5. Notification and Defense of Claim. Not later than thirty (30) --------------------------------- days after receipt by Indemnitee of notice of the commencement of any action, suit or proceeding, Indemnitee shall, if a claim in respect thereof is to be made against the Company under this 3 Agreement, notify the Company of the commencement thereof; but Indemnitee's omission so to notify the Company will not relieve the Company from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Indemnitee notifies the Company of the commencement thereof: (a) The Company will be entitled to participate therein at its own expense. (a) Except as otherwise provided below, to the extent that it may wish, the Company shall, jointly with any other indemnifying party similarly notified, be entitled to assume the defense thereof, with counsel reasonably satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense thereof, the Company will not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof, other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ its own counsel in such action, suit or proceeding, but the fees and expenses of such counsel incurred after notice from the Company of the Company's assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Company; (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of the defense of such action; or (iii) the Company shall not in fact have employed counsel to assume the defense of such action; in each of which cases the fees and expenses of Indemnitee's separate counsel shall be paid by the Company. The Company shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the conclusion provided for in (ii) above. (b) The Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. Neither the Company nor Indemnitee will unreasonably withhold its consent to any proposed settlement. 6. Advancement and Repayment of Expenses. ------------------------------------- (a) In the event that Indemnitee employs his or her own counsel pursuant to Sections 5(b)(i) through (iii) above, the Company shall advance to Indemnitee, prior to any final disposition of any threatened or pending action, suit or proceeding, whether civil, criminal, administrative or investigative, any and all reasonable expenses (including legal fees and expenses) incurred in investigating or defending any such action, suit or proceeding within ten (10) days after receiving from Indemnitee copies of invoices presented to Indemnitee for such expenses. (a) Indemnitee agrees that Indemnitee will reimburse the Company for all reasonable expenses paid by the Company in investigating or defending any civil or criminal action, suit or proceeding against Indemnitee in the event and only to the extent it shall be ultimately determined by a final judicial decision (from which there is no right of appeal) that 4 Indemnitee is not entitled, under the provisions of the Code, the Bylaws, this Agreement or otherwise, to be indemnified by the Company for such expenses. (b) Notwithstanding the foregoing, the Company shall not be required to advance such expenses to Indemnitee in respect of any action arising from or based upon any of the matters set forth in subsection (b) of Section 3 or if Indemnitee (i) commences any action, suit or proceeding as a plaintiff unless such advance is specifically approved by a majority of the Board of Directors or (ii) is a party to an action, suit or proceeding brought by the Company and approved by a majority of the Board which alleges willful misappropriation of corporate assets by Indemnitee, disclosure of confidential information in violation of Indemnitee's fiduciary or contractual obligations to the Company, or any other willful and deliberate breach in bad faith of Indemnitee's duty to the Company or its shareholders. 7. Enforcement. ----------- (a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on the Company hereby in order to induce Indemnitee to continue as a director, officer, employee or other agent of the Company, and acknowledges that Indemnitee is relying upon this Agreement in continuing in such capacity. (a) In the event Indemnitee is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the Company shall reimburse Indemnitee for all Indemnitee's reasonable fees and expenses, including attorney's fees, in bringing and pursuing such action. 8. Subrogation. In the event of payment under this agreement, the ----------- Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company effectively to bring suit to enforce such rights. 9. Continuation of Obligations. All agreements and obligations of --------------------------- the Company contained herein shall commence upon the date that Indemnitee first became a member of the Board of Directors or an officer, employee or agent of the Company, as the case may be, and shall continue during the period Indemnitee is a director, officer, employee or agent of the Company (or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director, officer, employee or agent of the Company or serving in any other capacity referred to herein. 10. Survival of Rights. The rights conferred on Indemnitee by this ------------------ Agreement shall continue after Indemnitee has ceased to be a director, officer, employee or other agent of the Company and shall inure to the benefit of Indemnitee's heirs, executors and administrators. 11. Non-Exclusivity of Rights. The rights conferred on Indemnitee by ------------------------- this Agreement shall not be exclusive of any other right which Indemnitee may have or hereafter acquire under any statute, provision of the Company's Certificate of Incorporation or Bylaws, 5 agreement, vote of stockholders or directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding office; provided, however, that this Agreement shall supersede and replace any prior indemnification agreements entered into by and between the Company and Indemnitee and that any such prior indemnification agreement shall be terminated upon the execution of this Agreement. 12. Separability. Each of the provisions of this Agreement is a ------------ separate and distinct agreement and independent of the others, so that if any or all of the provisions hereof shall be held to be invalid or unenforceable for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof or the obligation of the Company to indemnify the Indemnitee to the full extent provided by the Bylaws or the Code. 13. Governing Law. This Agreement shall be interpreted and enforced ------------- in accordance with the laws of the State of Delaware. 14. Binding Effect. This Agreement shall be binding upon Indemnitee -------------- and upon the Company, its successors and assigns, and shall inure to the benefit of Indemnitee, his or her heirs, personal representatives and assigns and to the benefit of the Company, its successors and assigns. 15. Amendment and Termination. No amendment, modification, ------------------------- termination or cancellation of this Agreement shall be effective unless it is in writing and is signed by both parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. FOGDOG, INC. a Delaware corporation By: ____________________________________ INDEMNITEE ________________________________________ ((Name)), ((Title)) Address: ________________________________________ ________________________________________ 6 EX-10.5 8 AMERICAN ONLINE AGREEMENT EXHIBIT 10.5 ==================================================================== AOL ADVERTISING INSERTION ORDER ==================================================================== [LOGO OF AMERICA ONLINE APPEARS HERE] Contract #:_____________________ AOL Salesperson: Sals Coordinator: Cluny Venables -------------- Date:___________________________
- ----------------------------------------------------------------------------------------------------- Advertiser Advertising Agency - ----------------------------------------------------------------------------------------------------- Contact Person Anne Moellering, Director, Consumer Marketing - ----------------------------------------------------------------------------------------------------- Company Name Fogdog Sports - ----------------------------------------------------------------------------------------------------- Address - Line 1 3031 Tish Way,Suite 100 Plaza East - ----------------------------------------------------------------------------------------------------- Address - Line 2 San Jose, CA - ----------------------------------------------------------------------------------------------------- Phone # 408-615-3535 - ----------------------------------------------------------------------------------------------------- Fax # - ----------------------------------------------------------------------------------------------------- Email - ----------------------------------------------------------------------------------------------------- SIC Code - ----------------------------------------------------------------------------------------------------- Advertiser IAB Category - -----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------- Billing Information - ----------------------------------------------------------------------------------------------------- Send Invoices to (choose one): [ ] Advertiser [ ] Agency - ----------------------------------------------------------------------------------------------------- Advertiser or Agency Billing Contact Person - ----------------------------------------------------------------------------------------------------- Company Name - ----------------------------------------------------------------------------------------------------- Billing Address - Line 1 - ----------------------------------------------------------------------------------------------------- Billing Address - Line 2 - ----------------------------------------------------------------------------------------------------- Billing Phone # - ----------------------------------------------------------------------------------------------------- Billing Fax # - ----------------------------------------------------------------------------------------------------- Billing Email Address - ----------------------------------------------------------------------------------------------------- P.O. #, if applicable
CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 1 Billing Schedule (select one): [ ] If total payment due is less than or equal to $5,000 and the advertiser is new to AOL, payment is due upon signing* and must be received by AOL prior to ad flight. [ ] If total payment due is greater than $5,000, an advertiser new to AOL must have a favorable D&B credit rating (as determined by AOL). If the new advertiser does not receive a favorable credit rating or no D&B credit rating is available, payment is due* in advance of display start date. [ ] Given a favorable credit rating for a new advertiser or a positive payment history for a current advertiser, invoices will be due monthly commencing on the display start date, due net 30. A current advertiser with invoices past due to AOL must pay outstanding debts prior to new display start date. * Payment Information if payment is due to AOL upon signing or prior to display start date (select one): [ ] Payment due is greater than or equal to $100,000, please wire funds to: Acct Title: America Online, Inc., ABA: 021000021, Acct #: 323070752, The Chase Manhattan Bank, 1 Chase Manhattan Bank, New York, NY 10081. [ ] Payment due is less than $100,000, please mail checks to: America Online, Inc., Attn: Accounts Receivable, General Post Office, P.O. Box 5696, New York, NY 10087-5696. All amounts not paid when due and payable will bear interest from the due date at the prime rate in effect at such time. In the event of nonpayment, AOL reserves the right to immediately terminate this Agreement with written notice to Advertiser Inventory Type (choose one): [ ] AOL Service only [ ] AOL Affiliate only (e.g., AOL.com) [ ] AOL Service & AOL Affiliate
- ------------------------------------------------------------------------------------------------------------------ AOL Service - ------------------------------------------------------------------------------------------------------------------ AOL Inventory/Demographic* Display Display # of Ad Total Gross Total Purchased Start Stop Ad Type Slots Price Impressions Date Date Purchased - ------------------------------------------------------------------------------------------------------------------ See Exhibit D - ------------------------------------------------------------------------------------------------------------------ Total - ------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------ * Attach completed AOL Demographic Totals: Profile Worksheet - ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------- All necessary artwork and active URL's must be provided by advertiser 3 business days prior to start date. Artwork required from Advertiser/Agency: ---------------------------------------- [ ] 234x60 IAB Standard /7k Max [ ] 120x60 Shopping/5k Max [ ] 175x45 Chat/Mail in-box/5k Max [ ] Special_____ * Animation is only available on selected screens. Please contact your AOL Salesperson for additional information. * Linking URL: The HTTP/URL address to be connected to the Advertisement shall be: http:// (must be filled in) Please send artwork and URL to (choose one): [ ] AOLARTWEST@aol.com [ ] AOLARTEAST@aol.com [ ] CENTRALADS@aol.com ------------------ ------------------ ------------------ AOL reserves the right to immediately cancel any advertising flight in the event of a material change to the nature or content of the site linked to the Advertisement. ================================================================================================================================
- -------------------------------------------------------------------------------- AOL Affiliate (e.g., AOL.com) - -------------------------------------------------------------------------------- 2
- ----------------------------------------------------------------------------------------------------------------------------------- AOL Affiliate (e.g., AOL.com) Inventory - ----------------------------------------------------------------------------------------------------------------------------------- AOL Affiliate Display Display # of Ad Total Gross Total Inventory/Demographic* Start Stop Ad Type Slots Price Impressions Purchased Date Date Purchased - ----------------------------------------------------------------------------------------------------------------------------------- See Exhibit D - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- * See attached package description for Totals: any AOL.com package purchases - ----------------------------------------------------------------------------------------------------------------------------------- Art - -----------------------------------------------------------------------------------------------------------------------------------
All necessary artwork and active URL's must be provided by advertiser 3 business days prior to start date. Artwork required from Advertiser/Agency : ------------------------------------------ [_] 468x60 NF Reviews, Search Terms, My News & Hometown/12k Max/animation OK [_] 100x70 AOL.com Home Page/3k [_] 120x60 NF Home Page/2k Max/No animation Max/No animation [_] 234x60 NF Kids Only & [_] 120x60 Instant Messenger/7.5k Hometown/5k Max/animation OK Max/animation OK Linking URL: The HTTP/URL address to be connected to the Advertisement shall be: http:// ________________(must be filled in) Please send artwork and URL to (choose one): [_] AOLWEBWEST@aol.com [_] AOLWEBEAST@aol.com [_] CENTRALADS@aol.com ------------------ ------------------ ------------------ AOL reserves the right to immediately cancel any advertising flight in the event of a material change to the nature or content of the site linked to the Advertisement. - --------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------- Advertising Purchase Summary - ----------------------------------------------------------------------------------------------------------------------------------- Total Price Total Impressions CPM - ----------------------------------------------------------------------------------------------------------------------------------- AOL Networks - ----------------------------------------------------------------------------------------------------------------------------------- AOL Affiliate - ----------------------------------------------------------------------------------------------------------------------------------- Total Purchase Price - ----------------------------------------------------------------------------------------------------------------------------------- (Less Agency Discount) - ----------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------- Net Purchase Price Total Impressions ----------------------------------------------------------------------------------------------------
The products and/or services to be offered or promoted by Advertiser in the Advertisements are as follows: Sporting Goods (specifically excluding events, event tickets and any auction or club services offered by Advertiser) (the "Advertiser's Products"). Notwithstanding the foregoing, Advertiser shall not be restricted from promoting sporting events and the sale of event tickets on the Affiliated Advertiser Site. Advertiser agrees to offer AOL the opportunity to sell on terms as the Parties shall reasonably agree on or off the AOL Network any and all event tickets offered on the Affiliated Advertiser Site, except where Advertiser is prohibited via contract or otherwise from extending such opportunity to AOL. Impressions Commitment. In the event AOL delivers the impression commitment - ---------------------- provided for hereunder prior to the Display Stop Date, AOL may, at its option, discontinue display at such earlier time; provided, however, that AOL shall make commercially reasonable efforts to generally deliver the impression commitment evenly over the Term. Any guarantees are to impressions (as measured by AOL in accordance with its standard methodologies and protocols), not "click-throughs." In the event there is (or will be in AOL's reasonable judgment) a shortfall in impressions as of the end of a display period (a "Shortfall"), such Shortfall shall not be considered a breach of the Agreement by AOL: instead, AOL will provide Advertiser, as its sole remedy, with "makegood" impressions through comparable advertisement placements on the AOL Network which have a total value, based on AOL's then-current advertising rate card, equal to the value of the Shortfall. To the extent impressions commitments are identified without regard to specific placements, such placements will be as mutually agreed upon by AOL and Advertiser during the course of the display period. AOL reserves the right to alter Advertiser flight dates to accommodate trafficking needs or other operational needs. In such cases, AOL will make available to Advertiser comparable equivalent flight(s). Standard Terms and Conditions. This Insertion Order (this "Insertion Order" or - ----------------------------- "Agreement") incorporates by reference AOL's standard advertising terms and conditions (the "Standard Terms"), including terms related to advertising material, payment modifications, cancellation rights, usage data, limitations of liability, disclaimers, indemnifications, use of AOL member information and 3 miscellaneous legal terms. Among other things, the Standard Terms provide AOL the right to cancel and remove any and all Advertisements, promotions and Impressions provided under this Insertion Order on thirty days notice to Advertiser (or upon such shorter notice as may be designated by AOL in the event that AOL believes that further display of the Advertisement will expose AOL to liability or other adverse consequences), in which case Advertiser shall only be responsible for the pro-rata portion of payments attributable to the period preceding such termination. The Standard Terms appear at keyword "Standard Ad Terms4" on the U.S.-based America Online brand service and at http://mediaspace.aol.com/adterms4.html." A hard copy of the Standard Terms will be provided to advertiser upon request. Advertiser acknowledges that it has been provided an opportunity to review the Standard Terms and agrees to be bound by them. AUTHORIZED SIGNATURES In order to bind the parties to this Insertion Order, their duly authorized representatives have signed their names below on the dates indicated. This Agreement (including (i) the Standard Terms, (ii) the additional terms and conditions on Exhibit A attached hereto, (iii) the definitions on Exhibit B attached hereto, the operational provisions on Exhibit C attached hereto and the Carriage Plan on Exhibit D attached hereto, each incorporated herein by reference and made a part hereof) shall be binding on both parties when signed on behalf of each party and delivered to the other party (which delivery may be accomplished by facsimile transmission of the signature pages hereto)). AMERICA ONLINE, INC. ADVERTISER By: /s/ David M. Colburn By: /s/ Tim Harrington Print Name: David M. Colburn Print Name: Tim Harrington Title: Senior Vice President Title: President and CEO Date: 6/30/99 Date: 6/30/99 4 EXHIBIT A --------- Additional Terms ---------------- 1. Payments; Late Payments; Wired Payments. Advertiser shall pay AOL a non- --------------------------------------- refundable guaranteed payment of [*], payable as follows: [*] [*] [*] [*] All amounts owed under this Agreement not paid when due and payable will bear interest from the date such amounts are due and payable at the prime rate in effect at such time. All payments required hereunder will be paid in immediately available, non-refundable U.S. funds wired to the "America Online" account, Account Number 323070752 at The Chase Manhattan Bank, 1 Chase Manhattan Plaza, New York, NY 10081 (ABA: 021000021). In the event of nonpayment, AOL reserves the right to immediately terminate this Agreement with written notice to Advertiser. 2. Content of Affiliated Site. The Advertisements will only promote the -------------------------- Advertiser's Products. Additionally, the Affiliated Advertiser Site will only offer the Advertiser's Products and content related thereto (except to the extent otherwise mutually agreed upon by the parties). Advertiser will ensure that the prices, terms and conditions for the Products in the Affiliated Advertiser Site are no less favorable than the prices, terms and conditions on which the Products or substantially similar products are offered by or on behalf of Advertiser through any other distribution channels. No sales of Advertiser's Products or any other products through the Affiliated Advertiser Site shall be conducted (i) through a person-to- person auction format, or (ii) in the case of sales to AOL Users, through a fee-based club format. 3. Advertising Sales. The Parties acknowledge that Advertiser does not currently sell such Advertisements and has currently no plans to sell such Advertisements in the future In the event that Advertiser sells such advertisements during the term, the Parties shall conduct good faith negotiation of an appropriate relationship (which may include a revenue share) concerning such Advertisements. No Interactive Service (other than AOL or its affiliates) will be promoted in the Affiliated Advertiser Site. 4. Special Offers/Member Benefits. Advertiser will generally promote through ------------------------------ the Affiliated Advertiser Site any special or promotional offers made available by or on behalf of Advertiser through any other distribution channels. In addition, Advertiser shall use its best faith efforts to promote through the Affiliated Advertiser Site on a regular and consistent basis, special offers exclusively available to AOL Users (the "AOL Special Offers"). AOL Special Offers made available by Advertiser shall provide a substantial benefit to AOL users, either by virtue of a meaningful price discount, product enhancement, unique service benefit or other special feature. Advertiser will provide AOL with reasonable prior notice of AOL Special Offers so that AOL can market the availability of such AOL Special Offers in the manner AOL deems appropriate in its editorial discretion. 5. AOL Quick Checkout. Advertiser will take all reasonable steps necessary to ------------------ conform its promotion and sale of products through the Advertiser Site to the then-existing commerce technologies made available to Advertiser by AOL, including without limitation AOL's "quick checkout" tool which allows AOL users to enter payment and shipping information which is then passed from AOL's centralized server unit to Advertiser for order fulfillment ("AOL Quick Checkout"). AOL will make all reasonable efforts to provide the tools for the Advertiser to enable the Advertiser Site with the AOL Quick Checkout technology and functionality. Collection, storage and disclosure of information which Advertiser provides to AOL, will be subject to AOL's privacy [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 5 policy and all confidentiality requirements hereunder. To the extent that the Advertiser Site includes AOL's Quick Checkout, Advertiser will ensure that the AOL Quick Checkout is of equal placement and promotion prominence to other available payment options. 6. Merchant Certification Program. Advertiser will participate in any ------------------------------ generally applicable "Certified Merchant" program operated by AOL or its authorized agents or contractors. Such program may require Advertiser participants on the Shopping Channel on an ongoing basis to meet certain reasonable standards relating to provision of electronic commerce through the AOL Service, AOL.com and the CompuServe Service and may also require from "Certified Merchant" program participants generally, the payment of certain nominal certification fees to AOL or its authorized agents or contractors operating the program. 7. BizRate Survey. Advertiser agrees to (i) participate in the BizRate -------------- Program, a service offered by Binary Compass Enterprises, Inc. (BCE), which provides opt-in satisfaction surveys to Users who purchase products through such Affiliated Advertiser Site or such other provider of such services as AOL may designate or approve from time to time, and (ii) provide a link to BizRate's then-current standard survey forms, or such other survey forms offered by any other party that AOL may reasonably designate or approve from time to time. Advertiser's participation shall be based upon a separate written agreement which Advertiser will enter into with BCE, or other such party reasonably designated or approved by AOL. Advertiser hereby authorizes BCE to provide to AOL any and all reports (other than proprietary reports to which access is password controlled) provided to Advertiser by BCE, or other third party providing such services, and agrees to provide written notice of such authorization to BCE, or such other third party. 8. Specific Customer Service Requirements. Advertiser will receive all emails -------------------------------------- from Customers via a computer available to Advertiser's customer service staff and generally respond to such emails in a manner consistent with its best business practices, which Advertiser represents is currently within one business day . Advertiser will receive all orders electronically and generally process all orders within one business day of receipt, provided products ordered are not advance order items. Advertiser will ensure that all orders of products are received, processed, fulfilled and delivered on a timely and professional basis. Advertiser will offer AOL users who purchase products through such the Advertiser Site a money-back satisfaction guarantee that is consistent with Advertiser's then-current return policy and is no less favorable the standard in Advertiser's industry . Such money-back satisfaction guarantee policy shall be readily accessible to users of the Affiliated Advertiser Site. Advertiser will bear all responsibility for compliance with federal, state and local laws in the event that products are out of stock or are no longer available at the time an order is received. Advertiser will also comply with the requirements of any federal, state or local consumer protection or disclosure law. Payment for products will be collected by Advertiser directly from customers. Advertiser's order fulfillment operation will be subject to AOL's reasonable review. 9. Navigation. Advertiser will use best faith efforts to provide navigational ---------- ability for AOL or users to return to an agreed-upon point on the AOL Network (for which AOL shall supply the proper address) from the Affiliated Advertiser Site (e.g., the point on the AOL Service from which the Affiliated Advertiser Site is linked) in a manner mutually acceptable to the Parties, which, at AOL's option, may be satisfied through the use of a hybrid browser format. Additionally, in cases where an AOL User performs a search for Advertiser through any search or navigational tool or mechanism that is accessible or available through the AOL Network (including without limitation Advertisements, AOL Service "Keywords", AOL.com "Search Terms", CompuServe "Go Words" or any other similar promotions or navigational tools), AOL shall have the right to direct such AOL User to the Affiliated Advertiser Site, or any other Advertiser Interactive Site determined by AOL in its reasonable discretion. 10. Auditing Rights. At all times during the Continued Link Period, Advertiser --------------- will maintain complete, clear and accurate records of all expenses, revenues and fees in connection payments due during the Continued Link Period. For the sole purpose of ensuring compliance with this Agreement, AOL (or its representative) will have the right to conduct a reasonable and necessary inspection of only the portions of the books and records of Advertiser which are relevant to Advertiser's payments 6 due during the Continued Link Period. Any such audit may be conducted after twenty-(20) business days prior written notice to Advertiser. AOL shall bear the expense of any audit conducted pursuant to this Agreement unless such audit shows an error in AOL's favor amounting to a deficiency to AOL in excess of five percent (5%) of the actual amounts paid and/or payable to AOL hereunder, in which event Advertiser shall bear the reasonable expenses of the audit. Advertiser shall pay AOL the amount of any deficiency discovered by AOL within thirty (30) days after receipt of notice thereof from AOL. 11. Taxes. Advertiser will collect and pay and indemnify and hold AOL harmless ----- from, any sales, use, excise, import or export value added or similar tax or duty not based on AOL's net income, including any penalties and interest, as well as any costs associated with the collection or withholding thereof, including attorneys' fees. 12. Sales Reports. During the Continued Link Period, Advertiser will provide ------------- AOL in an automated manner with a monthly report in an AOL-designated format, detailing the following activity in such period (and any other information mutually agreed upon by the parties or reasonably required for measuring revenue activity of AOL Users by Advertiser through AOL links to the Affiliated Advertiser Site): (i) summary sales information by day (date, number of products sold, number of orders, total Transaction Revenues). More generally, each payment to be made by Advertiser during the Continued Link Period pursuant to the revenue sharing provisions hereof, will be accompanied by a report containing information which supports the payment, including information identifying (i) gross Transaction Revenues and all items deducted or excluded from gross Transaction Revenues to produce Transaction Revenues. During the Term and the Continued Link Period, Advertiser shall provide AOL with aggregate sales and revenue information, as AOL shall reasonably request. 13. Solicitation of AOL Users. During the term of the Agreement and for a two ------------------------- year period thereafter, Advertiser will not use the AOL Network (including, without limitation, the e-mail network contained therein) to solicit AOL Users on behalf of another Interactive Service. More generally, Advertiser will not send unsolicited, commercial e-mail (i.e., "spam") through or into AOL's products or services, absent a Prior Business Relationship. For purposes of this Agreement, a "Prior Business Relationship" will mean that the AOL User to whom commercial e-mail is being sent has voluntarily either (i) engaged in a transaction with Advertiser or (ii) provided information to Advertiser through a contest, registration, or other communication, which included clear notice to the AOL User that the information provided could result in commercial e-mail being sent to that AOL User by Advertiser or its agents. Any commercial e-mail communications to AOL Users which are otherwise permitted hereunder, will (a) include a prominent and easy means to "opt-out" of receiving any future commercial e-mail communications from Advertiser, and (b) shall also be subject to AOL's then-standard restrictions on distribution of bulk e-mail (e.g., related to the time and manner in which such e-mail can be distributed through or into the AOL product or service in question). 14. Collection and use of User Information. Advertiser shall ensure that its -------------------------------------- collection, use and disclosure of information obtained from AOL Users under this Agreement ("Member Information") complies with (i) all applicable laws and regulations and (ii) AOL's standard privacy policies, available on the AOL Service at the keyword term "Privacy" (or, in the case of the Affiliated Advertiser Site, Advertiser's standard privacy policies so long as such policies are prominently published on the site and provide adequate notice, disclosure and choice to users regarding Advertiser's collection, use and disclosure of user information). Except when required by legal process, Advertiser will not disclose Member Information collected hereunder to any third party in a manner that identifies AOL Users as end users of an AOL product or service or use Member Information collected under this Agreement to market another Interactive Service. 15. AOL Look and Feel. Advertiser acknowledges and agrees that AOL will own ----------------- all right, title and interest in and to the AOL Look and Feel (subject only to Advertiser's ownership rights in any Advertiser trademarks or copyrighted material within the Affiliated Advertiser Site). 16. Management of the Affiliated Advertiser Site. Advertiser will manage, -------------------------------------------- review, delete, edit, create, update and otherwise manage all Content available on or through the Affiliated Advertiser 7 Site, in a timely and professional manner and in accordance with the terms of this Agreement. Advertiser will ensure that the Affiliated Advertiser Site is current, accurate and well-organized at all times. Advertiser warrants that the Licensed Content : (i) will not infringe on or violate any copyright, trademark, U.S. patent or any other third party right; (ii) will not violate AOL's then-applicable Terms of Service; and (iii) will not violate any applicable law or regulation (federal, state, or otherwise), including without limitation those relating to taxes, advertising, or contests, sweepstakes or similar promotions. Additionally, Advertiser represents and warrants that, to the best of its knowledge, it owns or has a valid license to all rights to any Licensed Content used in AOL "slideshow" or other formats embodying elements such as graphics, animation and sound, free and clear of all encumbrances and without violating the rights of any other person or entity. Advertiser also warrants that a reasonable basis exists for all Product performance or comparison claims appearing through the Affiliated Advertiser Site. Advertiser shall not in any manner, including, without limitation in any Advertisement, the Licensed Content, or any Materials (defined below), state or imply that AOL recommends or endorses Advertiser or Advertiser's Services (e.g., no statements that Advertiser is an "official" or "preferred" provider of products or services for AOL). AOL will have no obligations with respect to the Products available on or through the Affiliated Advertiser Site, including, but not limited to, any duty to review or monitor any such Products. 17. Duty to Inform. Advertiser will promptly inform AOL of any information -------------- related to the Affiliated Advertiser Site which Advertiser believes in good faith could reasonably lead to a material claim, demand, or liability of or against AOL and/or its affiliates by any third party. 18. Cross-Promotion --------------- (a) Online. Advertiser represents that it does not currently include ------ third party promotional banners or buttons ("Third Party Promotions") on the Affiliated Advertiser Site. In the event that Advertiser elects to include Third Party Promotions on the Affiliated Advertiser Site in the future, the Parties agree to discuss in good faith the placement of AOL promotional material on the Affiliated Advertiser Site and the payment by AOL to Advertiser of bounties for new AOL Subscribers attained as a result of such promotional materials. (b) In Advertiser's television, radio, print and "out of home" (e.g., buses and billboards) advertisements and in any publications, programs, features or other forms of media over which Advertiser exercises at least partial editorial control, Advertiser will use best faith efforts to include specific references or mentions (verbally where possible) of the availability of the Affiliated Advertiser Site through the AOL Service. Such efforts will include efforts to accompany Advertiser's listing of the "URL" for any Advertiser Web Site with a prominent listing of the "keyword" term on AOL for the Affiliated Advertiser Site. Advertiser will not implement or authorize any promotion similar in any respect (including, without limitation, in scope, purpose, amount, prominence or regularity) to the promotion required or provided pursuant to this Agreement for any other entity reasonably construed to be competitive to AOL. 19. Promotional Materials/Press Releases. Each Party will submit to the other ------------------------------------ Party, for its prior written approval, which will not be unreasonably withheld or delayed, any marketing, advertising, press releases, and all other promotional materials related to the Affiliated Advertiser Site and/or referencing the other Party and/or its trade names, trademarks, and service marks (the "Materials"); provided, however, that either Party's use of screen shots of the Affiliated Advertiser Site for promotional purposes will not require the approval of the other Party so long as America Online(R) is clearly identified as the source of such screen shots; and provided further, however, that, following the initial public announcement of the business relationship between the Parties in accordance with the approval and other requirements contained herein, either Party's subsequent factual reference to the existence of a business relationship between the Parties will not require the approval of the other Party. Each Party will solicit and reasonably consider the views of the other Party in designing and implementing such Materials. Once approved, the Materials may be used by a Party and its affiliates for the purpose of promoting the Affiliated Advertiser Site and the content contained therein and reused for such purpose until such approval is withdrawn with reasonable prior notice. In the event such approval is withdrawn, existing inventories of Materials 8 may be depleted. Notwithstanding the foregoing, either Party may issue press releases and other disclosures as required by law or as reasonably advised by legal counsel without the consent of the other Party and in such event, the disclosing Party will provide at least five (5) business days prior written notice of such disclosure. 20. Term. The effective term (the "Term") hereof shall begin on the Effective ---- Date hereof and end on the two year anniversary thereof, unless otherwise terminated prior thereto. 21. Continued Link. Upon conclusion of the Term of this Agreement, AOL may, at -------------- its discretion, continue to promote one or more "pointers" or links from the AOL Network to the Affiliated Advertiser Site (or, if the Affiliated Advertiser Site no longer exists, to any Advertiser Interactive Site) and continue to use Advertiser's trade names, trade marks and service marks in connection therewith (collectively, a "Continued Link"). After the Term, regardless of any Continued Link, the following obligations of the Parties will cease: (i) Advertiser will not be required to pay any guaranteed, fixed payment, maintain the Affiliated Advertiser Site nor perform any of the cross-promotional obligations contained herein (except as set forth below); and (ii) AOL will not be required to undertake any minimum promotional/placement obligations. However, so long as AOL maintains a Continued Link (the "Continued Link Period"), the following obligations shall survive the Term of this Agreement: (i) Advertiser shall pay to AOL a percentage of all Transaction Revenues (without respect to any revenue thresholds or hurdles, payable on a quarterly basis within thirty (30) days following the end of the quarter in which the applicable Transaction Revenues were generated) equal to [*] and (ii) the Standard Terms shall survive, together with any provisions necessary if and to the extent required for the express purposes of this paragraph. For purposes hereof, "Transaction Revenues" shall mean aggregate amounts paid by AOL Purchasers connecting to the Advertiser's site by such continued links or pointers and completing purchase on the same visit, in connection with the purchase of any of Advertiser's Products in the Affiliated Advertiser Site, excluding, in each case, (a) amounts collected for sales or use taxes or duties and (b) credits and chargebacks for returned or canceled goods or services, (c) handling, shipping and service charges, but not excluding cost of goods sold or any similar cost. Notwithstanding the foregoing, the calculation of "Transaction Revenues" shall be no less favorable to AOL than the most favorable calculation (to the partner) under Advertiser's Affiliate's Program. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 9 Exhibit B Definitions ----------- Advertising Revenues. Aggregate amounts collected plus the fair market value of - -------------------- any other compensation received (such as barter advertising) by Advertiser, AOL or either Party's agents, as the case may be, arising from the license or sale of Advertisements, promotions, links or sponsorships that appear within any pages of the Affiliated Advertiser Site, less applicable advertising sales commissions. Advertising Revenues does not include amounts arising from Advertisements on any screens or forms preceding, framing or otherwise directly associated with the Affiliated Advertiser Site, which will be sold exclusively by AOL. Affiliated Advertiser Site. The specific area to be promoted and distributed by - -------------------------- AOL hereunder through which Advertiser can market and complete transactions regarding its permitted Services. AOL Member. Any authorized user of the AOL Service, including any sub-accounts - ---------- using the AOL Service under an authorized master account. AOL Network. (i) The AOL Service, (ii) AOL.com, (iii) CompuServe, (iv) Digital - ----------- City, (v) Netcenter, and (vi) any other product or service owned, operated, distributed or authorized to be distributed by or through AOL or its affiliates worldwide (and including those properties excluded from the definitions of the AOL Service or AOL.com). It is understood and agreed that the rights of MP relate only to the AOL Service and AOL.com and not generally to the AOL Network. AOL Purchaser. (i) Any person or entity who enters the Affiliated Advertiser - ------------- Site from the AOL Network including, without limitation, from any third party area therein (to the extent entry from such third party area is traceable through both Parties' commercially reasonable efforts), and generates Transaction Revenues (regardless of whether such person or entity provides an e- mail address during registration or entrance to the Affiliated Advertiser Site which includes a domain other than an "AOL.com" domain); and (ii) any other person or entity who, when purchasing a product, good or service through an Advertiser Interactive Site, provides an AOL.com domain name or a Compuserve.com domain name as part of such person or entity's e-mail address. AOL Service. The standard narrow-band U.S. version of the America Online brand - ----------- service, specifically excluding (a) AOL.com, Netcenter or any other AOL Interactive Site, (b) the international versions of an America Online service (e.g., AOL Japan), (c) the CompuServe(R) brand service and any other CompuServe products or services (d) "Driveway," "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "Digital City," "NetMail(TM)," "Electra", "Thrive", "Real Fans", "Love@AOL", "Entertainment Asylum," "AOL Hometown," "My News" or any similar independent product, service or property which may be offered by, through or with the U.S. version of the America Online brand service, (e) any programming or Content area offered by or through the U.S. version of the America Online brand service over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas), (f) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through the U.S. version of the America Online brand service, (g) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date and (h) any other version of an America Online service which is materially different from the standard narrow-band U.S. version of the America Online brand service, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded version of the service or any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer. AOL Look and Feel. The elements of graphics, design, organization, - ----------------- presentation, layout, user interface, navigation and stylistic convention (including the digital implementations thereof) which are generally associated with interactive sites within the AOL Network. AOL User. Any user of the AOL Service, AOL.com, CompuServe, Digital City, - -------- Netcenter, or the AOL Network. AOL.com. AOL's primary Internet-based Interactive Site marketed under the - ------- "AOL.COM(TM)" brand, specifically excluding (a) the AOL Service, (b) Netcenter, (c) any international versions of such site, (d) 10 "ICQ," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "NetMail(TM)," "AOL Hometown," "My News" or any similar independent product or service offered by or through such site or any other AOL Interactive Site, (e) any programming or Content area offered by or through such site over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas), (f) any programming or Content area offered by or through such site which was operated, maintained or controlled by the former AOL Studios division (e.g., Electra), (g) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through such site or any other AOL Interactive Site, (h) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date and (i) any other version of an America Online Interactive Site which is materially different from AOL's primary Internet-based Interactive Site marketed under the "AOL.COM(TM)" brand, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded versions or any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer. Advertiser Interactive Site. Any Interactive Site (other than the Affiliated - --------------------------- Advertiser Site) which is managed, maintained, owned or controlled by Advertiser or its agents. CompuServe. The standard, narrow-band U.S. version of the CompuServe brand - ---------- service, specifically excluding (a) any international versions of such service, (b) any web-based service including "compuserve.com", "cserve.com" and "cs.com", or any similar product or service offered by or through the U.S. version of the CompuServe brand service, (c) Content areas owned, maintained or controlled by CompuServe affiliates or any similar "sub-service," (d) any programming or Content area offered by or through the U.S. version of the CompuServe brand service over which CompuServe does not exercise complete or substantially complete operational control (e.g., third-party Content areas), (e) any yellow pages, white pages, classifieds or other search, directory or review services or Content and (f) any co-branded or private label branded version of the U.S. version of the CompuServe brand service, (g) any version of the U.S. version of the CompuServe brand service which offers Content, distribution, services and/or functionality materially different from the Content, distribution, services and/or functionality associated with the standard, narrow-band U.S. version of the CompuServe brand service, including, without limitation, any version of such service distributed through any platform or device other than a desktop personal computer and (h) any property, feature, product or service which CompuServe or its affiliates may acquire subsequent to the Effective Date. Confidential Information. Any information relating to or disclosed in the - ------------------------ course of the Agreement, which is or should be reasonably understood to be confidential or proprietary to the disclosing Party, including, but not limited to, the material terms of this Agreement, information about AOL Members, AOL Users, AOL Purchasers and Advertiser customers, technical processes and formulas, source codes, product designs, sales, cost and other unpublished financial information, product and business plans, projections, and marketing data. "Confidential Information" will not include information (a) already lawfully known to or independently developed by the receiving Party, (b) disclosed in published materials, (c) generally known to the public, or (d) lawfully obtained from any third party. Content. Text, images, video, audio (including, without limitation, music used - ------- in synchronism or timed relation with visual displays) and other data, Services, advertisements, promotions, links, pointers and software, including any modifications, upgrades, updates, enhancements and related documentation. Digital City. The standard, narrow-band U.S. version of Digital City's local - ------------- content offerings marketed under the Digital City brand name, specifically excluding (a) the AOL Service, AOL.com, Netcenter, or any other AOL Interactive Site, (b) any international versions of such local content offerings, (c) the CompuServe(R) brand service and any other CompuServe products or services (d) "Driveway," "ICQ(TM)," "AOL NetFind(TM)," "AOL Instant Messenger(TM)," "Digital City," "NetMail(TM)," "Electra", "Thrive", "Real Fans", "Love@AOL", "Entertainment Asylum," "AOL Hometown," "My News" or any similar independent product, service or property which may be offered by, through or with the standard narrow band version of Digital City's local content offerings, (e) any programming or Content area offered by or through such local content offerings over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas), (f) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through such local content offerings, (g) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date, (h) any other version of a Digital City local content offering which is 11 materially different from the narrow-band U.S. version of Digital City's local content offerings marketed under the Digital City(R) brand name, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded version of the offerings or any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer, and (i) Digital City- branded offerings in any local area where such offerings are not owned or operationally controlled by America Online, Inc. or DCI (e.g., Chicago, Orlando, South Florida, and Hampton Roads). Effective Date. June 30, 1999. - -------------- Impression. User exposure to the applicable Promotion, as such exposure may be - ---------- reasonably determined and measured by AOL in accordance with its standard methodologies and protocols. Interactive Service. An entity offering one or more of the following: (i) - ------------------- online or Internet connectivity services (e.g., an Internet service provider); (ii) an interactive site or service featuring a broad selection of aggregated third party interactive content (or navigation thereto) (e.g., an online service or search and directory service) and/or marketing a broad selection of products and/or services across numerous interactive commerce categories (e.g., an online mall or other leading online commerce site); and (iii) communications software capable of serving as the principal means through which a user creates, sends and receives electronic mail or real time online messages. Interactive Site. Any interactive site or area, including, by way of example and - ---------------- without limitation, (i) a Advertiser site on the World Wide Web portion of the Internet or (ii) a channel or area delivered through a "push" product such as the Pointcast Network, interactive environment such as Microsoft's Active Desktop or interactive television service such as WebTV. Licensed Content. All Content offered through the Affiliated Advertiser Site - ---------------- pursuant to this Agreement or otherwise provided by Advertiser or its agents in connection herewith (e.g., offline or online promotional Content, Promotions, AOL "slideshows", etc.), including in each case, any modifications, upgrades, updates, enhancements, and related documentation. Netcenter. Netscape Communications Corporation's primary Internet-based - --------- Interactive Site marketed under the "Netscape Netcenter" brand, specifically excluding (a) the AOL Service, (b) AOL.com, (c) any international versions of such site, (d) "ICQ," "AOL Netfind," "AOL Instant Messenger," "NetMail," "AOL Hometown," "My News," "Digital City," or any similar independent product or service offered by or through such site or any other AOL Interactive Site, (e) any programming or Content area offered by or through such site over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas), (f) any programming or Content area offered by or through the U.S. version of the America Online brand service which was operated, maintained or controlled by the former AOL Studios division (e.g., Electra), (g) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through such site or any other AOL Interactive Site, (h) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date and (i) any other version of an AOL or Netscape Communications Corporation Interactive Site which is materially different from Netscape Communications Corporation's primary Internet-based Interactive Site marketed under the "Netscape Netcenter" brand, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded versions and any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer (e.g. Custom NetCenters built specifically for third parties). Search Term or searchterm. The online search term or terms made available on - ----------- ---------- AOL.com only for use by AOL.com users using the NetFind brand search engine thereon (the results of which such search are non-exclusive, and result in references to many entities). 12 Exhibit C Operations ---------- 1. Affiliated Advertiser Site Infrastructure. Advertiser will be responsible ----------------------------------------- for all communications, hosting and connectivity costs and expenses associated with the Affiliated Advertiser Site. Advertiser will provide all hardware, software, telecommunications lines and other infrastructure necessary to meet traffic demands on the Affiliated Advertiser Site from the AOL Network. Advertiser will design and implement the network between the AOL Service and Affiliated Advertiser Site such that (i) no single component failure will have a materially adverse impact on AOL Members seeking to reach the Affiliated Advertiser Site from the AOL Network and (ii) no single line will run at more than 70% average utilization for a 5-minute peak in a daily period. In this regard, Advertiser will provide AOL, upon request, with a detailed network diagram regarding the network infrastructure supporting the Affiliated Advertiser Site. In the event that Advertiser elects to create a custom version of the Affiliated Advertiser Site in order to comply with the terms of this Agreement, Advertiser will bear responsibility for all aspects of the implementation, management and cost of such customized site. 2. Optimization; Speed. Advertiser will use commercially reasonable efforts to ------------------- ensure that: (a) the functionality and features within the Affiliated Advertiser Site are optimized for the client software then in use by AOL Members; and (b) the Affiliated Advertiser Site is designed and populated in a manner that minimizes delays when AOL Members attempt to access such site. At a minimum, Advertiser will ensure that the Affiliated Advertiser Site's data transfers initiate within fewer than fifteen (15) seconds on average. Prior to commercial launch of any material promotions described herein, Advertiser will permit AOL to conduct performance and load testing of the Affiliated Advertiser Site (in person or through remote communications), with such commercial launch not to commence until such time as AOL is reasonably satisfied with the results of any such testing. 3. User Interface. Advertiser will maintain a graphical user interface within -------------- the Affiliated Advertiser Site that is competitive in all material respects with interfaces of other similar sites based on similar form technology. AOL reserves the right to review and approve the user interface and site design prior to launch of the Promotions and to conduct focus group testing to assess compliance with respect to such consultation and with respect to Advertiser's compliance with the preceding sentence. 4. Technical Problems. Advertiser agrees to use commercially reasonable efforts ------------------ to address material technical problems (over which Advertiser exercises control) affecting use by AOL Members of the Affiliated Advertiser Site (a "Advertiser Technical Problem") promptly following notice thereof. In the event that Advertiser is unable to promptly resolve a Advertiser Technical Problem following notice thereof from AOL (including, without limitation, infrastructure deficiencies producing user delays), AOL will have the right to regulate the promotions it provides to Advertiser hereunder until such time as Advertiser corrects the Advertiser Technical Problem at issue. 5. Monitoring. Advertiser will ensure that the performance and availability of ---------- the Affiliated Advertiser Site is monitored on a continuous basis. Advertiser will provide AOL with contact information (including e-mail, phone, pager and fax information, as applicable, for both during and after business hours) for Advertiser's principal business and technical representatives, for use in cases when issues or problems arise with respect to the Affiliated Advertiser Site. 6. Telecommunications. The Parties agree to explore encryption methodology to ------------------ secure data communications between the Parties' data centers. The network between the Parties will be configured such that no single component failure will significantly impact AOL Users. The network will be sized such that no single line runs at more than 70% average utilization for a 5-minute peak in a daily period. 7. Security. Advertiser will utilize Internet standard encryption technologies -------- (e.g., Secure Socket Layer - SSL) to provide a secure environment for conducting transactions and/or transferring private member information (e.g. credit card numbers, banking/financial information, and member address information) to and from the Affiliated Advertiser Site. Advertiser will facilitate periodic reviews of the Affiliated Advertiser Site by AOL in order to evaluate the security risks of such site. Advertiser will 13 promptly remedy any security risks or breaches of security as may be identified by AOL's Operations Security team. 8. Technical Performance. --------------------- i. Advertiser will design the Affiliated Advertiser Site to support the AOL-client embedded versions of the Microsoft Internet Explorer 3.0 and 4.0 browsers (Windows and Macintosh), the Macintosh version of the Microsoft Internet Explorer 3.0, and make commercially reasonable efforts to support all other AOL browsers listed at: "http://webmaster.info.aol.com/BrowTable.html." ii. To the extent Advertiser creates customized pages on the Affiliated Advertiser Site for AOL Members, Advertiser will configure the server from which it serves the site to examine the HTTP User-Agent field in order to identify the "AOL Member-Agents" listed at: "http://webmaster.info.aol.com/Brow2Text.html." iii. Advertiser will periodically review the technical information made available by AOL at http://webmaster.info.aol.com. ------------------------------ iv. Advertiser will design its site to support HTTP 1.0 or later protocol as defined in RFC 1945 and to adhere to AOL's parameters for refreshing cached information listed at http://webmaster.info.aol.com. ------------------------------ v. Prior to releasing material, new functionality or features through ------------------------------------------------------------------ the Affiliated Advertiser Site ("New Functionality"), Advertiser will --------------------------------------------------------------------- use commercially reasonable efforts to either (i) test the New -------------------------------------------------------------- Functionality to confirm its compatibility with AOL Service client ------------------------------------------------------------------ software or (ii) provide AOL with written notice of the New ----------------------------------------------------------- Functionality so that AOL can perform tests of the New Functionality to ----------------------------------------------------------------------- confirm its compatibility with the AOL Service client software. --------------------------------------------------------------- 9. AOL Internet Services Advertiser Support. AOL will provide Advertiser with ---------------------------------------- access to the standard online resources, standards and guidelines documentation, technical phone support, monitoring and after-hours assistance that AOL makes generally available to similarly situated web- based partners. AOL support will not, in any case, be involved with content creation on behalf of Advertiser or support for any technologies, databases, software or other applications which are not supported by AOL or are related to any Advertiser area other than the Affiliated Advertiser Site. Support to be provided by AOL is contingent on Advertiser providing to AOL demo account information (where applicable), a detailed description of the Affiliated Advertiser Site's software, hardware and network architecture and access to the Affiliated Advertiser Site for purposes of such performance and load testing as AOL elects to conduct. 14 Exhibit D Carriage
- ---------------------------------------------------------------------- Shopping Start End Impressions Date Date Target - ---------------------------------------------------------------------- Athletic Shoes and Apparel - GOLD 7/14/99 5/14/01 Golf & Recreation - GOLD 7/14/99 5/14/01 Camping & Outdoors - ANCHOR 7/14/99 5/14/01 Fitness & Sports - ANCHOR 7/14/99 5/14/01 ====================================================================== Subtotal [*] AOL Service ====================================================================== Sports: ROS 8/1/99 7/31/01 ROS 8/1/99 7/31/01 Email - In Box 8/1/99 7/31/01 People Connection: News, Sports, 8/1/99 7/31/01 Finance - Sports ROS ====================================================================== Subtotal [*] AOL.com ====================================================================== Webcenter: Run of Sports 8/1/99 7/31/01 Sports Search Package:Baseball 8/1/99 7/31/01 Module Sports Search Package: Soccer 8/1/99 7/31/01 Sports Search Package: Golf 9/1/99 7/31/01 Sports Search Package: Outdoor 8/1/99 7/31/01 ROS 8/1/99 7/31/01 AIM 8/1/99 7/31/01 ====================================================================== Subtotal [*] ====================================================================== Year 1 [*] Year 2 [*] ====================================================================== TOTAL [*] ======================================================================
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 15 EX-10.6 9 AMENDED AND RESTATED LOAN AGREEMENT EXHIBIT 10.6 AMENDED AND RESTATED LOAN AGREEMENT THIS AMENDED AND RESTATED LOAN AGREEMENT is entered into as of September 16, 1998 (this "Restated Loan Agreement") between CEDRO GROUP, INC., a California corporation (herein called "Borrower"), and IMPERIAL BANK (herein called "Bank"). This Restated Loan Agreement amends, restated and supersedes in its entirety the Original Loan Agreement (as hereinafter defined). RECITALS A. Borrower and Bank entered into that certain Loan Agreement dated as of December 24, 1997 (the "Original Loan Agreement"), pursuant to which Bank agreed to extend and make revolving loans available to Borrower under the "Facility-A Commitment" and the "Facility-B Commitment," and equipment term loans available to Borrower under the "Facility-C Commitment" (as said terms are defined in the Original Loan Agreement). B. The Facility-A Commitment and the Facility-B Commitment under the Original Loan Agreement have been terminated and Borrower is no longer permitted to request advances thereunder. C. Borrower and Bank desire to amend and restate the Loan Agreement in its entirety to, among other things, modify certain financial covenants and reporting requirements under the Facility-C Commitment and to extend and make available to Borrower a term loan facility to be evidenced by the New Term Loan Commitment (as hereinafter defined), all as more fully set forth herein. D. Bank has agreed to make and maintain the credit facilities described in this Restated Loan Agreement, but only upon the terms and subject to the conditions hereinafter set forth and in reliance on the representations and warranties set forth herein. AGREEMENT NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants hereinafter set forth, and intending to be legally bound, Borrower and Bank hereby agree as follows: 1. COMMITMENTS. A. NEW TERM LOAN COMMITMENT. Subject to all the terms and conditions of this Loan Agreement and prior to the termination of its commitment as hereinafter provided, Bank hereby agrees to make loans (each a "New Term Loan") to Borrower in such amounts as Borrower shall request pursuant to this Section 1.A. at any time from the date hereof through September 30, 1999 (the "New Term Loan Availability End Date"), in an aggregate principal amount not to exceed $800,000.00 (the "New Term Loan Commitment"). If at any time or for any reason, the outstanding principal amount of the New Term Loan Account (as hereinafter 1 defined) is greater than the New Term Loan Commitment, Borrower shall immediately pay to Bank, in cash, the amount of such excess. Any commitment of Bank, pursuant to the terms of this Loan Agreement, to make New Term Loans shall expire on the New Term Loan Availability End Date, subject to Bank's right to renew said commitment in its sole and absolute discretion at Borrower's request. Any such renewal of said commitment shall not be binding upon Bank unless it is in writing and signed by an officer of Bank. New Term Loans that are repaid by Borrower may not be reborrowed. Borrower promises to pay to Bank the outstanding unpaid principal balance (and all accrued unpaid interest thereon) of the New Term Loan Account on or before September __, 2001 ("New Term Loan Maturity Date"), (1) NEW TERM LOANS. The amount of each New Term Loan made by Bank to Borrower hereunder shall be debited to the loan ledger account of Borrower maintained by Bank for the New Term Loan Commitment (herein called the "New Term Loan Account") and Bank shall credit the New Term Loan Account with all loan repayments in respect thereof made by Borrower. When Borrower desires to obtain a New Term Loan, Borrower shall notify Bank (which notice shall be signed by an officer of Borrower and shall be irrevocable) in accordance with Section 2 hereof, to be received no later than 3:00 p.m. Pacific time one (1) Banking Day (as hereinafter defined) before the day on which the New Term Loan is to be made. The notice shall be signed by an officer of Borrower and include a copy of the invoice and serial numbers for the capital equipment, furniture, software or telephone equipment to be financed. New Term Loans may only be used to reimburse Borrower for capital equipment, furniture, software or telephone equipment purchased on or after June 1, 1998 and on or before September 30, 1999. New Term Loans for capital equipment will be limited to one hundred percent (100%) of the original invoice amount for such capital equipment, approved from time to time by Bank, less any taxes, shipping and freight charges or discounts, warranty charges, installation expenses and other soft costs. New Term Loans for software, furniture or telephone equipment will be limited to: (a) seventy-five (75%) of the original invoice amount for such software, furniture or telephone equipment approved from time to time by Bank, less any taxes, shipping and freight charges or discounts, warranty charges, installation expenses and similar soft costs and (b) the maximum aggregate total amount of $200,000.00. (2) INTEREST PAYMENTS PRIOR TO NEW TERM LOAN MATURITY DATE. Borrower further promises to pay to Bank from the date of the advance of the initial New Term Loan through the New Term Loan Availability End Date, on or before the fifteenth (15th) day of each month, interest on the average daily unpaid balance of the New Term Loan Account during the immediately preceding month at a floating rate of interest equal to one half of one percent (0.50%) per annum in excess of the rate of interest which Bank has announced as its prime lending rate (the "Prime Rate"), which shall vary concurrently with any change in the Prime Rate. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance of the New Term Loan is outstanding divided by 360, which shall for interest computation purposes be considered one (1) year. (3) PRINCIPAL PAYMENTS FOLLOWING NEW TERM LOAN AVAILABILITY END DATE. Borrower further promises to pay to Bank, on or before the fifteenth (15th) day of the month immediately following the New Term Loan Availability End Date and on or before the fifteenth (15th) day of each month thereafter through the New Term Loan Maturity Date, (a) the outstanding principal balance of the New Term Loan Account on the New Term Loan -2- Availability End Date plus any accrued interest pursuant to Section 1.A.(2) in twenty-four (24) equal monthly installments plus (b) interest on the average daily unpaid balance of the New Term Loan Account accruing during the immediately preceding month at the rate of interest and computed in accordance with Section 1.A.(2) hereof. B. EXISTING TERM LOAN COMMITMENT. Subject to all the terms and conditions of this Loan Agreement and prior to the termination of its commitment as hereinafter provided, Bank hereby agrees to make loans (each an "Existing Term Loan") to Borrower in such amounts as Borrower shall request pursuant to this SECTION 1.B. at any time from the date hereof through December 22, 1998 (the "Existing Term Loan Availability End Date"), in an aggregate principal amount not to exceed $150,000.00 (the "Existing Term Loan Commitment"). If at any time or for any reason, the outstanding principal amount of the Existing Term Loan Account (as hereinafter defined) is greater than the Existing Term Loan Commitment, Borrower shall immediately pay to Bank, in cash, the amount of such excess. Any commitment of Bank, pursuant to the terms of this Loan Agreement, to make Existing Term Loans shall expire on the Existing Term Loan Availability End Date, subject to Bank's right to renew said commitment in its sole and absolute discretion at Borrower's request. Any such renewal of said commitment shall not be binding upon Bank unless it is in writing and signed by an officer of Bank. Existing Term Loans that are repaid by Borrower may not be reborrowed. Borrower promises to pay to Bank the outstanding unpaid principal balance (and all accrued unpaid interest thereon) of the Existing Term Loan Account on or before December 15, 2000 ("Existing Term Loan Maturity Date"). (1) EXISTING TERM LOANS. The amount of each Existing Term Loan made by Bank to Borrower hereunder shall be debited to the loan ledger account of Borrower maintained by Bank for the Existing Term Loan Commitment (herein called the "Existing Term Loan Account") and Bank shall credit the Existing Term Loan Account with all loan repayments in respect thereof made by Borrower. When Borrower desires to obtain an Existing Term Loan, Borrower shall notify Bank (which notice shall be signed by an officer of Borrower and shall be irrevocable) in accordance with SECTION 2 hereof, to be received no later than 3:00 p.m., Pacific time one (1) Banking Day before the day on which the Existing Term Loan is to be made. The notice shall be signed by an officer of Borrower and include a copy of the invoice and serial numbers for the capital equipment, furniture, software or telephone equipment to be financed. Existing Term Loans may only be used to purchase capital equipment, furniture, software or telephone equipment. Existing Term Loans for capital equipment will be limited to ninety percent (90%) of the invoice amount for such capital equipment, approved from time to time by Bank, less any taxes, shipping and freight charges or discounts, warranty charges, installation expenses and other soft costs. Existing Term Loans for software, furniture or telephone equipment will be limited to: (a) seventy-five (75%) of the invoice amount for such software, furniture or telephone equipment approved from time to time by Bank, less any taxes, shipping and freight charges or discounts, warranty charges, installation expenses and similar soft costs and (b) the maximum aggregate total amount of $30,000.00. (A) COMERICA ADVANCE. Notwithstanding any of the provisions contained in Section 1.B.(1) hereof, Bank hereby agrees to make a single advance of an Existing Term Loan to Borrower in order to repay an existing equipment loan and all related indebtedness owed by Borrower to Comerica Bank (the "Comerica Advance"); provided, -3- however, that the amount of the Comerica Advance shall be deemed to constitute an Existing Term Loan for the purpose of calculating the availability under the Existing Term Loan Commitment. (2) INTEREST PAYMENTS PRIOR TO EXISTING TERM LOAN MATURITY DATE. Borrower further promises to pay to Bank from the date of the advance of the initial Existing Term Loan through the Existing Term Loan Maturity Date, on or before the fifteenth (15th) day of each month, interest on the average daily unpaid balance of the Existing Term Loan Account during the immediately preceding month at a floating rate of interest equal to one percent (1.00%) per annum in excess of the Prime Rate, which shall vary concurrently with any change in the Prime Rate. Interest shall be computed at the above rate on the basis of the actual number of days during which the principal balance of the Existing Term Loan Account is outstanding divided by 360, which shall for interest computation purposes be considered one (1) year. (3) PRINCIPAL PAYMENTS FOLLOWING EXISTING TERM LOAN AVAILABILITY END DATE. Borrower further promises to pay to Bank, on or before the fifteenth (15th) day of the month immediately following the Existing Term Loan Availability End Date and on or before the fifteenth (15th) day of each month thereafter through the Existing Term Loan Maturity Date, (a) the outstanding principal balance of the Existing Term Loan Account on the Existing Term Loan Availability End Date in twenty-four (24) equal monthly installments plus (b) interest on the average daily unpaid balance of the Existing Term Loan Account accruing during the immediately preceding month at the rate of interest and computed in accordance with SECTION 1.B.(2) hereof. 2. LOAN REQUESTS. Requests for Loans hereunder shall be in writing duly executed by Borrower in a form satisfactory to Bank and shall contain a certification setting forth the matters referred to in SECTION 1, which shall disclose that Borrower is entitled to the amount and type of Loan being requested. Bank is hereby authorized to charge Borrower's deposit account with Bank for all sums due Bank under this Restated Loan Agreement. 3. DELIVERY OF PAYMENTS. Payment to Bank of all amounts due hereunder shall be made at its Santa Clara Valley Regional office, or at such other place as may be designated in writing by Bank from time to time. If any payment date fall on a day that is not a day that Bank is open for the transaction of business ("Banking Day"), the payment due date shall be extended to the next Banking Day. 4. LATE CHARGE. If any interest payment, principal payment or principal balance payment required hereunder is not received by Bank on or before ten (10) days from the date in which such payment becomes due, Borrower shall pay to Bank, a late charge equal to the lesser of (a) five percent (5.0%) of the amount of such unpaid payment, in addition to said unpaid payment or (b) the maximum amount permitted to be charged by applicable law, until remitted to Bank; provided; however, nothing contained in this SECTION 4, shall be construed as any obligation on the part of Bank to accept payment of any past due payment or less than the total unpaid principal balance of the applicable Loan Account following the New Term loan Maturity Date and/or the Existing Term Loan Maturity Date, as applicable. All payments shall be applied first to any late charges due hereunder, next to accrued interest then payable and the remainder, if any, to reduce any unpaid principal due under the applicable Loan Account. -4- 5. DEFAULT INTEREST. From and after the New Term Loan Maturity Date and/or the Existing Term Loan Maturity Date, as applicable, or such earlier date as all sums owing under any Loan Account becomes due and payable by acceleration or otherwise, or upon the occurrence of an Event of Default, at the option of Bank all sums owing under the applicable Loan Account shall bear interest until paid in full at a rate equal to the lesser of (a) five percent (5.0%) per annum in excess of the then applicable interest rate provided for in SECTIONS 1.A.(2) and 1.B.(2) hereof or (b) the maximum amount permitted to be charged by applicable law, until all obligations hereunder are repaid in full or the Event of Default is waived or cured to the satisfaction of Bank, as applicable. 6. DEFINITIONS. As used in this Restated Loan Agreement and unless otherwise defined herein, all initially capitalized terms shall have the meanings set forth on exhibit A attached hereto and incorporated herein by this reference. 7. REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Bank: (a) That Borrower is a corporation, duly organized and existing in the State of its incorporation and the execution, delivery and performance of each of the Loan Documents are within Borrower's corporate powers have been duly authorized and are not in conflict with law or the terms of any charter, by-law or other incorporation papers, or of any indenture agreement or undertaking to which Borrower is a party or by which Borrower is bound or affected; (b) Borrower is, and at the time the Collateral becomes subject to Bank's security interest will be, the true and lawful owner of and has, and at the time the Collateral becomes subject to Bank's security interest will have, good and clear title to the Collateral, subject only to Bank's rights therein and to Permitted Liens; (c) Each Account is, and at the time the Account comes into existence will be, a true and correct statement of a bona fide indebtedness incurred by the debtor named therein in the amount of the Account for either merchandise sold or delivered (or being held subject to Borrower's delivery instructions) to, or services rendered, performed and accepted by, the account debtor; (d) That there are and will be no defenses, counterclaims, or setoffs which may be asserted against the Accounts from time to time represented by Borrower to be Eligible Accounts, except as permitted in the definition thereof; (e) Any and all financial information, including information relating to the Collateral submitted by Borrower to Bank, whether previously or in the future, is and will be true and correct; (f) There is no litigation or other proceeding pending or threatened against or affecting Borrower, and Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court or other governmental or regulatory authority; (g) (i) The consolidated balance sheets of Borrower dated as of July 31, 1998, and the related consolidated profit and loss statements for the fiscal year then ended, copies of which have heretofore been delivered to Bank by Borrower, and all other statements and data submitted in writing by Borrower to Bank in connection with Borrower's request for credit are true and correct, and said balance sheet and profit and loss statement accurately, present the financial condition of Borrower as of the date thereof and the results of the Operations of Borrower for the period covered thereby, and have been prepared in accordance with GAAP, (ii) since such date, there have been no material adverse changes in the financial condition of Borrower, and (iii) Borrower has no knowledge of any liabilities, contingent or otherwise, which are not reflected in said balance and Borrower has not entered into any special commitments or substantial contracts which are not reflected said balance sheet, other than in the ordinary and normal course of its business, which may have a Material Adverse Effect upon its financial condition, operations or business as now conducted; (h) Borrower has -5- no delinquent local, state or federal taxes, and, if Borrower has contracted with an government agency, it has no liability for renegotiation of profits; and (i) Borrower, as of the date hereof, possesses all necessary trademarks, trade names, copyrights, patents, patent rights, and licenses to conduct its business as now operated, without any known conflict with valid trademarks, trade names, copyrights, patents, patent rights and license rights of others; and (j) Borrower and its subsidiaries ("Subsidiaries") have reviewed the areas within their operations and business which could be adversely affected by, and have developed or are developing a program to address on a timely basis, the Year 2000 Problem and have made related appropriate inquiry of material suppliers and vendors and based on such review and program, the Year 2000 Problem will not have a Material Adverse Effect upon its financial condition, operations or business as now conducted. 8. NEGATIVE COVENANTS. Borrower agrees that so long as any loans, obligations or liabilities remain outstanding or unpaid to Bank or the commitment of Bank hereunder is in effect, neither Borrower, nor any of its Subsidiaries will, without the prior written consent of Bank: A. Make any substantial change in the character of its business as now conducted; B. Create, incur, assume or permit to exist any Indebtedness other than loans from Bank except obligations now existing as shown in the financial statements referenced in Section 7.(g)(i), excluding those being refinanced by Bank, Subordinated Debt and Permitted Indebtedness-, or sell or transfer, either with or without recourse, any accounts or notes receivable or any monies due or to become due; C. Create, incur, assume or permit to exist any mortgage, pledge, encumbrance, lien or charge of any kind (including the charge upon property at any time purchased or acquired under conditional sale or other title retention agreement) upon any asset now owned or hereafter acquired by it, other than Permitted Liens and liens in favor of Bank; D. Sell, dispose of or grant a security interest in any of the Collateral other than to Bank (other than the disposing of such Collateral in the ordinary and normal course of its business as now conducted or other assets which are obsolete or otherwise considered surplus), or execute any financing statements covering the Collateral in favor of any secured party or Person other than Bank; E. Make any loans or advances to any Person or other entity other than in the ordinary and normal course of its business as now conducted (provided that such loans or advances are not made to any Person or entity that is controlled by or under common control with Borrower) or make any investment in the securities of any Person or other entity other than the United States Government; F. (1) Purchase or otherwise acquire all or substantially all of the assets or business of any Person or other entity, or (2) liquidate, dissolve, merge or consolidate, or commence any proceedings therefore, or (3) except in the ordinary and normal course of its business as now conducted, sell (including, without limitation, the setting of any property or -6- other asset accompanied by the leasing back of the same) any assets including any fixed assets, any property, or other assets necessary for the continuance of its business as now conducted. Notwithstanding the foregoing, Borrower may proceed with any acquisition, merger or consolidation (as described above) so long as any and all outstanding Indebtedness owed to Bank is paid in full to Bank upon the consummation of such acquisition, merger or consolidation; provided, however, that any continuation of a lending relationship between Bank and Borrower after the closing of such acquisition, merger or consolidation is subject to approval by Bank's Commercial Loan Administration; and G. Declare or pay any dividend or make any other distribution on any of its capital stock now Outstanding or hereafter issued or purchase, redeem or retire any of such stock other than in dividends or distributions in Borrower's or any such Subsidiary's capital stock, except for the repurchase of Borrower's capital stock from officers, directors, employees or consultants of Borrower upon termination of their employment with or rendering of service to Borrower. 9. AFFIRMATIVE COVENANTS. Borrower affirmatively covenants that so long as any loans, obligations or liabilities remain outstanding or unpaid to Bank or the commitment of Bank hereunder is in effect, it will: A. Furnish Bank from time to time such financial statements and information as Bank may reasonably request and inform Bank immediately upon the occurrence of a material adverse change therein; B. Permit representatives of Bank to conduct an audit of Borrower's books and records relating to the Collateral and make extracts therefrom, with results satisfactory to Bank, provided that Bank shall use its best efforts to not interfere with the conduct of Borrower's business, and to the extent possible to arrange for verification of the Accounts directly with the account debtors obligated thereon or otherwise, all under reasonable procedures acceptable to Bank and at Borrower's sole expense, the cost of each such audit of which shall not exceed $1,000.00. Borrower hereby acknowledges and agrees that upon completion of any such audit. Bank shall have the right to adjust the Borrowing Base percentage, in its sole and reasonable discretion, based on its review of the results of such Collateral audit; C. Promptly notify Bank of any attachment or other legal process levied against any of the Collateral and any information received by Borrower relative to the Collateral, including the Accounts, the account debtors or other Persons obligated in connection therewith, which may in any way affect the value of the Collateral or the rights and remedies of Bank in respect thereto; D. Reimburse Bank upon demand for any and all legal costs, including reasonable attorneys' fees, and other expense incurred in (1) collecting any sums payable by Borrower under any Loan Account or any other obligation secured hereby, (2) enforcing any term or provision of this Restated Loan Agreement or otherwise or (3) the checking, handling and collection of the Collateral and the preparation and enforcement of any agreement relating thereto; -7- E. Notify Bank of each location and of each office of Borrower at which records of Borrower relating to the Accounts are kept; F. Provide, maintain and deliver to Bank policies insuring the Collateral against loss or damage by such risks and in such amounts, forms and companies as Bank may require (to the extent customarily maintained by businesses similar to Borrower) and with loss payable to Bank, and, in the event Bank takes Possession of the Collateral, the insurance policy or policies and any unearned or returned premium thereon shall at the option of Bank become the sole property of Bank, such policies and the proceeds of any other insurance Covering or in any way relating to the Collateral, whether now in existence or hereafter obtained, being hereby assigned to Bank; G. In the event the unpaid balance of any Loan Account shall exceed the maximum amount of outstanding loans to which Borrower is entitled under SECTION 1 hereof, as applicable. Borrower shall immediately pay to Bank for credit to such Loan Account the amount of such excess; H. Maintain and preserve all rights, franchises and other authority adequate and necessary for the conduct of its business and maintain and preserve its existence in the State of its incorporation and any state(s) in which Borrower conducts its business, except with respect to such other state(s), as failure to do so would not have a Material Adverse Effect; I. Maintain public liability, property damage and workers compensation insurance and insurance on all its insurable property against fire and other hazards with responsible insurance carriers to the extent usually maintained by similar businesses. Borrower shall provide evidence of property insurance in amounts and types acceptable to Bank, and certificates naming Bank as a loss payee; J. Pay and discharge, before the same becomes delinquent and penalties accrue thereon, all assessments and governmental charges upon or against it or any of its properties, and any of its other liabilities at any time existing, except to the extent and so long as: (1) the same are being contested in good faith and by appropriate proceedings in such manner as not to cause any Material Adverse Effect or the loss of any right of redemption from any sale thereunder, and (2) it shall have set aside on its books reserves (segregated to the extent required by GAAP); K. Maintain a standard and modern system of accounting in accordance with GAAP on a basis consistently maintained, permit Bank's representatives to have access to, and to examine its properties, books and records at all reasonable times, provided that Bank shall use its best efforts to not interfere with the conduct of Borrower's business; L. Maintain its properties, equipment and facilities in good order and repair; M. Bank and maintain a minimum of fifty percent (50%) of investable funds in interest-bearing accounts at Bank, provided that the rates offered by Bank for such accounts are not less than twenty-five (25) basis points less than those rates offered by similar institutions for similar accounts with similar maturities; -8- N. Prior to allowing any of Borrower's raw materials, work in process, finished goods inventory and property, plant and equipment to be transported to or be held at any contract manufacturer, warehouse or other location (other than with bona fide distributors and retail accounts), Borrower shall provide notice to Bank and Borrower shall have complied with such filing and notice requirements as shall, in Bank's opinion, assure Borrower's and Bank's priority in such property over creditors of such contract manufacturer. Warehouseman or operator of such other location, including, without limitation, making filings under California Commercial Code (S)2326, providing notice under California Commercial Code (S)9114 and making filings and publications as required under California Civil Code (S)3440.1 and (S)3440.5. All such filings, notices and publications shall be in form and substance satisfactory to Bank; and O. Borrower shall perform all acts reasonably necessary to ensure that Borrower and any business in which Borrower holds a substantial interest becomes Year 2000 Compliant in a timely manner. Such acts shall include, without limitation, performing a comprehensive review and assessment of all of Borrower's systems and adopting a detailed plan, with an itemized budget, for the remediation, monitoring and testing of such systems. If requested by Bank, Borrower shall deliver a statement to Bank summarizing the Year 2000 exposure. Program or progress of Borrower and its Subsidiaries or other evidence of Borrower's compliance with the terms of this Section, certified by an officer of Borrower. 10. FINANCIAL COVENANTS AND INFORMATION. All financial covenants and financial information referenced herein shall be interpreted and prepared in accordance with GAAP as used in the United States of America applied on a basis consistent with previous years. Compliance with the financial covenants shall be Calculated and monitored on a monthly basis, except as shall be expressly stated to the contrary. Borrower affirmatively covenants that so long as any loans, obligations or liabilities remain outstanding or unpaid to Bank or any commitment is outstanding hereunder, it will, on a consolidated basis: A. At all times have Maximum Monthly Losses not in excess of (1) $850,000 during the fiscal quarter ending December 31, 1998, (2) $650,000.00 during the fiscal quarter ending March 31, 1999, (3) $1,200,000 during the fiscal quarter ending June 30, 1999, (4) $1,500,000.00 during the fiscal quarter ending September 30, 1999 and (5) $2,300,000.00 during its fiscal quarter ending December 31, 1999; B. At all times maintain either: (1) a Minimum Liquidity Ratio of not less than 1.20:1.00. As used herein "Liquidity Ratio" means the sum of all cash plus 80% of Eligible Accounts divided by the sum of the total outstanding debt to Bank plus accrued interest; or (2) measured on a quarterly basis on the last day of each fiscal quarter, a Minimum Cash Flow Coverage Ratio of not less than 1.25:1.00 for two consecutive fiscal quarters. As used herein "Cash Flow Coverage Ratio" means the sum of net income plus depreciation and amortization divided by the current portion of long term indebtedness due within ninety (90) days of such measurement. Notwithstanding the financial covenants contained in SECTIONS 10.B.(1) and 10.B.(2) hereof, the requirement that Borrower meet either of -9- said financial covenants shall be waived for ninety (90) days following the date of the delivery to Bank of the Additional Equity Round Term Sheets; C. At all times maintain a Minimum Tangible Net Worth of not less than $2,000,000.00 beginning on September 1, 1999. As used herein, "Tangible Net Worth" shall mean all assets (excluding any value for goodwill, trademarks, patents, copyrights, organization expense and other similar intangible items), less all liabilities, plus Subordinated Debt; D. As soon as it is available, but not later than twenty-five (25) days after and as of the end of each month, deliver to Bank an internally- prepared financial statement consisting of a balance sheet and profit and loss statement, in form satisfactory to Bank, and a Compliance Certificate in the form of Exhibit B attached hereto and incorporated herein by this reference, certified by an officer of Borrower; E. As soon as it is available, but not later than one hundred twenty (120) days after the end of Borrower's fiscal year, deliver to Bank copies of Borrower's consolidated financial statement's together with changes in financial position audited by an independent certified public accountant selected by Borrower but acceptable to Bank; F. Upon the reasonable request of Bank, deliver to Bank current budgets, sales projections. Operating plans and other financial exhibits and information in form and substance satisfactory to Bank; and G. Upon any officer becoming aware, deliver immediately to Bank written notice of any pending or threatened litigation claiming, or reasonably likely to result in, damages against Borrower in an amount in excess of $50,000.00. 11. LOAN FEE. Borrower has paid, and Bank hereby acknowledges receipt of a loan fee in the amount of Three Thousand Dollars ($3,000.00) in connection with the extension of the New Term Loan Commitment. 12. DEFAULT AND REMEDIES, The occurrence of any one or more of the following shall constitute an "Event of Default": (a) Default be made in the payment of any obligation by Borrower under any Loan Document, (b) Except for any failure to pay as described in clause (a) above, breach be made in any warranty, statement, promise, term or condition, contained herein or in any other Loan Document and the same shall not have been cured to the satisfaction of Bank within fifteen (15) days after Borrower shall have become aware thereof whether by written notice from Bank, or otherwise, (except that no cure period shall exist for breaches in respect of Borrower's obligations under SECTION 8, SUBSECTIONS 9.A., 9.B., 9.C., 9.F., 9.G., 9.H., 9.I, and 9.O., SUBSECTIONS 10.A., 10.B., 10.C., 10.D., and 10.E. of this Restated Loan Agreement, and SECTIONS 1 and 2 of the General Security Agreement), (c) Any statement, warranty or representation made by Borrower at any time proves false; (d) Borrower defaults in the repayment of any principal of or the payment of any interest on any indebtedness exceeding in the aggregate principal amount $10,000.00 or breaches or violates any term or provision of any promissory note, loan agreement, mortgage, indenture or other evidence of such indebtedness pursuant to which amounts outstanding in the aggregate exceed $10,000.00 if the effect of such breach is to permit the acceleration of such indebtedness, whether or not waived -10- by the note holder or obligee, and such failure shall not have been cured to Bank's satisfaction within fifteen (15) calendar days after Borrower shall become aware thereof, whether by written notice from Bank or otherwise, or there has in fact been an acceleration of such indebtedness; (e) Borrower becomes insolvent or makes an assignment for the benefit of creditors: (f) Any proceeding be commenced by Borrower under any bankruptcy, reorganization, arrangement, readjustment of debt or moratorium law or statute or, any such a proceeding is commenced against Borrower and is not dismissed or stayed within ten (10) days (provided that no Loans will be made prior to the dismissal of such proceeding), (g) Any money judgment, writ of attachment, garnishment, execution or other legal process be entered against Borrower or issued against any material property of Borrower which is not fully covered by insurance (subject to reasonable deductibles) and remains unvacated, unbonded, unstayed or unpaid or undischarged for more than fifteen (15) days (whether or not consecutive) or in any event later than five (5) days prior to the date of any proposed sale thereunder, or if any assessment for taxes against Borrower other than against any of its real property, is made by the Federal or State government or any department thereof, or (h) Any change in Borrower's financial condition, prospects or operations which has a Material Adverse Effect. Upon the occurrence and during the continuance of an Event of Default, Bank may, at its option and without demand first made and without notice to Borrower, do any one or more of the following: (i) Terminate its obligation to make loans to Borrower as provided in SECTION 1 hereof, (ii) Declare all sums secured hereby immediately due and payable, (iii) Immediately take possession of the Collateral wherever it may be found, using all legally permissible means to do so, or require Borrower to assemble the Collateral and make it available to Bank at a place designated by Bank which is reasonably convenient to Borrower and Bank, and Borrower waives all claims for damages due to or arising from or connected with any such taking, (iv) Proceed in the foreclosure of Bank's security interest and sale of the Collateral in any manner permitted by law, or provided for herein: (v) Sell, lease or otherwise dispose of the Collateral at public or private sale, with or without having the Collateral at the place of sale, and upon terms and in such manner as Bank may determine, and Bank may purchase same at any such sale: (vi) Retain the Collateral in full satisfaction of the obligations secured thereby to the extent permitted under the Uniform Commercial Code, or (vii) Exercise any remedies of a secured party under the Uniform Commercial Code. Prior to any such disposition. Bank may at its option, cause any of the Collateral to be repaired or reconditioned in such manner and to such extent as Bank may deem advisable, and any sums expanded therefor by Bank shall be repaid by Borrower and secured hereby. Bank shall have the right to enforce one or more remedies hereunder successively or concurrently, and any such action shall not stop or prevent Bank from pursuing any further remedy that it may have hereunder or by law. If a sufficient sum is not realized from any such disposition of the Collateral to pay all obligations secured, by this Restated Loan Agreement. Borrower hereby promises and agrees to pay Bank any deficiency. 13. RECORDS RETENTION. Borrower authorizes Bank to destroy all invoices, delivery receipts, reports and other types of documents and records submitted to Bank in connection with the transactions contemplated herein at any, time subsequent to four (4) months from the time such items are delivered to Bank. 14. ATTORNEYS' FEES. Borrower agrees to reimburse Bank for its reasonable attorneys' fees and expenses up to $1000 incurred in connection with the negotiation, preparation, execution and delivery of the Loan Documents. -11- 15. GOVERNING LAW; JUDICIAL REFERENCE. A. GOVERNING LAW. This Agreement shall be deemed to have been made in the State of California and the validity, construction, interpretation, and enforcement hereof, and the rights of the parties hereto, shall be determined under, governed by, and construed in accordance with the internal laws of the State of California, without regard to principles of conflicts of laws. B. JUDICIAL REFERENCE. (1) Other than (a) nonjudicial foreclosure and all matters in connection therewith regarding security interests in real or personal property, or (b) the appointment of a receiver, or the exercise of other provisional remedies (any and all of which may be initiated pursuant to applicable law), each controversy, dispute or claim between the parties arising out of or relating to this Restated Loan Agreement or the other Loan Documents, which controversy, dispute or claim is not settled in writing within thirty (30) days after the "Claim Date" (defined as the date on which a party subject to this Restated Loan Agreement gives written notice to all other parties that a controversy, dispute or claim exists), will be settled by a reference proceeding in California in accordance with the provisions of Section 638 et seq. of the California Code of Civil Procedure, or their successor section ("CCP"), which shall constitute the exclusive remedy for the settlement of any controversy, dispute or claim concerning this Restated Loan Agreement, including whether such controversy, dispute or claim is subject to the reference proceeding and except as set forth above, the parties waive their rights to initiate any legal proceedings against each other in any court or jurisdiction other than the Superior Court in the County where the real property, if any, is located or Santa Clara County, if none (the "Court"). The referee shall be a retired Judge of the Court selected by mutual agreement of the parties, and if they cannot so agree within forty-five (45) days after the Claim Date, the referee shall be promptly selected by the Presiding Judge of the Court (or his/her representative). The referee shall be appointed to sit as a temporary judge, with all of the powers for a temporary judge, as authorized by law, and upon selection should take and subscribe to the oath of office as provided for in Rule 244 of the California Rules of Court (or any subsequently enacted Rule). Each party shall have one peremptory challenge pursuant to CCP (S) 170.6. The referee shall (x) be requested to set the matter for hearing within sixty (60) days after the date of selection of the referee and (y) try any and all issues of law or fact and report a statement of decision upon them, if possible, within ninety (90) days of the Claim Date. Any decision rendered by the referee will be final, binding and conclusive and judgement shall be entered pursuant to CCP (S) 644 in any court in the State of California having jurisdiction. Any party may apply for a reference proceeding at any time after thirty (30) days following notice to any other party of the nature of the controversy, dispute or claim, by filing a petition for a hearing and/or trial. All discovery permitted by this Restated Loan Agreement shall be completed no later than fifteen (15) days before the first hearing date established by the referee. The referee may extend such period in the event of a party's refusal to provide requested discovery for any reason whatsoever, including, without limitation, legal objections raised to such discovery or unavailability of a witness due to absence or illness. No party shall be entitled to "priority" in conducting discovery. Depositions may be taken by either party upon seven (7) days written notice, and request for production or inspection of documents shall be responded to within ten (10) days after service. All disputes relating to discovery which cannot be solved by the parties shall be submitted to the referee whose decision -12- shall be final and binding upon the parties. Pending appointment of the referee as provided herein, the Superior Court is empowered to issue temporary and/or provisional remedies, as appropriate. (2) Except as expressly set forth in this Restated Loan Agreement, the referee shall determine the manner in which the reference proceeding is conducted including the time and place of all hearings, the order of presentation of evidence, and all other questions that arise with respect to the course of the reference proceeding. All proceedings and hearings conducted before the referee, except for trial, shall be conducted without a court reporter except that when any party so requests, a court reporter will be used at any hearing conducted before the referee. The party making such a request shall have the obligation to arrange for and pay for the court reporter. The costs of the court reporter at the trial shall be borne equally by the parties. (3) The referee shall be required to determine all issues in accordance with existing case law and the statutory laws of the State of California. The rules of evidence applicable to at law in the State of California will be applicable to the reference proceeding. The referee shall be empowered to enter equitable as well as legal relief, to provide all temporary and/or provisional remedies and to enter equitable orders that will be binding upon the parties. The referee shall issue a single judgment at the close of the reference proceeding that shall dispose of all of the claims of the parties that are the subject of the reference. The parties hereto expressly reserve the right to contest or appeal from the final judgment or any appealable order or right appealable judgment entered by the referee. The parties hereto expressly reserve the right to findings of fact, conclusions of laws, a written statement of decision, and the right to move for a new trial or a different judgment, which new trial, if granted, is also to be a reference proceeding under this provision. (4) In the event that the enabling legislation which provides for appointment of a referee is repealed (and no successor statute is enacted), any dispute between the parties that would otherwise be determined by the reference procedure herein described will be resolved and determined by arbitration. The arbitration will be conducted by a retired judge of the Court, in accordance with the California Arbitration Act, (S) 1280 through (S) 1294.2 of the CCP as amended from time to time. The limitations with respect to discovery as set forth hereinabove shall apply to any such arbitration proceeding. 16. MISCELLANEOUS PROVISIONS. A. Nothing herein shall in any way limit the effect of the conditions set forth in any other security or other agreement executed by Borrower, but each and every condition hereof shall be in addition thereto. B. No failure or delay on the part of Bank, in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof. C. All rights and remedies existing under this Restated Loan Agreement or any other Loan Document are cumulative to, and not exclusive of, any rights or remedies otherwise available. -13- D. All headings and captions in this Restated Loan Agreement and any related documents are for convenience only and shall not have any substantive effect. E. This Restated Loan Agreement is not intended to be, and shall not be construed to create, a novation or accord and satisfaction, and, except as otherwise provided herein, the Original Loan Agreement is amended and restated in full by the terms of this Restated Loan Agreement and all obligations outstanding under the Original Loan Agreement are governed by the terms of this Restated Loan Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -14- F. This Restated Loan Agreement may be executed in any number of counterparts, each of which when so delivered shall be deemed an original, but all such counterparts shall constitute but one and the same instrument. Each such agreement shall become effective upon the execution of a counterpart hereof or thereof by each of the parties hereto and telephonic notification that such executed counterpart has been received by Borrower and Bank.
BANK: BORROWER: Imperial Bank CEDRO GROUP, INC., a California corporation By: /S/ Anurag Chandra By: /s/ Tim Harrington ---------------------------------------- ------------------------------------------- Anurag Chandra, Assistant Vice President Tim Harrington, President By: /s/ Marcy von Lossberg ------------------------------------------- Marcy von Lossberg, Chief Financial Officer
LIST OF EXHIBITS AND SCHEDULES - ------------------------------ EXHIBIT A: Definitions SCHEDULE 1 TO EXHIBIT A: List of Specific Permitted Indebtedness SCHEDULE 2 TO EXHIBIT A: List of Specific Permitted Liens EXHIBIT B: Compliance Certificate EXHIBIT C: Borrowing Base Certificate -15- EXHIBIT A DEFINITIONS "ACCOUNTS" means any right to payment for goods sold or leased, or to be sold or to be leased, or for services rendered or to be rendered no matter how evidenced, including accounts receivable, contract rights, chattel paper, instruments, purchase orders, notes, drafts, acceptances, general intangibles and other forms of obligations and receivables. "ADDITIONAL EQUITY ROUND TERM SHEETs" means signed, definitive term sheets for a minimum of Ten Million Dollars ($10,000,000) of new equity investments by investors acceptable to Bank, which term sheets shall be delivered on or before February 28, 1999 and shall specify that said minimum round amount must not require additional investments from unidentified investors in order to meet the minimum round amount of Ten Million Dollars ($10,000,000). "CAPITAL LEASE" means, as to any Person, any lease of any Property by such Person as lessee that is, or should be in accordance with Financing Accounting Standards Board Statement No. 13, classified and accounted for as a "capital lease" on the balance sheet of such Person prepared in accordance with GAAP. "CAPITAL LEASE OBLIGATION" means, with respect to any Capital Lease, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease or otherwise be disclosed in a note to such balance sheet. "COLLATERAL" means any and all personal property of Borrower which is assigned or hereafter is assigned to Bank as security or in which Bank now has or hereafter acquires a security interest hereunder (including without limitation, the Accounts), or pursuant to the terms of the General Security Agreement, the IP Security Agreement or otherwise. "CONTINGENT OBLIGATION" means, as applied to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any indebtedness, lease, dividend, letter of credit or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including, without limitation, any such obligation for which that Person is in effect liable through an agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, capital stock purchases, capital contributions or otherwise), or to maintain the solvency of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation, services or lease regardless of the non-delivery or non-furnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof. The amount of any Contingent Obligation of any Person -16- shall be deemed to be an amount equal to the maximum amount of such Person's liability with respect to the stated or determinable amount of the primary obligation for which such Contingent Obligation is incurred or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder). "ELIGIBLE ACCOUNTS" means such of Borrower's Accounts as Bank in its sole reasonable discretion shall determine are eligible from time to time, provided, however, that in no event shall Eligible Accounts include the following: (1) all Accounts under which payment is not received within the earlier of (a) ninety (90) days from the applicable invoice date or (b) sixty (60) days from the applicable payment due date; (2) all Accounts against which the account debtor or any other Person obligated to make payment thereon asserts any defense, offset, counterclaim or other right to avoid or reduce the liability represented by the Accounts; (3) any Accounts if the account debtor or any other Person liable in connection therewith is insolvent, subject to bankruptcy or receivership proceedings or has made an assignment for the benefit of creditors or whose credit standing is unacceptable to Bank and Bank has so notified Borrower; (4) Accounts with respect to which the account debtor is an officer, director, shareholder, employee or Subsidiary; (5) Accounts due from an account debtor if more than twenty-five percent (25%) of the aggregate amount of Accounts of such account debtor have at that time remained unpaid for more than the earlier of (a) ninety (90) days from the applicable invoice date or (b) sixty (60) days from the applicable payment due date. (6) Accounts with respect to international transactions unless either (a) such Accounts are insured or covered by a letter of credit in a manner and form acceptable to the Bank or (b) Bank shall have otherwise permitted in writing in its sole and absolute direction; (7) salesperson's accounts for promotional purposes; (8) the amount by which the aggregate of all Accounts of an account debtor exceeds twenty percent (20.0%) of the total accounts receivable balance; (9) Accounts where the account debtor is a seller to borrower, to the extent that a potential offset exists; and (10) Accounts where the account debtor is a federal governmental entity, federal agency or instrumentality thereof. "EVENT OF DEFAULT" has the meaning set forth in Section 12. -17- "EXISTING- TERM LOAN MATURITY DATE" has the meaning set forth in Section 1.B. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and Pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as `nay be approved by the significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination. "GENERAL SECURITY AGREEMENT" means that certain General Security Agreement (Tangible and Intangible Personal Property) dated as of December 24, 1997, made by Borrower in favor of Bank. "INDEBTEDNESS" means, as to any Person, without duplication, (a) all indebtedness of such Person for borrowed money, including, without limitation, all of such indebtedness outstanding under this Restated Loan Agreement any of the other Loan Documents, (b) all Capital Lease Obligations of such Person, (c) to the extent of the outstanding indebtedness thereunder, any obligation of such Person representing an extension of credit to such Person, whether or not for borrowed money, (d) any obligation of such Person for the deferred purchase price of Property or services (other than (i) trade or other accounts payable in the ordinary course of business in accordance with customary industry terms and (ii) deferred franchise fees), (e) all Contingent Obligations, (f) any obligation of such Person of the nature described in clauses (a), (b), (c), (d) or (e) above, that is secured by a Lien on assets of such Person and which is non-recourse to the credit of such Person, but only to the extent of the fair market value of the assets so subject to the Lien, (g) obligations of such Person arising under acceptance facilities or under facilities for the discount of accounts receivable of such Person, (h) any obligation of such Person to reimburse the issuer of any letter of credit issued for the account of such Person upon which a draw has been made, and (i) any lease having the effect of indebtedness, whether or not the same shall be treated as such on the balance sheet of Borrower under GAAP. "IP SECURITY AGREEMENT" means that certain Collateral Assignment, Patent Mortgage and Security Agreement dated as of December 24, 1997, made by Borrower in favor of Bank. "LIEN" means any mortgage, pledge, security interest, lien or other charge or encumbrance, including the lien or retained security title of a conditional vendor, upon or with respect to any property or assets. "LOAN ACCOUNT OR LOAN ACCOUNTS" means individually and collectively, the New Term Loan Account and the Existing Term Loan Account. "LOAN DOCUMENTS" means this Restated Loan Agreement, the General Security Agreement, the IP Security Agreement and that certain Agreement to Provide Insurance (Real or Personal Property) dated of even date herewith, each as executed by Borrower in favor of Bank, together with all other document's entered into or delivered pursuant to any of the foregoing, in each case as originally executed or as the same may from time to time be modified, amended, supplemented or restated. -18- "LOANS" means individually and collectively, the New Term Loans and the Existing Term Loans advanced pursuant to Section 1. "MATERIAL ADVERSE EFFECT" means any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect upon the validity or enforceability of any material provision of any Loan Document, (b) is or could reasonably be expected to be material and adverse to the condition (financial or otherwise) or business operations of Borrower, (c) materially impairs or could reasonably be expected to materially impair the ability of Borrower, to perform its material Obligations, (d) materially impairs or could reasonably be expected to materially impair the value or priority of Bank's security interest in any Collateral or (e) materially impairs or could reasonably be expected to materially impair the ability of Bank to enforce any of its legal remedies pursuant to the Loan Documents. "NEW TERM LOAN MATURITY DATE" has the meaning set forth in Section 1.A. "PERMITTED INDEBTEDNESS" means the following: (1) indebtedness of Borrower or Indebtedness and Contingent Obligations of its Subsidiaries in favor of Bank arising under this Restated Loan Agreement and the other Loan Documents; (2) the existing Indebtedness and Contingent Obligations disclosed on Schedule I attached hereto and incorporated herein by this reference; provided that the principal amount thereof is not increased and the terms thereof are not modified to impose more burdensome terms upon Borrower or any of its Subsidiaries; (3) the Subordinated Debt; (4) extensions, renewals or refinancings of Indebtedness permitted under this Restated Loan Agreement, other than clause (3) immediately above; (5) accrued dividends on the preferred stock of Borrower; (6) interest rate and currency hedging agreements; (7) guaranties of any Subsidiary's suppliers in connection with the purchase of supplies in the ordinary course of business; (8) guaranties of lease obligations incurred in the ordinary course of business and to the extent otherwise permitted hereunder; (9) Contingent Obligations constituting Permitted Liens; and (10) the indebtedness referred to in clause (3)(a) of the definition of Permitted Liens. -19- "PERMITTED LIENS" means the following: (1) liens and security interests existing as of this date and disclosed in Schedule 2 attached hereto and incorporated herein by this reference; (2) liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings; (3) liens and security interests (a) upon or in any equipment acquired or held by Borrower to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition of such equipment and in an amount not greater than the purchase price thereof or (b) existing on such equipment at the time of its acquisition, provided that the lien and security interest is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment; (4) liens consisting of leases or subleases and licenses and sublicenses granted to others in the ordinary course of Borrower's business not interfering in any material respect with the business of Borrower and any interest or title of a lessor or licensor under any lease or license, as applicable; (5) liens securing claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons or entities imposed without action of such parties, provided that the payment thereof is not yet required; (6) liens incurred or deposits made in the ordinary course of Borrower's business in connection with worker's compensation, unemployment insurance, social security and other like laws; (7) liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default; (8) easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances affecting real property not interfering in any material respect with the ordinary conduct of Borrower's business; (9) liens in favor of customs and revenue authorities arising, as a matter of law to secure payment of customs duties in connection with the importation of goods; (10) liens that are not prior to Bank's security interest which constitute rights of set-off of a customary nature; (11) any interest or title of a lessor in equipment subject to any Capitalized Lease otherwise permitted hereunder, and (12) any liens arising from the filing of any financial statements relating to true leases otherwise permitted hereunder. -20- "PERSON" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, limited liability company, institution, public benefit corporation, firm, joint stock company, estate, entity or governmental agency. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, whether tangible or intangible. "SUBORDINATED DEBT" means indebtedness of Borrower, the repayment of principal and interest of which is fully subordinated in time and right of payment to the Loans, and has been approved in Bank's sole and absolute discretion and in writing. "YEAR 2000 COMPLIANT" means, in regard to Borrower or any Person, that all software, hardware, firmware, equipment, goods or systems utilized by or material to the business operations or financial condition of Borrower or such Person, will properly perform date sensitive functions before, during and after the year 2000. "YEAR 2000 PROBLEM" means the risk that any computer applications used by Borrower and its Subsidiaries may be unable to recognize and properly perform date-sensitive functions involving certain dates prior to and any date on or after December 31, 1999. -21- EX-10.7 10 SUBLEASE EXHIBIT 10.7 THIS SUBLEASE BETWEEN AMPEX CORPORATION AND FOGDOG, INC. This Sublease, as of the Effective Date defined below, is entered into by and between Ampex Corporation and Fogdog, Inc., on the following terms and conditions: 1. DEFINITIONS: The following terms, when capitalized, shall have the meanings set forth in this Section: 1.1 "Building" and/or "Premises" shall refer to the structure located at 500 Broadway, Redwood City, California 94063, together with the Building Common Areas and surrounding parking, as provided in Section 17 below. 1.2 "Building Common Areas" shall mean the Building's Elevator (Room 113 and 107), Lobby (Room 101), Main Electrical Closet Room 108, Fire Sprinkler Riser Room 111, Corridor 126, Conference Room 127, Lunch Room 136, Training Conference Room 137a and Training Conference Room 137b. All Room numbers refer to the numbers assigned to the various rooms on the space plan for the Building, which is attached hereto as Exhibit A, Subject to the provisions of Section 19 hereof, Sublessee shall have the exclusive use of the Building Common Area described as Conference Room 127 during the term of the Sublease and any extensions. 1.3 "Consent" shall mean the Consent to Sublease, which sets forth the terms and conditions upon which Lessor has granted his consent to this Sublease. The Consent was executed by the Lessor, Sublessor, and Sublessee, and is attached hereto as Exhibit "B," 1.4 "Effective Date" shall mean July ___, 1999. 1.5 "Exhibit(s)" shall mean the documents expressly referenced in this Sublease, copies of which have been attached hereto and are incorporated by this reference. 1.6 "Lessor" and/or "Landlord' shall refer to Martin/Campus Associates No. 6, L.P. the successor in interest to Martin/Campus Associates, L.P. 1.7 "Master Lease" shall mean the Lease (Single-Tenant Building on Multi- Building Project) by and between Martin/Campus Associates, L.P. and Ampex Corporation, dated January 19, 1996, as modified by the First Amendment to Lease between Martin/Campus Associates No. 6, L.P. and Ampex Corporation, Dated September 10, 1998. A copy of the Master Lease is attached hereto as Exhibit "C." 1.8 "Occupancy Date" shall be August 1, 1999. 1.9 "Sublease" shall mean this agreement, together with all the exhibits and attachments referenced herein, which are incorporated by this reference. 1.10 "Subleased Premises" shall consist of approximately 31,987plus/or minus square feet (the initial Premises to be 27,867plus/or minus square feet for months 1 - 12 with a phase-in to 31,987 square feet beginning on the 13th month of the Sublease term), located on the second floor of the Building, together with the Building Common Areas and Parking as provided herein. 1.11 "Sublease Rent" shall mean the money to be paid by Sublessee to Sublessor during the Term, and, unless separately noted, shall include both the "Sublease Monthly Base Rent" and the "NNN" expenses, as set forth in Section 4. 1.12 "Sublease Term" shall be the duration of this Sublease, as defined in Section 3 and, where applicable, shall include both the "Initial Term and the "Extended Term" as those terms are defined in Section 3. 1.13 "Sublessee" shall mean Fogdog, Inc., a California corporation with its primary place of business at 3031 Tisch Way, 100 Plaza East, San Jose, CA 95128. 1.14 "Sublessor," "Tenant" and/or "Lessee" shall mean Ampex Corporation, a Delaware corporation with its primary place of business at 500 Broadway, Redwood City., CA 94063. 2. SUBLEASE TERMS AND CONDITIONS 2.1 Sublessor leases to Sublessee and Sublessee leases from Sublessor the Subleased Premises upon all of the terms, covenants and conditions contained in this Sublease as of the Effective Date. 2.2. Except as provided in this Section 2, this Sublease is subject to the terms and conditions of the Master Lease and the Consent. 2.3 Sublessee hereby assumes and agrees to be bound by and perform all of the terms, conditions, covenants, and obligations of Lessee under the Master Lease to the extent said obligations apply to the Subleased Premises and Sublessee's use of the Building Common Areas, except as specifically set forth herein. 2.4 Sublessor hereby agrees to cause Lessor, under the Master Lease, to perform all of the obligations of Lessor thereunder to the extent said obligations apply to the Subleased Premises and Sublessee's use of the common areas. 2.5 Except to the extent waived or consented to in writing by the other party or parties hereto who are affected thereby, neither of the parties hereto shall, by renegotiation of the Master Lease, assignment, subletting, default or any other voluntary action, avoid or seek to avoid the observance or performance of the terms to be observed or performed hereunder by such party but, will at all times, in good faith assist in carrying out all the terms of this Sublease and in taking all such action as may be necessary or appropriate to protect the rights of the other parties hereto who are affected thereby against impairment. Nothing contained in this Section 2 or elsewhere in this Sublease shall prevent or prohibit Sublessor from assigning its interest in this Sublease or subletting the remainder of the Premises to any other third party, subject to the rights of Sublessee in the Building Common Areas and parking provided in this Sublease, and so long as such assignment or subletting is not in conflict with the terms of this Sublease. 2 2.6 The following paragraphs of the Master Lease are modified, superseded or are not applicable to this Sublease as noted: Section 1 - Parties (the parties are as set forth above); Section 2 - Premises (Sublessee's obligations shall only run to the Subleased Premises); Section 3 - Definitions (Terms specific to the Sublease shall have the meanings provided in this Sublease. Any other capitalized terms shall have the meaning set forth in the Master Lease); Section 4 - Lease Term (the Sublease has a separately defined Sublease Term, but, in no event can it extend beyond the Term of the Master Lease); Section 5 - Rent (the calculation of the Sublease Rent is defined in Section 4 below); Section 7 - Security Deposit (Sublessee's security deposit for the Sublease shall be as provided in Section 5 below); Section 9 - Tenant Improvements (not applicable to this Sublease); Section 10 - Condition of the Premises (in the first sentence, replace the phrase 44 "completion of the Tenant Improvements" with the phrase "the Occupancy Date," and the fourth, fifth, sixth and seventh sentences are not applicable); Section 35 - Brokers (this provision is superseded by Section 9 below); Section 37 - Modification for Lender (this provision is not applicable); Section 38 - Parking (this provision is modified by the Section 17 below); and Section 39 - Option to Purchase (this provision is not applicable). 2.7. Condition of Premises: Upon the Occupancy Date, Sublessor shall deliver the Subleased Premises with the roof, HVAC system, electrical, plumbing and lighting in good working condition. Attached hereto as Exhibit D is a "Summary Of Building Services," which sets forth the parties agreement regarding the various Building services and features that will either be available to Sublessee or shared by the parties, together with the division of the responsibilities and expenses for those services and features. 2.8 Sublessee shall be responsible for making and paying for any and all improvements to the Subleased Premises, subject to the prior written approvals of both the Landlord and Sublessor. Sublessor's and Landlord's approval to such improvements shall not be unreasonably withheld. The requirement of consent shall be subject to and in accordance with the provisions of Section 13 of the Master Lease. 2.9. Right of First Refusal: 2.9.1 Sublessee shall have a right of first refusal to sublease additional space that becomes available in the Building, subject to the following terms and conditions, if at any time during the Sublease Term, Sublessor receives an offer or proposal from a third party (which offer or proposal is acceptable to Sublessor) to sublease available space in the Building, then Sublessor shall give Sublessee written notice of the basic business terms and conditions upon which such third party is willing to sublease such available space ("Offer Notice"). Sublessee shall have a right of first refusal to sublease such available space (which is the subject of the 3 Offer Notice) on either the same terms and conditions as set forth in the Offer Notice, or the terms and conditions of this Agreement, whichever are more favorable to Sublessee in its sole discretion. Sublessee must exercise such right of first refusal, if at all, by giving Sublessor written notice of such exercise within five (5) business days after the date of Sublessor's delivery of the Offer Notice to Sublessee. If Sublessee gives Sublessor such written notice of its exercise of the right of first refusal within such five (5) business day period, then Sublessor shall prepare a sublease agreement or sublease amendment, as determined by Sublessor in its sole discretion, that incorporates or addresses the terms and conditions of the Offer Notice therein. If Sublessee does not give Sublessor such written notice of its exercise of the right of first refusal within the five (5) business day period referred to above, or if, after timely exercising such right of first refusal, Sublessor and Sublessee do not execute a written sublease agreement or sublease amendment, as determined by Sublessor in its sole discretion, covering the terms and conditions set forth in the Offer Notice within five (5) business days following the date Sublessor presents a draft of such sublease agreement or sublease amendment to Sublessee, then Sublessee shall be deemed to have waived its right of first refusal to sublease such available space (which was the subject of the Offer Notice) and Sublessor may sublease such available space to a third party upon any terms and conditions desired by Sublessor (whether the same or different than set forth in the Offer Notice), provided, however, Sublessor may not sublease such available space to a third party at a rental rate less than ninety percent (90%) of the rental rate for such available space set forth in the Offer Notice without first re-offering such space to Sublessee in accordance with the terms of this Paragraph. If Sublessor subleases the available space to a third party after Sublessee has rejected Sublessor's offer as stated herein (or after Sublessee and Sublessor have been unable to enter into a sublease agreement or sublease amendment within the time period set forth above covering such available space), then such third party shall accept its interest in the available space free and clear of Sublessee's rights to sublease the same. Upon the sublease of such additional space to a third party, Sublessee shall execute and deliver to Sublessor and/or such prospective third party tenant, any and all documents and instruments reasonably requested by Sublessor and/or such third party tenant terminating Sublessee's right to sublease such available space during such prospective tenant's tenancy. If Sublessee refuses to comply with the provisions of the immediately preceding sentence, then it shall constitute a material default by Sublessee under this Sublease. 2.9.2 Anything in this Paragraph 2.9 to the contrary notwithstanding: a. Sublessee's right to sublease, assign or transfer space pursuant to this agreement or to exercise its right of first refusal is subject to the Landlord's right of consent under Section 25 of the Master Lease, and any sublease, assignment, transfer or exercise of the right of first refusal without Landlord's consent shall be null and void; b. If Sublessor determines to extend or renew any then existing sublease of space in the Building, Sublessor shall not be obligated hereunder to offer to sublease such space to Sublessee prior to extending or renewing the term of the then existing sublease; and c. Sublessor shall not be obligated hereunder to offer to sublease such space to Sublessee prior to assigning, transferring or subletting such space to an Affiliate of Sublessor as provided in Section 25.E of the Master Lease. 4 2.9.3 The right of first refusal described in Paragraph 2.9.1 may be transferred conveyed or assigned by Sublessee to a wholly owned subsidiary, or parent corporation, or successor corporation of Sublessee. Otherwise, the right of first refusal may be conveyed, transferred or assigned to a third party only in connection with an assignment or sublease of the whole of the Subleased Premises for the entire remainder of the Sublease Term. Any attempted transfer, assignment or conveyance of such right of first refusal in contravention of this provision shall be void and of no force and effect. 2.9.4 Sublessor shall have no obligation to offer to sublease available space to Sublessee pursuant to the terms of this Paragraph 2.9 and Sublessee shall have no rights under this Paragraph 2.9 if Sublessee is in default under this Sublease, and if Sublessor enters into a sublease of such available space with a third party during such period of Sublessee's default, the tenant under such sublease shall take possession of such available space free and clear of Sublessee's rights under this Paragraph 2.9. 3. SUBLEASE TERM: 3.1 Sublease Term: The Sublease Term shall be for the period commencing on August 1, 1999 (the originally scheduled Occupancy Date), and continuing through July 31, 2004 (the "Initial Term"). In no event shall the Sublease Term extend beyond the Term of the Master Lease. 3.2 Delivery of Possession: Sublessor shall deliver substantial possession of the Subleased Premises to Sublessee on or before August 1, 1999, and shall deliver full possession of the premises and all services as provided in this Sublease within ten days thereafter. In reliance on delivery of possession on such date, Sublessee has made or is making arrangements to vacate its existing office space and to obligate itself to deliver possession of those premises to another on or about August 1, 1999. If Sublessee, with Sublessor's consent, takes possession prior to commencement of the Sublease Term, then Sublessee shall do so subject to all the covenants and conditions hereof and shall pay Sublease Rent for the period ending with the commencement of the term at the same rental as that prescribed for the first month of the term, prorated at the rate of 1/30th thereof per day. 3.3. Option to Extend. a. Grant of Option. Sublessee shall have the option to extend the Sublease Term for the remainder of the Master Lease term, which expires on September 23, 2008 (the "Extended Term"), provided that both at the date of exercise and at the date of commencement of the Extended Term, Subtenant is not in default under this Sublease (after taking into account any applicable notice and cure periods). b. Exercise of Option. If Sublessee decides to extend the Sublease for the Extended Term, then Sublessee shall give written notice to Sublessor of its election to extend not less than nine (9) months prior to the expiration of the Initial Tenn. Sublessee's failure to give timely notice to Sublessor of Sublessee's election to extend shall be deemed a waiver of Sublessee's right to extend. The terms and conditions applicable to the Extended Term shall be the same terms and conditions contained in this Sublease except that Sublessee shall not be entitled to any 5 further option to extend. The Base Rent for the Extended Term shall be as determined in accordance with 3.3.c. c. Determination of Sublease Base Rent During The Extended Term. Sublessor shall provide Sublessee with the proposed fair market rental value at least six (6) months prior to the expiration of the Initial Term. Sublessor and Sublessee shall have thirty (30) days after Sublessor provides the proposed fair market rental value in which to agree on the Sublease Base Rent during the Extended Term, which shall be the fair market rental value of the Premises during the Extended Term. The fair market rental value of the Premises during the Extended Term shall be based on the uses of the Premises permitted under this Sublease, the quality, size, design and location of the Premises, and the rental value for sublease renewals or extensions of comparable size, quality and location, but in no event shall it be less than the scheduled Base Rent for the last month of the Initial Term. If Sublessor and Sublessee cannot agree on the Base Rent for the Extended Term during the thirty (30) day period, Sublessee's Option to Renew shall expire. 4. SUBLEASE RENT: 4.1 Upon execution of this Agreement, Sublessee shall pay to Sublessor as Sublease Rent for the Subleased Premises the sum of Sixty-Nine Thousand Six Hundred Sixty Seven and 50/100 Dollars ($69,667.50), representing the first month's Base Rent, plus [TBD] Dollars ($.,) for all NNN expenses for the first month (as defined below) to be billed on or after the Occupancy Date. All payments required by this Sublease shall be made in U.S. Dollars. Thereafter, Sublessee shall pay "Sublease Base Monthly Rent" in accordance with the following schedule:
Months 27,867 Square Feet (Finished) 4,120 Square Feet (Shell) Sublease Base Amount per Square Foot + NNN Amount per Square Foot + NNN Monthly Rent + NNN 1-12 $2.50 $69,667.60 13-24 $2.60 $2.10 $81,106.20 25-36 $2.70 $2.20 $84,304.90 37-48 $2.80 $2.30 $87,503.60 49-60 $2.90 $2.40 $90,702.30
In addition to the Base Monthly Rent, because this is a "triple-net" sublease ("NNN"), Sublessee shall pay to Sublessor monthly in proportion to the pro rata share of the Subleased Premises to the Premises (Year I = 46.63%; Year 2-5 = 53.53%), and to the extent required to be paid on such Subleased Premises by Sublessor, (i) the property taxes on the Sublease Premises, (ii) the maintenance of the Sublease Premises and the Building Common Area, and the expenses resulting therefrom, (iii) for procuring, maintaining and paying for insurance on the Sublease Premises as provided in the Master Lease; (iv) for the one (1%) percent management fee charged by Lessor. For those NNN items paid by Sublessor, Sublessor shall calculate the amount due from Sublessee based on the square footage occupied by Sublessee and invoice Sublessee. In addition, Sublessee shall pay Sublessor for the additional shared Building Services not referenced above on the basis set forth in Exhibit D, and for Utilities and Services as provided in Section 14. Sublessee shall pay all invoices Net 30 days from receipt. Sublessee shall have the right to audit the books and records of Sublessor and may request that Sublessor undertake a similar audit of the books and records of Landlord on reasonable notice not more than once per twelve month period concerning the basis and accuracy of any such charges. 6 4.2 The Sublease Rent shall be paid monthly, in advance of the first calendar day of said month, without deductions, offset, prior notice or demand. If the commencement date or the termination date of the Sublease occurs on a date other than the first day or the last day, respectively, of a calendar month, then the Sublease Rent for such partial month shall be prorated based on a thirty day month and the prorated rent shall be payable on the Sublease commencement date or on the first day of the calendar month in which the Sublease termination date occurs, respectively. 5. SECURITY DEPOSIT: Upon execution of this Agreement, Sublessee shall pay to Sublessor Three Hundred Thousand and 00/100 Dollars ($300,000.00) as a noninterest bearing Security Deposit. In the event Sublessee has performed all of the terms and conditions of this Sublease during the Sublease Term, Sublessor shall return to Sublessee, within ten (10) days after Sublessee has vacated the Subleased Premises, the Security Deposit less any sums due and owing to Sublessor. At Sublessee's option, the Security Deposit may consist of the following: (i) payment of One Hundred Fifty Thousand Dollars ($150,000.00) to Sublessor by certified check as a noninterest beating Security Deposit (the "Cash Deposit"), and (ii) an irrevocable standby letter of credit ("L-C") upon terms reasonably satisfactory to Sublessor in the additional amount of One Hundred Fifty Thousand Dollars ($150,000.00), At any time following the commencement of the twenty-fifth (25th) calendar month of the Term, Sublessor shall refund to Sublessee Fifty Thousand Dollars ($50,000) of the Cash Deposit, provided that the following conditions have been met: a. Sublessee is neither in default nor has it ever been in default under the Sublease; and b. Sublessee's consolidated financial statements for the preceding year, using Generally Accepted Accounting Principles (GAAP), demonstrate an operating profit before taxes; and c. Sublessee has made a written request for such a refund, supported by the necessary documentation described above; and d. Sublessee shall only make one such request in any twelve-month period. 6. RIGHTS OF ACCESS AND USE: 6.1 Sublessee shall use the Subleased Premises for general offices, administrative, marketing and sale, receiving, storage, distribution, shipping, internet software development and e-commerce and any other legal uses permitted in the Master Lease. Sublessor and Master Lessor must consent in writing to other uses prior to the commencement thereof. 6.2 Both Lessor and Sublessor shall have reasonable access to the Subleased Premises as provided in Section 17 and 19 of the Master Lease, and Sublessee shall provide Lessor and Sublessor with copies of all keys or codes for security systems installed by Sublessee. 7 7. NOTICES: All notices, demands, consents and approvals which may or are required to be given by either party to the other hereunder shall be given in the manner provided in the Master Lease at the addresses shown below. Sublessor shall notify Sublessee of any notice of default under the Master Lease, or of any other event of which Sublessor has actual knowledge which will impair Sublessee's ability to conduct its normal business at the Subleased Premises, as soon as reasonably practicable following Sublessor's receipt of notice from the Lessor or actual knowledge of such impairment. If Sublessor elects to terminate the Master Lease, Sublessor shall so notify Sublessee by giving at least 30 days notice prior to the effective date of such termination. Sublessor's Address: Sublessee's Address: Ampex Corporation Fogdog, Inc. 500 Broadway 500 Broadway MS 1203 Redwood City, CA 94063 Redwood City, CA 94063 Attn: Marcy Von Lossberg Attn: Richard Jacquet Chief Financial Officer Phone Number: (415) 367-3520 Phone Number: (408) 615-3522 cc: General Counsel cc: General Counsel Ampex Corporation Fogdog, Inc. 500 Broadway, MS I 10 1 500 Broadway Redwood City, CA 94063 Redwood City, CA 94063 8. BROKER FEE: Upon execution of the Sublease, Sublessor shall pay Cornish & Carey Commercial, a licensed real estate broker, the fees set forth in a separate written agreement between Sublessor and Broker for brokerage services rendered by Broker to Sublessor in this transaction. 9. BROKER REPRESENTATION: The only Brokers involved in this Sublease are Cornish & Carey Commercial, representing the Sublessor and Sublessee. Cornish & Carey Commercial represents both parties and the Sublessor and Sublessee consent to such dual representation and waive any conflict of interest arising out of such dual agency. 10. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT: Sublessee shall be responsible for the installation and cost of any and all improvements, alterations or other work required on or to the Subleased Premises or to any other portion of the Building of which the Subleased Premises are a part, required or reasonably necessary solely because of: (1) Sublessee's use of the Subleased Premises or any portion thereof; (2) the use by any successor sublessee by reason of assignment or sublease by Sublessee; or (3) both, including any improvements, alterations or other work required under the Americans With Disabilities Act of 1990. In no event shall Sublessee be required to make any such improvements, alterations or other work the cause of which preceded Sublessee's occupancy of the Subleased Premises, or thereafter which is not directly caused by or resulting from either a change in law after the Occupancy Date or Sublessee's use of the Subleased Premises or that of its successors, assigns, or sublessees. Compliance with the provisions of this Section 12 shall be a condition of 8 Sublessor granting its consent to any assignment or sublease of all or a portion of this Sublease and the Subleased Premises described in this Sublease. 11. COMPLIANCE WITH NONDISCRIMINATION REGULATIONS: It is understood that it is illegal for either party to discriminate in the operation of their businesses in the Building or in any sublease the Subleased Premises or in the assignment, surrender or sale of the Subleased Premises to any person because of race, color, religion, national origin, sex, sexual orientation, marital status or disability. 12. TOXIC CONTAMINATION DISCLOSURE: Sublessor and Sublessee each acknowledge that they have been advised that numerous federal, state, and/or local laws, ordinances and regulations (Laws) affect the existence and removal, storage, disposal, leakage of and contamination by materials designated as hazardous or toxic (Hazardous Materials). Many materials, some utilized in everyday business activities and property maintenance, are designated as hazardous or toxic. Sublessor and Sublessee each acknowledge that they have reviewed and understand the provisions of Section 11 of the Master Lease. Sublessee represents and warrants as follows: (i) that Sublessee does not use any Hazardous Materials other than routine quantities of ordinary office supplies in the operation of its business, (ii) that Sublessee shall provide Lessor and Sublessor with prior written notice prior to bringing any Hazardous Materials on to the Subleased Premises, (iii) Sublessee shall, after the Occupancy date, be responsible for the safe storage and handling of any Hazardous Material which it brings upon or permits to be brought upon the Subleased Premises, and (iv) Sublessee shall be responsible for any Remediation efforts that may be required because of Sublessee's occupancy of the Subleased Premises. Nothing herein shall be construed to impose upon Sublessee any obligation to perform any remediation or clean-up of toxic waste or materials unless the same was caused or required solely by materials used by or permitted to be brought upon the Premises by Sublessee. Sublessor represents that it is informed and believes that there are no known Remediation issues concerning Hazardous Materials on or about the Premises, except as follows: a. The California Regional Water Quality Control Board noted in a November 16, 1995 Letter (the "Clearance Letter") that "chlorinated VOCs have migrated beneath the site from one or more off-site sources," but concluded both that these plumes were not attributable to site operations by Sublessor and that no further actions by Sublessor were required. A copy of the Clearance Letter is attached hereto as Exhibit E. b. Sublessor is currently storing four low-level radioactive sources on the Premises that were used in Sublessor's tape manufacturing business. Sublessor makes the following representations regarding these sources: (i) that these source have been packaged and are being stored in compliance with all current governmental regulations, (ii) that Sublessor plans to ship these sources to a permanent disposal facility as soon as the appropriate government permits have been issued, and (iii) that Sublessor is solely responsible for the storage and disposal of these sources. 9 Sublessee represents that it has provided true and correct information on Landlord's "Pre-Lease Hazardous Materials Questionnaire, a copy of which is attached hereto as Exhibit F and is incorporated by this reference. 13. RENT ABATEMENT AND DAMAGES TO PERSONAL PROPERTY: If Sublessor, pursuant to the Master Lease, is entitled to and receives a rent abatement, then, to the extent such rent abatement affects the Subleased Premises, Sublessee shall be entitled to a rent abatement by Sublessor in an amount that the net rentable area of the Subleased Premises bears to the total net rentable area of the Master Lease, and only to the extent any such abatement applies to the Sublease Premises. In addition, if Sublessor is paid or credited any amounts pursuant to the Master Lease for damage to personal property, then Sublessor shall pass through a portion of such credit based on the same formula set forth above. However, the amount of such credit to Sublessee shall, in no event, exceed the amount of damage actually incurred by Sublessee. 14. UTILITIES AND SERVICES: Sublessee shall be responsible for providing and paying for all utilities and services for the Subleased Premises. Sublessor shall continue to be the billing customer for the Building, and will occupy plus/or minus 7,247 square feet (includes the legal offices, lab and common area on the first floor). Sublessor shall deduct from the monthly PG&E and water bills a flat fee of $1,431.00 per month (based on its present use of and charges for the utilities and services) (the "Flat Fee") and pass through the remainder of the monthly charges to Sublessee for payment. Sublessor's base year utility charges shall increase in proportion to any increases passed-through by the utility companies. If there should be a substantial change in the occupants of the building, or if Room 124 should ever be built-out, or if there is any valid, additional assignment, sublease or transfer of any portion of the Building, then the parties shall renegotiate in good faith the arrangements for sharing of the expenses of the utilities and services. The Flat Fee is based on the actual bills paid by Sublessor for the entire Premises from November 1998 through April 1999. Sublessor shall recalculate the Flat Fee as of the Occupancy Date, taking into account all the monthly charges incurred prior to the Occupancy Date, and the adjusted Flat Fee shall apply for the first 6 months of the Sublease Term. Sublessor and Sublessee agree to reevaluate in good faith the apportionment of the charges for all utilities and services after six months of occupancy, after twelve months of occupancy, and every twelve months thereafter. 15. SIGNAGE: Sublessee shall be allowed to install, at its own expense, exterior signage solely on to the west and north sides of the Building (facing Highway 101), subject to written consent and approvals from Lessor, Sublessor and the City of Redwood City. In addition, with the prior written approval of both Sublessor and Lessor, Sublessee shall also be given a prorata portion of the monument sign in front of the main lobby. Sublessee shall also be allowed to place an interior sign in the Lobby of the Building at a location to be mutually determined in writing prior to the Occupancy Date. Sublessor shall not unreasonably withhold the approvals required by this Section. 16. ASSIGNMENT AND SUBLEASING: Any assignment and subleasing of the Premises by Sublessee shall be subject to the provisions of the Master Lease ("Sublet"), subject to the prior written approval of both Lessor and Sublessor, 10 and such right shall be personal to Sublessee. If Sublessee should desire to assign its entire interest in the Sublease Premises to a third party, then Sublessee shall give Sublessor notice in writing of its desire to do so. Within thirty (30) days from receipt of that notice, Sublessor may elect to terminate the Sublease. In such event, the parties shall negotiate in good faith the date of such termination, and Sublessee shall be released from all further liability under either the Master Lease or the Sublease (except to the extent that any provisions thereof expressly survive termination). If Lessor and Sublessor consent to the Sublet, Sublessee may thereafter enter into a valid Sublet of the Sublease Premises or a portion thereof, upon the terms and conditions and with the proposed Subtenant set forth in the information furnished by Sublessee to Lessor and Sublessor, subject, however, to the condition that fifty (50%) of any excess of the Subrent over the Sublease Rent required to be paid by Sublessee under this Sublease, less reasonable attorneys' fees, leasing commissions, tenant improvements and other reasonable subletting costs paid by Tenant on the Sublet, shall be paid to Sublessor. 17. PARKING: Sublessee shall be entitled to fifty (50%) percent of the parking spaces allocated to Sublessor for the Building. 18. ESTOPPEL CERTIFICATES: Subtenant shall, upon written request from either Sublessor or Lessor, provide the estoppel certificates and financial statement required by Section 30 of the Master Lease, upon the terms and conditions provided therein. The failure to provide such documents in a timely manner shall have the consequences set forth in the Master Lease. 19. RESERVATION OF RIGHTS BY SUBLESSOR: Notwithstanding anything else in this Agreement, Sublessor may by written notice to Sublessee, elect in its sole discretion to increase or decrease the Building Common Area from time to time during the Term for any reason whatsoever, so long as Sublessor does not unreasonably interfere with Sublessee's ingress to or egress from the Building. If Sublessor should remove the Lunch Room 136 from the Common Area, then Sublessor shall provide sixty (60) days prior written notice, and shall provide Sublessee with a onetime $10,000 rent credit. 11 20. SUBORDINATION AND ATTORNMENT Sublessor shall provide a copy of any request received by Sublessor pursuant to Section 27 of the Master Lease requiring Sublessor to execute an agreement providing for the subordination of the Master Lease. Sublessee acknowledges that Sublessor has executed a certain Subordination, Nondisturbance and Attornment Agreement dated December 16, 1997 whereby Sublessor has agreed to subordinate the Master Lease to the lien of the deed of trust granted in favor of Guaranty Federal Bank. Sublessor: Ampex Corporation By: /s/ Richard J. Jacquet Date: ------------------------------------------------- ------------------ Richard J. Jacquet, Vice President Administration Sublessee: Fogdog, Inc. By: /s/ Marcy von Lossberg Date: ------------------------------------------------- ------------------ Marcy Von Lossberg, CIO 12 EXHIBIT C -- PART ONE LEASE ----- (SINGLE-TENANT BUILDING ON MULTI-BUILDING PROJECT) by and between MARTIN/CAMPUS ASSOCIATES, L.P. ("Landlord") and AMPEX CORPORATION ("Tenant") For the approximately 60,000 SF Premises to be constructed on Broadway, in Redwood City, CA LEASE SUMMARY ------------- Lease Date: January 19, 1996 Landlord: Martin/Campus Associates, L.P. Address of Landlord: c/o The Martin Group 100 Bush Street, 26th Floor San Francisco, CA 94104 Tenant: Ampex Corporation Address of Tenant: 401 Broadway, MS 1-40 Redwood City, CA 94063 Contact: John Dods Director of Facilities & Administration Telephone: (415)367-2115 Building Location: Broadway, Redwood City, CA Approximate Building Area: 60,000 square feet Term: Ten (10) years Monthly Rent (net): (see paragraph 5.A.) Security Deposit: (see paragraph 7) TABLE OF CONTENTS ----------------- 1. Parties 1 2. Premises 1 3. Definitions 3 5. Rent 5 6. Late payment Charges 6 7. Security Deposit 7 8. Holding Over 9 9. Tenant Improvements 9 10. Condition of Premises 9 11. Use of the Premises 10 12. Quiet Enjoyment 13 13. Alterations 14 14. Surrender of the Premises 14 15. Real Property Taxes 15 16. Utilities and Services 16 17. Repair and Maintenance 16 18. Liens 18 19. Landlord's Right to Enter the Premises 18 20. Signs 18 21. Insurance 19 22. Waiver of Subrogation 22 23. Damage or Destruction 22 24. Condemnation 24 25. Assignment and Subletting 25 26. Default 26 27. Subordination 28 28. Notices 29 29. Attorneys' Fees 29 30. Estoppel Certificates 29 31. Transfer of the Premises by Landlord 30 32. Landlord's Right to Perform Tenant's Covenants 30 33. Tenant's Remedy 30 34. Mortgagee Protection 31 35. Brokers 31 36. Acceptance 31 37. Modifications for Lender 31 38. Parking 31 39. Option to purchase 32 40. General 33 TABLE OF EXHIBITS ----------------- EXHIBIT A The Premises and the Property EXHIBIT A-1 The Project EXHIBIT B Work Letter Agreement EXHIBIT C Commencement Date Memorandum EXHIBIT D Financial Tests Calculations EXHIBIT E Form of Letter of Credit Form of Confidentiality Agreement EXHIBIT F LEASE ----- (SINGLE-TENANT BUILDING ON MULTI-BUILDING PROJECT) 1. Parties. ------- THIS LEASE (the "Lease") dated January 19, 1996, is entered into by and between Martin/Campus Associates, L.P., a California limited partnership ("Landlord), whose address is c/o The Martin Group, 100 Bush Street, San Francisco, CA 94104, and Ampex Corporation, a Delaware corporation ("Tenant"), whose address is 401 Broadway, Redwood City, CA 94063. 2. Premises. -------- A. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord that certain building to be constructed by Landlord, consisting of approximately 60,000 square feet (the "Building'"), in the City of Redwood City, San Mateo County, California, at the approximate location shown on EXHIBIT A, --------- together with the exclusive use of the Outside Area described in paragraph 3.H., as more particularly shown on EXHIBIT A (collectively, the "Premises'). The --------- exact location of the Building shall be agreed upon by Landlord and Tenant within thirty (30) days after the date that the conditions set forth in paragraph 2.C. have been satisfied. If, however, Landlord constructs any buildings on the Property for occupancy by any tenant(s) other than Tenant, upon completion of such building(s) the Outside Area shall be converted to common area, available for the non-exclusive use by Tenant and any other tenant(s) of the Property. In such event, Landlord shall have exclusive control of the Outside Area and may at any time temporarily close any part thereof, exclude and restrain anyone from any part thereof, except the bona fide customers, employees and invitees of Tenant who use the Outside Area in accordance with the reasonable rules and regulations as Landlord may from time to time promulgate, and may, at Landlord's election, renovate, reconstruct and/or improve the Outside Area and change the configuration or location of the Outside Area. In exercising any such rights, Landlord shall not unreasonably disrupt Tenant's business. As used herein, the term "Property" shall mean the real property shown on EXHIBIT A consisting of approximately nine and 31/100ths (9.3 1) acres, --------- upon which are located, as of the date of this Lease, three (3) buildings consisting of a total building area of approximately 132,150 square feet. B. Landlord shall notify Tenant of Landlord's intent to proceed with the preparation of plans and specifications for the Building Shell no sooner than January 1, 1997 but no later than forty-eight (48) months from the date that close of escrow occurs for the purchase of the Project (defined in paragraph 3.I.) by Landlord from Tenant ("Close of Escrow"). Subject to satisfaction of the conditions set forth in paragraph 2.C., Tenant may require Landlord to commence preparation of plans and specifications for the Building Shell no sooner than the date the financial conditions set forth in paragraph 7 of the Premises 1 Lease have been satisfied by Tenant but no later than forty- eight (48) months from the Close of Escrow. Within sixty (60) days after the date notice is delivered by Landlord or Tenant as provided herein, Landlord shall provide Tenant with 4 schedule specifying Landlord's projected dates for securing financing, obtaining necessary permits and approvals, preparing plans for the Building Shell and the Tenant Improvements, obtaining construction bids, commencing construction of the Building Shell and the Tenant Improvements, and completing construction of the Building Shell and the Tenant Improvements. The schedule shall provide for commencement of construction of the Building Shell within nine (9) months from the date notice is delivered by Landlord or Tenant as provided herein, and completion of the Building Shell and the Tenant Improvements within twelve (12) months from commencement of construction of the Building Shell, which dates the parties agree shall be subject to extension for delays caused by force majeure. Upon satisfaction of the conditions set forth in paragraphs 2.C.(i) through 2.C.(iv), Landlord shall complete the plans and specifications for the Building Shell and the Tenant Improvements, diligently pursue all necessary building permits for construction, commence construction of the Building Shell and the Tenant Improvements and diligently pursue construction of the Building Shell and the Tenant Improvements to completion. If, however, after notice by Landlord or Tenant as permitted herein, either of the conditions set forth in paragraph 2.C.(i) or 2.C.(ii) are not satisfied by Tenant, this Lease and all obligations of Landlord and Tenant hereunder shall terminate and Landlord shall refund to Tenant the Monthly Rent and the Security Deposit if previously paid to Landlord by Tenant. C. Landlord's obligation to construct the Building shall be subject to the satisfaction of all-the following conditions: (i) Tenant is not in default under the lease between Landlord and Tenant dated January 16, 1996 for the premises located at 1228 Douglas Avenue, 1250 Douglas Avenue and 550 Broadway, Redwood City, California (the "Premises 1 Lease") or under the lease between Landlord and Tenant dated January 16, 1996 for the premises located at 2945 Bay Road, Redwood City, California (the "Premises 2 Lease"), either as of the date that notice is delivered pursuant to paragraph 2.B, or as of the date Landlord is scheduled to commence construction of the Building; (ii) Tenant deposits with Landlord in cash, no later than thirty (30) days after the date that notice is delivered by Landlord or Tenant pursuant to paragraph 2.B., the estimated Monthly Rent due for the first month of the Term plus the estimated Security Deposit required pursuant to paragraph 7, At Tenant's election, the Security Deposit may be delivered to Landlord in the form of an L-C (defined below) provided that the L-C satisfies, the requirements of paragraph 7; (iii) Landlord obtains all necessary permits and approvals from the City of Redwood City and any other governmental agency with jurisdiction on terms and conditions acceptable to Landlord in Landlord's reasonable discretion. Without limiting Landlord's other reasonable grounds for declining to obtain any necessary permits and approvals, it shall be deemed reasonable for Landlord not to obtain permits and approvals because of conditions imposed by the applicable governmental agency which require Landlord to improve or modify property outside of the Premises, to pay any material traffic mitigation fees or pay for any material traffic mitigation measures, or to pay any governmental fees or surcharges not currently in effect and materially in excess of the fees or charges in effect as of the date of this Lease, provided that Tenant may agree to pay any such excess costs, in which case Landlord shall not be permitted to decline to obtain such permits because of such extra costs; and 2 (iv) Landlord obtains one hundred percent (100%) construction financing at commercially viable rates with no requirement for personal or corporate guaranties of any kind; and (v) the Total Development Cost (defined below) shall not exceed $90.00 per square foot (adjusted for inflation based upon increases in the Index from the date of this Lease until the date notice is provided by Landlord or Tenant pursuant to paragraph 2.B.) unless otherwise approved by Tenant in writing, nor shall the Total Development Cost exceed $100.00 per square foot (adjusted for inflation based upon increases in the Index from the date of this Lease until the date notice is provided by Landlord or Tenant pursuant to paragraph 2.B.) unless otherwise approved by Landlord and Tenant in writing. Landlord acknowledges that Tenant has an interest in proceeding to construction as expeditiously as possible and Landlord shall use diligent efforts to satisfy the conditions set forth in paragraphs 2.C.(iii) and 2.C.(iv). 3. Definitions. ----------- The following terms shall have the following meanings in this Lease: A. Alterations. Any alterations, additions or improvements made in, ----------- on or about the Premises after the Commencement Date, including, but not limited to, lighting, heating, ventilating, air conditioning, electrical, hard wall partitioning; drapery and carpentry installations. B. Commencement Date. The Commencement Date of this Lease shall be ----------------- the first day of the Term determined in accordance with paragraph 4. C. HVAC. Heating, ventilating and air conditioning. ---- D. Imputed Rent. The monthly rent due under the Premises I Lease ------------ before, deduction of any improvement credits and/or interest credits to which Tenant may be entitled under paragraph 5.C, of the Premises 1 Lease. E. Interest Rate. Twelve percent (12%) per annum, however, in no ------------- event to exceed the maximum rate of interest permitted by law. F. Landlord's Agents. Landlord's authorized agents, partners, ----------------- subsidiaries, directors, officers, and employees. G. Monthly Rent. The rent payable pursuant to paragraph 5A., as ------------ adjusted from time to time pursuant to the terms of this Lease. H. Outside Area. All areas and facilities within the Property, ------------ exclusive of the Building and the buildings located at 1228 Douglas Avenue, 1250 Douglas Avenue and 550 Broadway, including without limitation, sidewalks, landscaped areas, service areas, trash disposal facilities, and similar areas and facilities, subject to the reasonable rules and regulations 3 and changes therein from time to time promulgated by Landlord governing the use of the Outside Area. I. Project. That certain real property shown on EXHIBIT A-1 ------- ----------- consisting of approximately 32.86 acres, upon which, as of the date of this Lease, are located ten (10) buildings consisting of a total building square footage of approximately 545,658 square feet. J. Real Property Taxes. Any form of assessment, license, fee, rent ------------------- tax, levy, penalty (if a result of Tenant's delinquency), or tax (other than net income, estate, successions inheritance, transfer or franchise taxes), imposed by any authority having the direct or indirect power to tax, or by any city, county, state or federal government or any improvement or other district or division thereof, whether such tax is: (i) determined by the area of the Property or any part thereof or the rent and other sums payable hereunder by Tenant or by other tenants, including, but not limited to, any gross income or excise tax levied by any of the foregoing authorities with respect to receipt of such rent or other sums due under this Lease; (ii) upon any legal or equitable interest of Landlord in the Property or any part thereof; (iii) upon this transaction or any document to which Tenant is a party creating or transferring any interest in the Property; (iv) levied or assessed in lieu of, in substitution for, or in addition to, existing or additional taxes against the Property whether or not now customary or within the contemplation of the parties; or (v) surcharged against the parking area. K. Rent. Monthly Rent defined in paragraph 3.G. plus the Additional ---- Rent defined in paragraph 5.D. L. Security Deposit. That amount paid by Tenant pursuant to ---------------- paragraph 7. M. Sublet. Any transfer, sublet, assignment, license or concession ------ agreement, change of ownership, mortgage, or hypothecation of this Lease or the Tenant's interest in the Lease or in and to all or a portion of the Premises. N. Subrent. Any consideration of any kind received, or to be ------- received, by Tenant from a subtenant if such sums are related to Tenant's interest in, this Lease or in the Premises, including, but not limited to, bonus money and payments (in excess of book value) for Tenant's assets including its trade fixtures, equipment and other personal property, goodwill, general intangibles, and any capital stock or other equity ownership of Tenant. O. Subtenant. The person or entity with whom a Sublet agreement is --------- proposed to be or is made. P. Tenant Improvements. Those certain improvements to the Premises ------------------- to be constructed by Landlord pursuant to EXHIBIT B. --------- Q. Tenant's Personal Property. Tenant's trade fixtures, furniture, -------------------------- equipment and other personal property in the Premises. R. Term. The term of this Lease set forth in paragraph 4. ---- 4 4. Lease Term. The Term shall be a period of approximately eight (8) to ---------- ten (10) years, commencing on the date (the "Commencement Date") that both the Building Shell and the Tenant Improvements described in EXHIBIT B have been --------- substantially completed in accordance with their respective plans and specifications and the building inspector for the City of Redwood City has signed off on the building permits issued for such improvements. The actual Term of this Lease shall be determined as follows: if the Term of this Lease commences in 1997, 1998 or 1999, the Term shall be ten (10) years. If the Term of this Lease commences in 2000, the Term shall be nine (9) years; and if the Term of this Lease commences in 2001, the Term shall be eight (8) years. Upon establishment of the actual Commencement Date, Landlord and Tenant shall execute a memorandum, in the form set forth in EXHIBIT C, confirming the Commencement --------- Date and the actual Term of this Lease and stating the actual square footage of the Building based on the measurements provided by Landlord's architect. 5. Rent. ---- A. Monthly Rent. Tenant shall pay to Landlord, in lawful money of ------------ the United States, for each calendar month of the Term, Monthly Rent in an amount to be determined as set forth in paragraph 5.B., subject to adjustment as provided in paragraph 5.C. below and paragraph 5 of the Work Letter Agreement. Monthly Rent shall be paid in advance, on the first day of each calendar month, without abatement, deduction, claim, offset, prior notice or demand, except that the estimated Monthly Rent due for the first month of the Term shall be paid by Tenant as provided in paragraph 2.C. Once the actual Monthly Rent has been determined, the parties shall amend this Lease to set forth the Monthly Rent due hereunder for the first twelve (12) months of the Term and if the actual Monthly Rent exceeds the estimated Monthly Rent paid by Tenant for the first month of the Term, Tenant shall pay the difference to Landlord together with the Monthly Rent due for the second month of Term. If the actual Monthly Rent is less than the estimated Monthly Rent paid by Tenant, the excess shall be credited against the Monthly Rent due for the second month of the Term or, at Tenant's option, reimbursed to Tenant by Landlord within ten (10) business days after determination of the actual Monthly Rent. In addition to the Monthly Rent, Tenant shall pay Landlord monthly the management fee described in paragraph 5.D. and the monthly cost of insurance premiums required pursuant to paragraph 21.C. B. Calculation of Monthly Rent. The Monthly Rent payable by Tenant --------------------------- hereunder for the first twelve (12) months of the Term shall be calculated by applying a fourteen percent (14%) return to the Total Development Cost for the Building. For example, if the Total Development Cost were $90.00 per square foot, and the area of the Building were 60,000 square feet, the Total Development Cost would be $5,400,000.00. Applying a fourteen percent (14%) return to this amount would result in an annual net rent of $756,000.00, payable in monthly installments of $63,000 each. As used herein, the term "Total Development Cost" shall mean all costs of construction for the Building Shell and the Tenant improvements and all indirect costs (including, but not limited to, architectural and engineering fees and costs, governmental and permit fees, all financing costs including loan fees, leasing commission, transaction costs and interest during construction, and a five percent (5%) fee to Landlord as developer on development costs). The Total Development Cost shall not include, however, Landlord's cost of acquiring the land or the value of the land or any Tenant Improvement costs paid for with the 5 Additional Allowance described in paragraph 6(a) of the Work Letter Agreement attached as EXHIBIT B. --------- C. Adjustments to Monthly Rent. The Monthly Rent shall be adjusted --------------------------- as of the first day of the 13th month of the Term and every twelve (12) months thereafter (each, an "Adjustment Date") by the percentage increase in the Consumer Price Index, All Urban Consumers, All Items, published by the U.S. Department of Labor, Bureau of Labor Statistics for the San Francisco-Oakland- San Jose Metropolitan Area (1982-84=100) (the "Index"). The Index published for the month immediately preceding each Adjustment Date (the "Current Index) shall be compared with the Index published for the month immediately preceding the Commencement Date (the "Beginning Index"), to determine the percentage increase in the Monthly Rent for the next twelve (12) months of the Term. The Monthly Rent for any such period (the "Current Monthly Rent") shall be determined by multiplying the Monthly Rent for the first twelve (12) months of the Term ("Initial Monthly Rent") by the ratio of the Current Index to the Beginning Index; provided, however, that in no event shall the Monthly Rent for any year increase by more than three percent (3%) over the Monthly Rent for the preceding year (the "Previous Monthly Rent"). Thus, the Current Monthly Rent shall be determined by the following calculations: Current Monthly Rent = Initial Monthly Rent x (Current Index / Beginning Index) provided that Current Monthly Rent Previous Monthly Rent x 103%. If no Index is published for either of the months set forth above, the Index for the next preceding month shall be used. If the base of the Index is revised, the Index increases, if any, shall be calculated with a common base year. If the Index is discontinued or revised, such other governmental index with which it is replaced, with appropriate conversion factors, shall be the basis of the adjustment. D. Management Fee. Tenant shall pay to Landlord monthly, as -------------- Additional Rent, a management fee equal to one percent (1%) of the Monthly Rent. E. Additional Rent. All monies required to be paid by Tenant under --------------- this Lease, including, without limitation, Real Property Taxes pursuant to paragraph 15, insurance premiums pursuant to paragraph 21, the management fee pursuant to paragraph 5.D., and any portion of the Additional Allowance utilized by Tenant pursuant to paragraph 5 of the Work Letter Agreement, shall be deemed Additional Rent. F. Prorations. If the Commencement Date is not the first (1st) day ---------- of a month, or if the termination date of this. Lease is not the last day of a month, a prorated installment of Monthly Rent based on a 30-day month shall be paid for the fractional month during which the Lease commences or terminates. 6. Late Payment Charges. -------------------- Tenant acknowledges that late payment by Tenant to Landlord of Rent and other charges provided for under this Lease will cause Landlord to incur costs not contemplated by this Lease, the exact amount of such costs being extremely difficult or impracticable to fix. Therefore, if any installment of Rent or any other charge due from Tenant is not received by Landlord within ten (10) days after the date such Rent or other charge is due hereunder, Tenant shall pay to Landlord an additional sum equal to five percent (5%) of the amount overdue as a late charge for every month or portion thereof that the Rent or other charges remain unpaid. The 6 parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of the late payment by Tenant. Initials: - -------- - ----------------------------------- ------------------------------------- Landlord Tenant- 7. Security Deposit. ---------------- Tenant shall deposit with Landlord an amount equal to twelve (12) months of the estimated Monthly Rent (determined pursuant to paragraph 5.B.) as the Security Deposit for the full and faithful performance of every provision of this Lease to be performed by Tenant Upon determination of the actual Monthly Rent, the amount of the Security Deposit shall be increased or decreased as appropriate, to equal twelve (12) months of the actual Monthly Rent payable hereunder. If the actual amount of the Security Deposit exceeds the estimated amount paid by Tenant, the difference shall be paid by Tenant on or before the Commencement Date. If, however, the actual amount of the Security Deposit is less than the estimated amount paid by Tenant, the excess shall be refunded to Tenant on or before the Commencement Date. At Tenant's option, the Security Deposit may be in the form of an irrevocable standby letter of credit ("L-C"). At any time following the commencement of the thirteenth (13th) month of the Term, the Security Deposit shall be reduced to an amount equal to nine (9) months of the then scheduled Monthly Rent (taking into account any increases in Monthly Rent provided for in paragraph 5.C.) provided that Tenant is not then in default under this Lease and all of the following conditions have been met for the two (2) calendar years immediately prior to such date: A. Tenant has posted two (2) consecutive calendar years of profit, as determined by audited financial statements prepared by independent certified public accountants. B. Tenant's ratio of current assets to current liabilities is 1.5 or higher. C. Tenant's earnings before interest expense, taxes, depreciation and total amortization (EBITDA) as a percent of Tenant's' revenues is fourteen percent (14%) or higher. "Earnings" may include interest income and audited ongoing royalty income (but shall exclude one-time royalty payments), and shall include appropriate Deductions for Imputed Rent. D. The ratio of Tenant's earnings before interest expense, taxes, depreciation and total amortization (EBITDA) minus capital expenditures (free cash flow) to Tenant's interest expense is 3.0 or higher. "Earnings" may include interest income and audited ongoing royalty income (but shall exclude one-time royalty payments), and shall include appropriate deductions for Imputed Rent. Capital expenditures excludes the cost of tenant improvements and capital improvements (less any Landlord reimbursements) made by Tenant under the Premises 1 Lease. A sample calculation is attached as EXHIBIT D to this --------- Lease. At any time following the commencement of the twenty-fifth (25th) month of the Term, if the Security Deposit has been previously reduced to nine (9) months of the then scheduled Monthly 7 Rent, then the Security Deposit shall be further reduced to an amount equal to six (6) months of the then scheduled Monthly Rent (taking into account any increases in Monthly Rent provided for in paragraph 5.C.) provided that Tenant is not then in default under this Lease and all of the conditions set forth in items A., B., C., and D. above have been met for the calendar year immediately prior to such date. At any time following the commencement of the thirty-seventh (37th) month of the Term, if the Security Deposit has been previously reduced to six (6) months of the then scheduled Monthly Rent the Security Deposit shall be further reduced to an amount equal to five (5) months of the then scheduled Monthly Rent (taking into account any increases in Monthly Rent provided for in paragraph 5.C.) provided that Tenant is not then in default under this Lease and all of the conditions set forth in items A., B., C., and D. above have been met for the calendar year immediately prior to such date. At any time following the commencement of the forty-ninth (49th) month of the Term, if the Security Deposit has been previously reduced to five (5) months of the then scheduled Monthly Rent, the Security Deposit shall be further reduced to an amount equal to four (4) months of the then scheduled Monthly Rent (taking into account, any increases in Monthly Rent provided for in paragraph 5.C.) provided that Tenant is not then in default under this Lease and all of the conditions set forth in items A., B., C., and D. above have been met for the calendar year immediately prior to such date. When and if the Security Deposit is reduced to an amount equal to four (4) months of the then scheduled Monthly Rent, the Security Deposit held by Landlord shall remain at that amount for the balance of the Term. The reduced Security Deposit shall be paid by Tenant in cash or in the form of an L-C. The balance of any cash deposit then held by Landlord shall be returned to Tenant within ten (10) business days after notice to Landlord of Tenant's election. If Tenant defaults with respect to any provision of this Lease, after the expiration of any applicable cure or grace periods expressly provided in this Lease, Landlord may apply all or any part of the Security Deposit for the payment of any rent or other sum in default, the repair of such damage to the Premises or the payment of 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 to the full extent permitted by law. If any portion of a cash Security Deposit is so applied, or any portion of an L-C posted as the Security Deposit, as applicable, is drawn by Landlord for such purposes, Tenant shall, within ten (10) business days after written demand therefor, either deposit cash with Landlord in an amount sufficient to restore the Security Deposit to its original amount or deposit a replacement L-C with Landlord in the amount of the original L-C. If Tenant is not otherwise in default, the Security Deposit or any balance thereof shall be returned to Tenant within thirty (30) days of termination of the Lease. If at any time Tenant elects to deposit an L-C as the Security Deposit, the L-C shall be issued by a bank mutually acceptable to Landlord and Tenant, shall be issued for a term of at least twelve (12) months, and shall be substantially in the form attached as EXHIBIT E. At the end of each twelve (12) --------- month term of the L-C, Tenant shall either replace the expiring L-C with an L-C in an amount equal to the original L-C or renew the expiring L-C, in any event no later than thirty (30) days prior to the expiration of the term of the L-C. If Tenant fails to deposit a replacement L-C or renew the expiring L-C, Landlord shall have the right to draw upon the expiring L-C for the full amount thereof. Drawing upon the L-C shall be conditioned only upon 8 the presentation to the issuer of the L-C of a certified statement executed by a general partner of Landlord that (i) Tenant is in default under the Lease and Landlord is exercising its right to draw upon so much of the L-C as is necessary to cure Tenant's default, or (ii) Tenant has not renewed or replaced an expiring L-C as required by this Lease and Landlord is authorized to draw upon the L-C prior to its expiration. The L-C shall not be mortgaged, assigned or encumbered in any manner whatsoever by Tenant without the prior written consent of Landlord. The use, application or retention of the L-C, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by law, it being intended that Landlord shall not first be required to proceed against the L-C, and such use, application or retention shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. 8. Holding Over. ------------ If Tenant remains in possession of all or any part of the Premises after the expiration of the Term, with the express or implied consent of Landlord, such tenancy shall be month-to-month only and shall not constitute a renewal or extension for any further term. If Tenant remains in possession either with or without Landlord's consent, Monthly Rent shall be increased to an amount equal to one hundred twenty-five percent (125%) of the Monthly Rent payable during the last month of the Term, and any other sums due under this Lease shall be payable in the amount and at the times specified in this Lease. Such month-to-month tenancy shall be subject to every other term, condition, and covenant contained herein. 9. Tenant Improvements. ------------------- Landlord agrees to construct the Tenant Improvements pursuant to the terms of EXHIBIT B. --------- 10. Condition of Premises. Within ten (10) days after completion of the --------------------- Tenant Improvements, Tenant shall conduct a walk-through inspection of the Premises with Landlord and complete a punch-list of items needing additional work by Landlord. Other than the items specified in the punch-list, if any, by taking possession of the Premises, Tenant shall be deemed to have accepted the Premises in good, clean and completed condition and repair, subject to all applicable laws, codes and ordinances. Any damage to the Premises caused by Tenant's move-in shall be repaired or corrected by Tenant, at its expense. Tenant acknowledges that neither Landlord nor its Agents have made any representations or warranties as to the suitability or fitness of the Premises for the conduct of Tenant's business or for any other purpose, nor has Landlord or its Agents agreed to undertake any Alterations or construct any Tenant Improvements to the Premises except as expressly provided in this Lease. If Tenant fails to submit a punch-list to Landlord within such 10-day period, it shall be deemed that there are no Tenant Improvement items needing additional work or repair. Landlord's contractor shall complete all reasonable punch-list items within thirty (30) days after the walk-through inspection or as soon as practicable thereafter. Upon completion of such punch-list items, Tenant shall approve such completed items in writing to Landlord, if Tenant fails to approve such items within fourteen (14) days of completion, such items shall be deemed approved by Tenant. 11. Use of the Premises. ------------------- 9 A. Tenant's Use. Tenant shall use the Premises only for general ------------ office, research and development, light manufacturing, storage, distribution and marketing and any other use permitted by applicable laws. Tenant shall not use the Premises or suffer or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, zoning restriction, ordinance or governmental law, rule, regulation or requirement of public authorities now in force or which may hereafter be in force, relating to or affecting the condition, use or occupancy of the Premises. Tenant shall not commit any public or private nuisance or any other act or thing which might or would disturb the quiet enjoyment of any other tenant of Landlord or any occupant of nearby property. Tenant shall place no loads upon the floors, walls or ceilings in excess of the maximum designed load determined by a licensed structural engineer or which endanger the structure; nor place any harmful liquids in the drainage systems; nor dump or store waste materials or refuse or allow such to remain outside the Building proper, except in the enclosed trash areas provided. Tenant shall not store or permit to be stored or otherwise place any other material of any nature whatsoever outside the Building, except on a temporary basis. B. Hazardous Materials. ------------------- (i) Tenant, at its sole cost, shall comply with all laws relating to the storage, use and disposal of Hazardous Materials (as defined below). If, during the Term of this Lease, Tenant does store, use or dispose of any Hazardous Materials, Tenant shall provide Landlord with a copy of any Hazardous Materials data sheets, hazardous materials management plans ("HMMP"), or other reports or documentation relating to Hazardous Materials that Tenant is required to file with the Redwood City Fire Department or any other governmental agency, if applicable. Such information shall be provided to Landlord (A) within ten (10) days after Lease execution with respect to any Hazardous Materials that are currently used, stored or disposed of by Tenant in, on or from the Premises, and (B) promptly following submission of any such HMMP's or other reports or documentation to the applicable governmental agency (but in no event later than five (5) business days after the date of such submission) with respect to any Hazardous Materials first used, stored or disposed of by Tenant in, on or from the Premises after the date of this Lease. Additionally, Tenant shall deliver to Landlord upon Lease execution a comprehensive listing of all Hazardous Materials currently used, stored or disposed of by Tenant in, on or from the Premises ("Hazardous Materials List"). Tenant shall provide an updated Hazardous Materials List to Landlord quarterly throughout the Term of this Lease and at other times within ten (10) business days after Landlord's written request therefor if a current Hazardous Materials List is required by Landlord's lender or a prospective tender. (ii) Notwithstanding anything to the contrary contained in the Purchase and Sale Agreement between Landlord and Tenant for the purchase of the Project by Landlord, Tenant shall be solely responsible for and shall defend, indemnify and hold Landlord and its Agents harmless from and against any and all liabilities, claims, demands, damages and expenses of any kind or nature, including reasonable attorneys' fees and costs, resulting from, or arising out of, any Hazardous Materials used, stored, released or disposed of in, on or about the Premises by Tenant, its agents, employees, contractors, invitees or subtenants during the Term of this Lease, including without limitation, any action, proceeding, claim, demand, suit or proceeding by any governmental agency, quasi-governmental agency or third party (including, without limitation, penalties, fines, clean-up costs, mitigation costs and liens) arising from the use, 10 storage, release or disposal of any such Hazardous Materials in, on or about the Premises by Tenant, its agents, employees, contractors, invitees or subtenants. Tenant shall promptly give Landlord written notice of (A) any release or suspected release of any Hazardous Materials in, on, under or adjacent to the Premises of which Tenant has actual knowledge and that Tenant is required to report to Landlord or any governmental or regulatory agency under applicable laws, and/or (B) any investigation, claim, demand, lawsuit or other action by any governmental or regulatory agency or private party involving the presence or suspected presence of any Hazardous Materials in, on, under or adjacent to the Premises of which Tenant has actual knowledge. Tenant's obligations hereunder shall survive the termination of this Lease. (iii) Tenant's indemnity obligations under paragraph 11.B.(ii) are subject to the following conditions: (A) Tenant is promptly notified in writing of any such claim(s); (B) Tenant shall have the right to manage the defense of such claim(s) and any settlement negotiations, provided, however, that Tenant shall keep Landlord apprised, on a monthly basis, of the status of any such claims and/or settlement negotiations, and no action may be taken by Tenant which may materially and adversely affect Landlord's rights or obligations without Landlord's consent; (C) Landlord shall cooperate with Tenant in the defense and/or settlement of such claim(s); and (D) subject to the provisions set forth in paragraph 11.B.(iv), Tenant shall have the right to direct and manage the removal, clean-up and/or remediation (collectively, "Remediation") of any Hazardous Materials which may be required under paragraph 11.B.(ii) so long as Tenant is not in default hereunder at the time such Remediation is required and so long as such Remediation is conducted by Tenant in accordance with all applicable laws and governmental regulations. Notwithstanding the foregoing, Landlord shall have the right, in its sole discretion, but without being required to do so, to defend, adjust, settle or compromise any claim, obligation, debt, demand, suit or judgment naming Landlord as a defendant or potentially responsible party arising out of or in connection with the matters covered by Tenant's indemnity and, in such event, Tenant shall reimburse Landlord for all reasonable charges and expenses incurred by Landlord in connection therewith, including reasonable attorneys' fees; provided, however, that Landlord shall not undertake any unilateral action or settlement so long as Tenant or an insurance company, at its or their sole expense, is contesting in good faith, diligently and with continuity such claim, action, obligation, demand or suit, and so long as such claim, action, obligation, demand or suit does not have or threaten to have a material adverse impact on Landlord's assets, reputation or business affairs and does not, in the reasonable judgment of the holder of any deed of trust recorded against the Premises, impair or threaten to impair the value of the security given by Landlord to the holder under such deed of trust. Tenant acknowledges that the holder of any deed of trust recorded against the Premises shall have the right, but not the obligation; to join and participate in any legal proceedings or actions initiated in connection with any claims covered by Tenant's indemnity if the holder of such deed of trust has a reasonable basis to believe that its security under the deed of trust is or might be impaired by such claims or if Landlord is in default under the terms of the deed of trust. (iv) Tenant shall not commence any Remediation of any Hazardous Materials pursuant to paragraph 11.B.(ii) unless and until (A) Landlord has reasonably approved the environmental consultant and/or engineering firm that will be engaged to assess the nature and extent of the Hazardous Materials that are present and to complete the Remediation of such Hazardous Materials; (B) Landlord has reasonably approved the scope of work and the proposed 11 methods and timing for completing such Remediation of such Hazardous Materials; and (C) Tenant has provided Landlord with documentary evidence that the governmental agency(ies) with jurisdiction over such matter has/have approved Tenant's proposed plan for Remediation of such Hazardous Materials. If Landlord fails to notify Tenant of Landlord's approval or disapproval of Tenant's environmental consultant and/or engineering firm or Tenant's proposed scope of work and proposed methods for completing any Remediation, within thirty (30) days after Landlord's receipt of the above-specified information, Landlord's approval shall be deemed given. Tenant shall complete such Remediation in a diligent manner, in compliance with all applicable laws (including any order issued for such Remediation) and in accordance with applicable governmental standards for such Remediation. Upon completion of such removal, clean-up or other remediation, Tenant shall provide Landlord with a copies of any documentation obtained from any governmental agency(ies) indicating that the required Remediation was completed and accepted by such agency(ies). (v) Landlord and Landlord's designated consultants and, in the event of any default by Landlord under any deed of trust recorded against the Premises, the holder of such deed of trust and its designated consultants, shall have the right to enter the Premises at any time in the case of an emergency, and otherwise at reasonable times with reasonable notice and with reasonable frequency, for the purpose of verifying compliance by Tenant with all applicable laws relating to the storage, use or disposal of Hazardous Materials and, in connection therewith, Landlord or the holder of such deed of trust shall be entitled to employ experts and/or consultants, at such party's sole expense, to advise such party with respect to Tenant's installation, operation, use, monitoring, maintenance, or removal of any Hazardous Materials in, on or from the Premises. Any parties entering the Premises to verify such compliance by Tenant as permitted herein shall, at Tenant's request, first execute and deliver to Tenant a confidentiality agreement substantially in the form attached as EXHIBIT F. If at any time Landlord obtains a phase I environmental site - --------- assessment of the Premises or the Property which discloses the presence or possible presence of Hazardous Materials in, on, under or adjacent to the Premises or the Property, and the report generated by the environmental consultant as a result of such site assessment recommends that further testing be conducted on the Premises and/or the Property, including invasive testing of the soil and groundwater, to determine the nature, location and extent of such Hazardous Materials, Landlord may cause testing and/or monitoring wells to be installed on or about the Outside Area and may cause the soil and/or ground water to be tested to detect the presence of Hazardous Materials by the use of such tests as are then customarily used for such purposes, provided that Landlord shall use diligent efforts to minimize any inconvenience or disruption to Tenant's business in connection with such installation and testing. The cost of installing, operating and removing any such wells shall be paid by the party requesting the same unless Tenant is liable for such costs pursuant to the terms of Tenant's indemnity under paragraph 11.B.(ii), Landlord shall provide Tenant with a copy of any final report generated for Landlord by an environmental consultant in connection with the Premises or the Property. Landlord may, however, require Tenant to execute a reasonable confidentiality agreement prior to delivering copies of any such report to Tenant. (vi) If at any time Landlord determines that Tenant is not in compliance with any laws relating to the storage, use or disposal of Hazardous Materials, Landlord shall notify Tenant in writing of the specific laws and the provisions thereof which Landlord believes Tenant has violated. Except in the event of any emergency, in which event 12 Tenant shall promptly take appropriate action to correct any violation(s), Tenant shall have thirty (30) days after Landlord's notice to correct any such violation(s); provided, however, that if Tenant or Tenant's environmental consultant disagrees with Landlord's determination that a violation has occurred, Landlord and Tenant shall promptly select an independent environmental consultant or environmental attorney mutually acceptable to Landlord and Tenant to review the alleged violation and the determination of such consultant or attorney shall be binding upon Landlord and Tenant. The cost of such consultant or attorney's services shall be shared equally by Landlord and Tenant. If Landlord and Tenant fail to agree on the independent consultant to be selected for such purposes, the consultant shall be selected in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Landlord agrees that Landlord shall not notify any governmental or regulatory agency of any violation by Tenant of any laws relating to the use, storage or disposal of Hazardous Materials unless (A) Landlord has first notified Tenant in writing of such, violation, and (B)Tenant has failed to notify the appropriate governmental or regulatory agency(ies) to the extent required by applicable laws and to provide Landlord with a copy of any such notice(s). (vii) For the purposes of this Lease, the term "Hazardous Materials" shall mean any substance, material or waste which is or becomes regulated by any local government authority, the State of California, or the United States Government, including, but not limited to, any material or substance which is (a) petroleum, (b) asbestos, (c), polychlorinated biphenyls, (d) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. 1251 et seq. (33 U.S.C. 1321) or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. 1317), (e) defined as a "hazardous waste" pursuant to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. 6901 et seq. (42 U.S.C. 6903), or (f) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. 9601 et seq. (42 U.S.C. 9601). Nothing contained in this paragraph 11.B. shall be deemed to require Tenant to comply with any Hazardous Materials requirements or standards that are stricter than those imposed by applicable governmental or regulatory agencies. 12. Quiet Enjoyment. --------------- Landlord covenants that Tenant, upon performing the terms, conditions and covenants of this Lease, shall have quiet and peaceful possession of the Premises as against any person claiming the same by, through or under Landlord. 13. Alterations. ----------- After the Commencement Date, Tenant shall not make or permit any Alterations in, on or about the Premises, without the prior written consent of Landlord, which consent shall not be unreasonably withheld; provided, however, that Landlord's consent shall not be required for any nonstructural Alterations that do not exceed Twenty-Five Thousand and no/100ths Dollars ($25,000.00) in cost. In no event, however, shall Tenant make any: (i) Alterations to the exterior of the Building; (ii) Alterations to and penetrations of the roof of the Building; or (iii) Alterations visible from outside the Building without the prior written consent of Landlord, to which Landlord may withhold Landlord's consent on wholly aesthetic grounds. 13 All Alterations shall be installed at Tenant's sole expense, in compliance with all applicable laws, by a licensed contractor, shall be done in a good and workmanlike manner conforming in quality and design with the Premises existing as of the Commencement Date, and shall not diminish the value of either the Building or the Premises. All Alterations made by Tenant shall be and become the property of Landlord upon installation and shall not be deemed Tenant's Personal Property; provided, however, that Landlord shall notify Tenant upon Landlord's consent to such Alterations by Landlord (or if Landlord's consent is not required, upon written request by Tenant) whether Tenant will be required to remove, at Tenant's expense, such Alterations from the Premises at the expiration or sooner termination of this Lease and to return the Premises to their condition as of the Commencement Date of this Lease, normal wear and tear excepted and subject to the provisions of paragraph 23. Notwithstanding any other provision of this Lease, Tenant shall be solely responsible for the maintenance and repair of any and all Alterations made by it to the Premises. Tenant shall give Landlord written notice of Tenant's intention to perform work on the Premises at least ten (10) days prior to the commencement of such work to enable Landlord to post and record a Notice of Nonresponsibility or other notice deemed proper before the commencement of any such work. 14. Surrender of the Premises. ------------------------- Upon the expiration or earlier termination of the Term, Tenant shall surrender the Premises to Landlord in its condition existing as of the Commencement Date, normal wear and tear and fire or other casualty excepted, with all interior walls repaired if damaged, all broken, marred or nonconforming acoustical ceiling tiles replaced, all windows washed, the plumbing and electrical systems and lighting in good order and repair, including replacement of any burned out or broken light bulb or ballasts, the HVAC equipment serviced and repaired by a reputable and licensed service firm, and all floors cleaned, all to the reasonable satisfaction of Landlord. Tenant shall remove from the Premises all of Tenant's Alterations required to be removed pursuant to paragraph 13, and all Tenant's Personal Property, and repair any damage and perform any restoration work caused by such removal. If Tenant fails to remove such Alterations and Tenant's Personal Property, and such failure continues after the termination of this Lease, Landlord may retain such Property and all rights of Tenant with respect to it shall cease, or Landlord may place all or any portion of such Property in public storage for Tenant's account. Tenant shall be liable to Landlord for costs of removal of any such Alterations and Tenant's Personal Property and storage and transportation costs of same, and the cost of repairing and restoring the Premises, together with interest at the Interest Rate from the date of expenditure by Landlord. If the Premises are not so surrendered at the termination of this Lease, Tenant shall indemnify Landlord and its Agents against all loss or liability, including reasonable attorneys' fees and costs, resulting from delay by Tenant in so surrendering the Premises. Normal wear and tear, for the purposes of this Lease, shall be construed to mean wear and tear caused to the Premises by a natural aging process which occurs in spite of prudent application of the best standards for maintenance, repair and janitorial practices. It is not intended, nor shall it be construed, to include items of neglected or deferred maintenance which would have or should have been attended to during the Term of the Lease if the best standards had been applied to properly maintain and keep the Premises at all times in good condition and repair. 14 15. Real Property Taxes. ------------------- A. Payment by Tenant. On or before April 10 and December 10 of each ----------------- year of the Term, Tenant shall pay directly to the San Mateo County assessor Tenant's percentage of the Real Property Taxes for the Property as set forth on the assessor's tax bill for the Property, which percentage shall be determined by dividing the area of the Building by the total area of the Building plus the buildings at 1228 Douglas Avenue, 1250 Douglas Avenue, and 550 Broadway and multiplying the result by 100. Promptly following payment of the Real Property Taxes, Tenant shall provide Landlord with copies of paid receipts or other documentary evidence that the Real Property Taxes have been paid by Tenant. If Tenant fails to pay the Real Property Taxes on or before April 10 and December 10, respectively, Tenant shall pay to Landlord any penalty incurred by such late payment. In addition, Tenant shall pay any Real Property Tax not included within the county tax assessor's tax bill within ten (10) days after being billed for same by Landlord. The foregoing dates are based on the dates established by the county as the dates on which Real Property Taxes become delinquent if not paid. If such delinquency dates change, the dates on which Tenant must pay the Real Property Taxes for the Property shall be at least ten (10) days prior to the delinquency dates. Assessments, taxes, fees, levies and charges may be imposed by governmental agencies for such purposes as fire protection, street, sidewalk, road, utility construction and maintenance, refuse removal and for other governmental services which may formerly have been provided without charge to property owners or occupants. It is the intention of the parties that all new and increased assessments, taxes, fees, levies and charges are to be included within the definition of Real Property Taxes for purposes of this Lease. Notwithstanding the foregoing to the contrary, Tenant shall not be liable for any increase in Real Property Taxes resulting from a reassessment of the Premises or the Property in connection with the sale or transfer of the Property in the following instances: (i) the sale or transfer occurs during the first five (5) years of the Term and a prior sale or transfer of the Premises or the Property (causing an increase in Real Property Taxes) has occurred during such five (5) year period, or (ii) the sale or transfer occurs during the sixth (6th) through tenth (10th) years of the Term. Tenant shall, however, be liable for any increase in Real Property Taxes resulting from a reassessment of the Premises or the Property in connection with the first sale or transfer of the Premises or the Property that occurs during the first five (5) years of the Term. For purposes of this paragraph 15, the "first sale or transfer of the Premises or the Property" shall not include the sale of the Project by Tenant to Landlord. B. Taxes on Tenant Improvements and Personal Property. Tenant shall -------------------------------------------------- pay any increase in Real Property Taxes resulting from any and all Alterations and Tenant Improvements of any kind whatsoever placed in, on or about the Premises for the benefit of, at the request of, or by Tenant. Tenant shall pay prior to delinquency all taxes assessed or levied against Tenant's Personal Property in, on or about the Premises. When possible, Tenant shall cause its Personal Property to be assessed and billed separately from the real or Personal Property of Landlord. C. Proration. Tenant's liability to pay Real Property Taxes shall be --------- prorated on the basis of a 365-day year to account for any fractional portion of a fiscal tax year included at the commencement or expiration of the Term. With respect to any assessments which may be levied against or upon the Property, or which under the laws then in force may be evidenced by improvements or other bonds or may be paid in annual installments, only the amount of such 15 annual installment (with appropriate proration for any partial year) and interest due thereon shall be included within the computation of the annual Real Property Taxes levied against the Premises. 16. Utilities and Services. ---------------------- Tenant shall be responsible for and shall pay promptly all charges for water, gas. electricity, telephone, refuse pick-up, janitorial service and all other utilities, materials and services furnished directly to or used by Tenant in, on or about the Premises during the Term, together with any taxes thereon. Landlord shall not be liable in damages or otherwise for any failure or interruption of any utility service or other service furnished to the Premises, except that resulting from the negligence or willful misconduct of Landlord. 17. Repair and Maintenance. ---------------------- A. Landlord's Obligations. Landlord shall keep in good order, ---------------------- condition and repair the structural parts of the Building, which structural parts include only the foundation, subflooring, exterior walls (excluding the interior of all walls and the exterior and interior of all windows, doors, ceilings, and plateglass), and the roof structure of the Building, except for any damage thereto caused by the negligence or willful acts or omissions of Tenant or of Tenant's agents, employees or invitees, or by reason of the failure of Tenant to perform or comply with any terms of this Lease, or caused by Alterations made by Tenant or by Tenant's agents, employees or contractors. It is an express condition precedent to all obligations of Landlord to repair and maintain that Tenant shall have notified Landlord of the need for such repairs or maintenance. Tenant waives the provisions of Sections 1941 and 1942 of the California Civil Code and any similar or successor law regarding Tenant's right to make repairs and deduct the expenses of such repairs from the Rent due under this Lease. B. Tenant's Obligations. Tenant shall at all times and at its own -------------------- expense clean, keep and maintain in good order, condition and repair every part of the Premises which is not within Landlord's obligation pursuant to paragraph 17.A. Tenant's repair and maintenance obligations shall include the roof membrane, all plumbing and sewage facilities within the Premises, fixtures, interior walls and ceiling, floors, windows, doors, entrances, plate glass, showcases, skylights, all electrical facilities and equipment, including lighting fixtures, lamps, fans and any exhaust equipment and systems, all mechanical and HVAC systems, any automatic fire extinguisher equipment within the Building, electrical motors and all other appliances and equipment of every kind and nature located in, upon or about the Building or the Premises. Tenant shall also maintain the landscaping, parking lots, exterior lighting, signage, and any other facilities located within the boundaries of the Premises (collectively, the "Outside Area") in good order, condition and repair, consistent with the reasonable maintenance standards established by Landlord for the balance of the Project. If at any time Landlord determines that Tenant's repair and maintenance of the Outside Area is not consistent with the reasonable maintenance standards established by Landlord for the balance of the Project, Landlord shall notify Tenant in writing of any such deficiencies. If Tenant fails to cure such deficiencies within thirty (30) days after receipt of Landlord's notice, Landlord shall have the right, on thirty (30) days' written notice to Tenant to assume responsibility for maintenance and repair of the Outside Area. In such event, Tenant shall reimburse Landlord monthly, as Additional Rent, for the costs incurred by Landlord 16 to maintain and repair the Outside Area. Tenant shall also be responsible for all pest control within the Premises. Tenant shall maintain the HVAC systems in accordance with manufacturer recommendations, which shall include replacement of filters, oiling and lubricating of machinery, parts replacement, adjustment of drive belts, oil changes and other preventive maintenance, including annual maintenance of duct work, interior unit drains and caulking at sheet metal, and recaulking of jacks and vents on an annual basis. At Tenant's option, Tenant may either obtain HVAC systems preventive maintenance contracts for such purpose, or utilize Tenant's facilities maintenance personnel to maintain the HVAC systems provided that Tenant can demonstrate to Landlord's reasonable satisfaction that any facilities maintenance personnel designated for such maintenance have sufficient experience to properly maintain the HVAC system in good operating condition and repair. In either event, Tenant shall have the benefit of all warranties available to Landlord regarding the equipment in such HVAC systems. If Tenant elects to maintain the HVAC systems through a preventive maintenance contract, Tenant shall provide Landlord with copies of all HVAC maintenance reports on a quarterly basis, including copies of contractor recommendations for repairs and/or replacements. If any reasonable repairs and/or replacements are recommended by the contractor, Tenant shall perform such repairs and/or replacements and shall provide Landlord with evidence that such repairs and/or replacements have been completed in accordance with the contractor's recommendations. If, however, Tenant elects to utilize its facilities maintenance personnel to maintain the HVAC system, Landlord may, at Landlord's election, have the HVAC systems inspected by a licensed HVAC contractor on an annual basis to confirm whether Tenant has maintained the HVAC systems as required herein. The cost of any such annual inspections shall be paid by Tenant within thirty (30) days after receipt of an invoice from Landlord. The HVAC contractor engaged for such purpose shall be selected by Landlord after receiving competitive bids from at least three (3) licensed HVAC contractors acceptable to Landlord and Tenant. C. Compliance with Governmental Regulations. Tenant shall, at its ---------------------------------------- cost, comply with, including the making by Tenant of any Alterations to the Premises, all present and future regulations, rules, laws, ordinances, and requirements of all governmental authorities (including, without limitation state, municipal, county and federal governments and their departments, bureaus, boards and officials) arising from Tenant's use or occupancy of the Premises or Tenant's enjoyment of the Premises. Notwithstanding the foregoing, Landlord, and not Tenant, shall be obligated to make any Alterations to the structural parts of the Buildings maintained by Landlord pursuant to paragraph 17.A. that are required to comply with any present and future regulations, rules, laws, ordinances, and governmental requirements unless such Alterations to the structural parts of the Building are required solely as a result of any other Alterations to the Building made by Tenant during the Term of this Lease, in which case Tenant shall reimburse Landlord for the cost of any such Alterations to the structural parts of the Building that are required to comply with regulations, rules, laws, ordinances and governmental requirements. 18. Liens. ----- Tenant shall keep the Building and the Premises free from any liens arising out of any work performed, materials furnished or obligations incurred by or on behalf of Tenant and hereby indemnities and holds Landlord and its Agents harmless from all liability and cost, including attorneys' fees and costs, in connection with or arising out of any such lien or claim of 17 lien. Tenant shall cause any such lien imposed to be released of record by payment or posting of a proper bond reasonably acceptable to Landlord within ten (10) days after written request by Landlord. Tenant shall give Landlord written notice of Tenant's intention to perform work on the Premises which might result in any claim of lien at least ten (10) days prior to the commencement of such work to enable Landlord to post and record a Notice of Nonresponsibility. If Tenant fails to so remove any such lien within the prescribed ten 10-day period, then Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord for such amounts upon demand. Such reimbursement shall include all costs incurred by Landlord including Landlord's reasonable attorneys' fees with interest thereon at the Interest Rate. 19. Landlord's Right to Enter the Premises. -------------------------------------- Tenant shall permit Landlord and its Agents to enter the Premises, including the Building, at all reasonable times with reasonable notice, except for emergencies in which case no notice shall be required, to inspect the same, to post Notices of Nonresponsibility and similar notices, and real estate "For Sale" signs, to show the Premises to interested parties such as prospective lenders and purchasers, to make necessary repairs, to discharge Tenant's obligations hereunder when Tenant has failed to do so within a reasonable time after written notice from Landlord, and at any reasonable time within one hundred and eighty (180) days prior to the expiration of the Term, to place upon the Building and the Outside Area ordinary "For Lease" signs and to show the Premises to prospective tenants. The above rights are subject to reasonable security regulations of Tenant, and to the requirement that Landlord shall at all times act in a manner to cause the least possible interference with Tenant's business. 20. Signs. ----- Subject to Tenant obtaining all necessary approvals from the City of Redwood City and subject to Landlord's review and approval of plans and specifications for any proposed signage, which approval shall not be unreasonably withheld, Tenant shall have the right to install Tenant identification signage on the exterior of the Building. Tenant shall not install any Tenant identification sign in any other location in, on or about the Premises or the Property without Landlord's prior written consent, and shall not display or erect any other Tenant identification sign, display or other advertising material that is visible from the exterior of the Building. Notwithstanding the foregoing, Tenant shall be permitted to install directional signs on the Premises, subject to Landlord's approval of the size, design and location of such signs, which approval shall not be unreasonably withheld. Any changes to the size, design, color or other physical aspects of Tenant's identification sign (s) shall be subject to the Landlord's prior written approval, which shall not be unreasonably withheld. The cost of Tenant's sign(s), and their installation, maintenance and removal shall be Tenant's sole expense. If Tenant fails to maintain its sign(s), or, if Tenant fails to remove its sign(s) upon termination of this Lease, Landlord may do so at Tenant's expense and Tenant's reimbursement to Landlord for such amounts shall be deemed Additional Rent. 21. Insurance. --------- A. Indemnification. --------------- 18 (i) Tenant hereby agrees to defend, indemnify and hold harmless Landlord and its Agents from and against any and all damage, loss, liability or expense including reasonable attorneys' fees and legal costs suffered directly or by reason of any claim, suit or judgment brought by or in favor of any person or persons for damage, loss or expense due to, but not limited to, bodily injury and property dome sustained by such person or persons which arises out of, is occasioned by or in any way attributable to the use or occupancy of the Premises or any part thereof and adjacent areas by Tenant, the acts or omissions of the Tenant, its agents, employees or any contractors brought onto the Premises by Tenant, except to the extent caused by the negligence or willful misconduct of Landlord or its Agents. Tenant agrees that the obligations assumed herein shall survive this Lease. Tenant's obligations under this paragraph 21.A.(i) are subject to the following conditions: (i) Tenant is promptly notified in writing of any such claim(s); (ii) Tenant shall have the right to control the defense of such claim(s) and any settlement negotiations, provided, however, that no action may be taken by Tenant which may materially and adversely affect Landlord's rights or obligations without Landlord's consent; and (iii) Landlord shall cooperate with Tenant in the defense and/or settlement of such claim(s). Notwithstanding the foregoing, Landlord shall have the right, in its sole discretion, but without being required to do so, to defend, adjust, settle or compromise any claim, obligation, debt, demand, suit or judgment against Landlord arising out of or in connection with the matters covered by the foregoing indemnity and, in such event, Tenant shall reimburse Landlord for all reasonable charges and expenses incurred by Landlord in connection therewith, including reasonable attorneys' fees; provided, however, that Landlord shall not undertake any unilateral action or settlement so long as Tenant or an insurance company, at its or their sole expense, is contesting in good faith, diligently and with continuity such claim, action, obligation, demand or suit, and so long as such claim, action, obligation, demand or suit does not have or threaten to have a material adverse impact on Landlord's assets, reputation or business affairs. (ii) Landlord hereby agrees to defend, indemnify and hold harmless Tenant from and against any and all damage, loss, liability or expense, including reasonable attorneys' fees and legal costs, suffered directly or by reason of any claim, suit or judgment brought by or in favor of any person or persons for damage, loss or expense due to, but not limited to, bodily injury and property damage sustained by such person or persons which arises out of, is occasioned by or in any way attributable to the acts or omissions of Landlord, its Agents, or any contractors brought onto the Premises by Landlord, except to the extent caused by the negligence or willful misconduct of Tenant, its agents, employees or contractors. Landlord agrees that the obligations assumed herein shall survive this Lease. Landlord's obligations under this paragraph 21.A.(ii) are subject to the following conditions: (i) Landlord is promptly notified in writing of any such claim(s); (ii) Landlord shall have the right to control the defense of such claim(s) and any settlement negotiations, provided, however, that no action may be taken by Landlord which may materially and adversely affect Tenant's rights or obligations without Tenant's consent, and (iii) Tenant shall cooperate with Landlord in the defense and/or settlement of such claim(s). Notwithstanding the foregoing, Tenant shall have the right, in its sole discretion, but without being required to do so, to defend, adjust, settle or compromise any claim, obligation, debt, demand, suit or judgment against Landlord arising out of or in connection with the matters covered by the foregoing indemnity and, in such event, Landlord shall reimburse Tenant for all reasonable charges and expenses incurred by Tenant in connection therewith, including reasonable attorneys' fees; provided, however, that Tenant shall not undertake any unilateral action or settlement so long as Landlord or an insurance company, at its or their sole 19 expense, is contesting in good faith, diligently and with continuity such claim, action, obligation, demand or suit, and so long as such claim, action, obligation, demand or suit does not have or threaten to have a material adverse impact on Tenant's assets, reputation or business affairs. B. Tenant's Insurance. Tenant agrees to maintain in full force and ------------------ effect at all times during the Term, at its own expense, for the protection of Tenant and Landlord, as their interests may appear, policies of insurance which afford the following coverages: (i) Commercial general liability insurance in an amount not less than Three Million and no/100ths Dollars ($3,000,000.00) combined single limit for both bodily injury and property damage which includes blanket contractual liability broad form property damage, personal injury, completed operations, products liability, and fire damage legal (in an amount not less than Twenty- Five Thousand and no/100ths Dollars ($25,000.00)), which policy shall name Landlord and its Agents as additional insureds and shall contain a provision that "the insurance provided Landlord hereunder shall be primary and non- contributing with any other insurance available to Landlord with respect to any damage, loss, liability or-expense covered by Tenant's indemnity obligations under paragraph 21.A.(i) of the Lease." (ii) Causes of loss - special form property insurance (including, without limitation, vandalism, malicious mischief, inflation endorsement, and sprinkler leakage endorsement) on Tenant's Personal Property located on or in the Premises. Such insurance shall be in the full amount of the replacement cost, as the same may from time to time increase as a result of inflation or otherwise. As long as this Lease is in effect, the proceeds of such policy shall be used for the repair and replacement of such items so insured. Landlord shall have no interest in the insurance proceeds on Tenant's Personal Property. Notwithstanding the foregoing, Tenant shall have the right, at its election, to self-insure with respect to any loss or damage to Tenant's Personal Property. (iii) Boiler and machinery insurance, including steam pipes, pressure pipes, condensation return pipes and other pressure vessels and HVAC equipment, including miscellaneous electrical apparatus, in an amount satisfactory to Landlord. C. Premises Insurance. During the Term Landlord shall maintain causes ------------------ of loss-special form property insurance (including inflation endorsement sprinkler leakage endorsement, and, at Landlord's option, earthquake and flood coverage) on the Building, excluding coverage of all Tenant's Personal Property located on or in the Premises, but including the Tenant Improvements. Such insurance shall also include insurance against loss of rents, including, at Landlord's option, coverage for earthquake and flood, in an amount equal to the Monthly Rent and Additional Rent, and any other sums payable under the Lease, for a period of at least twelve (12) months commencing on the date of loss. Such insurance shall name Landlord and its Agents as named insureds and include a lender's loss payable endorsement in favor of Landlord's lender (Form 438 BFU Endorsement). The deductible payable under any causes of loss - special form policy of insurance (or its equivalent) maintained by Landlord on the Building shall not exceed $250,000 per occurrence without the prior written consent of Tenant and, for as long as the Building is insured by Landlord under a policy that covers all of the buildings within the Property and, if applicable, all of the buildings within the Project, such deductible shall apply in the aggregate to all of the buildings within the Property and, if 20 applicable, to all of buildings within the Project, on a per occurrence basis. Tenant shall reimburse Landlord monthly, as Additional Rent, for one-twelfth (12th) of the annual cost of such insurance on the first day of each calendar month of the Term, prorated for any partial month, or on such other periodic basis as Landlord shall elect. If the insurance premiums are increased after the Commencement Date due to an increase in the value of the Building or its replacement cost, or due to Tenant's use of the Premises or any improvements installed by Tenant, Tenant shall pay such increase within ten (10) days of notice of such increase. If, however, Landlord elects to maintain a policy or policies of earthquake insurance on the Building, Tenant shall be required to reimburse Landlord for any premiums allocable to such insurance policies only if Landlord maintains such insurance coverage on all buildings within the Project and such insurance is available at commercially reasonable rates. D. Increased Coverage. Upon demand, Tenant shall provide Landlord, at ------------------ Tenant's expense, with such increased amount of existing insurance, and such other insurance as Landlord or Landlord's lender may reasonably require to afford Landlord and Landlord's lender adequate protection. E. Co-Insurer. If, on account of the failure of Tenant to comply with ---------- the foregoing provisions, Landlord is adjudged a co-insurer by its insurance carrier, then, any loss or damage Landlord shall sustain by reason thereof, including attorneys' fees and costs, shall be borne by Tenant and shall be immediately paid by Tenant upon receipt of a bill therefor and evidence of such loss. F. Insurance Requirements. All insurance shall be in a form ---------------------- satisfactory to Landlord and Tenant and shall be carried in companies that have a general policy holder's rating of not less than "A" and a financial rating of not less than Class "X" in the most current edition of Best's Insurance Reports; ------------------------ and shall provide that such policies shall not be subject to material alteration or cancellation except after at least thirty (30) days' prior written notice to Landlord. The policy or policies, or duly executed certificates for them, together with satisfactory evidence of payment of the premium thereon shall be deposited with Landlord prior to the Commencement Date, and upon renewal of such policies, not less than thirty (30) days prior to the expiration of the term of such coverage. If Tenant fails to procure and maintain the insurance required hereunder, Landlord may, but shall not be required to, order such insurance at Tenant's expense and Tenant shall reimburse Landlord. Such reimbursement shall include all costs incurred by Landlord including Landlord's reasonable attorneys' fees, with interest thereon at the Interest Rate. G. Landlord's Disclaimer. Landlord and its Agents shall not be liable --------------------- for any loss or damage to persons or property resulting from fire, explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity, water or rain which may leak from any part of the Building or from the pipes, appliances or plumbing works therein or from the roof, street or subsurface, or from any other cause whatsoever, including loss or reduction in utilities, unless caused by or due to the sole negligence or willful misconduct of Landlord. Landlord and its Agents shall not be liable for any latent defect in the Premises. Tenant shall give prompt written notice to Landlord in case of a casualty, accident or repair needed in the Premises. 22. Waiver of Subrogation. --------------------- 21 Landlord and Tenant each hereby waive all rights of recovery against the other on account of loss or damage occasioned to such waiving party for its property or the property of others under its control to the extent that such loss or damage would be covered by any causes of loss special form policy of insurance or its equivalent. The foregoing waiver shall apply notwithstanding, and shall not be affected by, Tenant's election to self-insure with respect to any loss or damage to Tenant's Personal Property. Tenant and Landlord shall, upon obtaining policies of insurance required hereunder, give notice to the insurance carrier that the foregoing mutual waiver of subrogation is contained in this Lease and Tenant and Landlord shall cause each insurance policy obtained by such party to provide that the insurance company waives all right of recovery by way of subrogation against either Landlord or Tenant in connection with any damage covered by such policy. 23. Damage or Destruction. --------------------- A. Landlord's Obligation to Rebuild. If all or any part of the -------------------------------- Building is damaged or destroyed, Landlord shall promptly and diligently repair the same unless it has the right to terminate this Lease as provided herein and it elects to so terminate. B. Right to Terminate. Landlord shall have the right to terminate ------------------ this Lease in the event any of the following events occur: (i) Insurance proceeds are not available to pay one hundred percent (100%) of the cost of such repair, excluding the deductible for which Tenant shall be responsible; (ii) The Building cannot, with reasonable diligence, be fully repaired by Landlord within one hundred eighty (180) days after the date of the damage or destruction; or (iii) The Building cannot be safely repaired because of the presence of hazardous factors, including, but not limited to, earthquake faults, radiation, chemical waste and other similar dangers. If Landlord elects to terminate this Lease, Landlord may give Tenant written notice of its election to terminate within thirty (30) days after such damage or destruction, and this Lease shall terminate fifteen (15) days after the date Tenant receives such notice and both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). If Landlord elects not to terminate the Lease, subject to Tenant's termination right set forth below, Landlord shall promptly commence the process of obtaining necessary permits and approvals and repair of the Building as soon as practicable, and this Lease will continue in full force and affect. All insurance proceeds from insurance under paragraph 21, excluding proceeds for Tenant's Personal Property, shall be disbursed and paid to Landlord. Tenant shall be required to pay to Landlord the amount of any deductibles payable in connection with any insured casualties, unless the casualty was caused by the sole negligence or willful misconduct of Landlord. Tenant shall have the right to terminate this Lease if the Building cannot, with reasonable diligence, be fully repaired within one hundred, eighty (180) days from the date of damage or destruction. The determination of the estimated repair periods in this paragraph 23 22 shall be made by an independent licensed contractor or engineer within thirty (30) days after such damage or destruction. Landlord shall deliver written notice of the repair period to Tenant after such determination has been made and Tenant shall exercise its right to terminate this Lease, if at all, within ten (10) days of receipt of such notice from Landlord. Upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). C. Limited Obligation to Repair. Landlord's obligation, should it ---------------------------- elect or be obligated to repair or rebuild, shall be limited to the basic Building and the Tenant Improvements and shall not include any Alterations made by Tenant . D. Abatement of Rent. Rent shall be temporarily abated ----------------- proportionately during any period when, by reason of such damage or destruction, there is substantial interference with Tenant's use of the Building, having regard to the extent to which Tenant may be required to discontinue Tenant's use of the Building. Such abatement shall commence upon such damage or destruction and end upon substantial completion by Landlord of the repair or reconstruction which Landlord is obligated or undertakes to do. Tenant shall not be entitled to any compensation or damages from Landlord for loss of the use of the Premises, damage to Tenant's Personal Property or any inconvenience occasioned by such damage, repair or restoration. Tenant hereby waives the provisions of Section 1932, Subdivision 2, and Section 1933, Subdivision 4, of the California Civil Code, and the provisions of any similar law hereinafter enacted. E. Damage Near End of Term. Anything herein to the contrary ----------------------- notwithstanding, if the Building is destroyed or damaged during the last twelve (12) months of the Term, then either Landlord or Tenant may, at its option, cancel and terminate this Lease as of the date of the occurrence of such damage by delivery of written notice to the other party and, upon such termination, Landlord and Tenant shall be released of all further liability under this Lease (except to the extent that any provision of this Lease expressly survives termination). If neither Landlord nor Tenant elects to terminate this Lease, the repair of such damage shall be governed by paragraphs 23.A. and 23.B. 24. Condemnation. ------------ If title to all of the Premises or Building or so much thereof is taken for any public or quasi-public use under any statute or by right of eminent domain so that reconstruction of the Building will not, in Landlord's and Tenant's mutual opinion, result in the Premises being reasonably suitable for Tenant's continued occupancy for the uses and purposes permitted by this Lease, this Lease shall terminate as of the date that possession of the Premises or Building or part thereof be taken and upon such termination both Landlord and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives terminations. A sale by Landlord to any authority having the power of eminent domain, either under threat of condemnation or while condemnation proceedings are pending, shall be deemed a taking under the power of eminent domain for all purposes of this paragraph. If any part of the Premises or Building is taken and the remaining part is reasonably suitable for Tenant's continued occupancy for the purposes and uses permitted by this 23 Lease, this Lease shall, as to the part so taken, terminate as of the date that possession of such part of the Premises or Building is taken and upon such termination both Landlord and Tenant shall be released of all further liability under this Lease with respect to that portion of the Premises or the Building that is taken (except to the extent any provision of this Lease expressly survives termination). The Rent and other sums payable hereunder shall be reduced in the same proportion that Tenant's use and occupancy of the Building is reduced. If any portion of the Outside Area is taken, Tenant's Rent shall be reduced only if such taking materially interferes with Tenant's use of the Outside Area and then only to the extent that the fair market rental value of the Premises is diminished by such partial taking. If the parties disagree as to the amount of Rent reduction, the matter shall be resolved by arbitration and such arbitration shall comply with and be governed by the California Arbitration Act, Sections 1280 through 1294.2 of the California Code of Civil Procedure. Each party hereby waives the provisions of Section 1265.130 of the California Code of Civil Procedure allowing either party to petition the Superior Court to terminate this Lease in the event of a partial taking of the Premises. Landlord and Tenant shall each be entitled to one-half ( 1/2) of that portion of the condemnation award that is properly allocable to the value of the leasehold estate created by this Lease. Except for the foregoing allocation, no award for any partial or entire taking of the Premises or the Property shall be apportioned between Landlord and Tenant and Tenant assigns to Landlord its interest in the balance of any award which may be made for the taking or condemnation of the Premises or the Property, together with any and all rights of Tenant arising in or to the same or any part thereof. Nothing contained herein, however, shall be deemed to give Landlord any interest in or require Tenant to assign to Landlord any separate award made to Tenant for the taking of Tenant's Personal Property, for the interruption of Tenant's business, or its moving costs, or for the loss of its good will. 25. Assignment and Subletting. ------------------------- A. Landlord's Consent. Tenant shall not enter into a Sublet without ------------------ Landlord's prior written consent, which consent shall not be unreasonably withheld. Any attempted or purported Sublet without Landlord's prior written consent shall be void and confer no rights upon any third person and, at Landlord's election, shall terminate this Lease. Each Subtenant shall agree in writing, for the benefit of Landlord, to assume, to be bound by, and to perform the terms, conditions and covenants of this Lease to be performed by Tenant. Notwithstanding anything contained herein, Tenant shall not be released from liability for the performance of each term, condition and covenant of this Lease by reason of Landlord's consent to a Sublet unless Landlord specifically grants such release in writing. B. Tenant's Notice. If Tenant desires at any time to Sublet the --------------- entire Premises, Tenant shall first notify Landlord in writing of its desire to do so. Within thirty (30) days after Landlord's receipt of Tenant's notice, Landlord may elect to terminate this Lease , In such event, Landlord and Tenant shall negotiate in good faith the effective date of such termination and Tenant shall be released of all further liability under this Lease (except to the extent any provision of this Lease expressly survives termination). C. Information to be Furnished. If Landlord elects not to terminate --------------------------- this Lease, then Tenant shall submit in writing to Landlord: (i) the name of the proposed Subtenant; 24 (ii) the nature of the proposed Subtenant's business to be carried on in the Premises; (iii) the terms and provisions of the proposed Sublet and a copy of the proposed Sublet form containing a description of the subject premises; and (iv) such financial information, including financial statements, as Landlord may reasonably request concerning the proposed Subtenant. D. Landlord's Alternatives. At any time within ten (10) days after ----------------------- Landlord's receipt of the information specified in paragraph 25.C., Landlord may, by written notice to Tenant, elect: (i) to consent to the Sublet by Tenant; or (ii) to refuse its consent to the Sublet If Landlord consents to the Sublet, Tenant may thereafter enter into a valid Sublet of the Premises or portion thereof, upon the terms and conditions and with the proposed Subtenant set forth in the information furnished by Tenant to Landlord, subject, however, at Landlord's election, to the condition that fifty percent (50%) of any excess of the Subrent over the Rent required to be paid by Tenant under this Lease less reasonable attorneys' fees, leasing commissions, tenant improvements and other reasonable subletting costs paid by Tenant on the Sublet, shall be paid to Landlord. E. Exempt Sublets. Notwithstanding the above, Landlord's prior -------------- written consent shall not be required for an assignment of this Lease to a subsidiary, affiliate or parent corporation of Tenant; a corporation into which Tenant merges or consolidates; or a purchaser of all or substantially all of the assets of Tenant provided that: (i) Tenant gives Landlord prior written notice of the name of any such assignee, (ii) the assignee assumes, in writing, for the benefit of Landlord all of Tenant's obligations under the Lease, and (iii) in the case of an assignment to a purchaser of Tenant's assets, as of the date of the transfer, the transferee has a tangible net worth (exclusive of good will) greater than or equal to ten (10) times the annual net Monthly Rent then payable under the Lease. F. Proration. If a portion of the Premises is Sublet, the pro rata --------- share of the Rent attributable to such partial area of the Premises shall be determined by Landlord by dividing the Rent payable by Tenant hereunder by the total square footage of the Premises and multiplying the resulting quotient (the per square foot rent) by the number of square feet of the Premises which are Sublet. 26. Default. ------- A. Tenant's Default. A default under this Lease by Tenant shall exist ---------------- if any of the following occurs: (i) If Tenant fails to pay Rent or any other sum required to be paid hereunder within ten (10) days after the date such Rent or other sum is due; or (ii) If Tenant fails to perform any term, covenant or condition of this Lease except those requiring the payment of money, and Tenant fails to cure such breach within thirty (30) days after written notice from Landlord where such breach could reasonably be cured within such 30-day period; provided, however, that where such failure could not reasonably be cured within the 30-day period, that Tenant shall not be in default if it commences such performance within the 30-day period and diligently thereafter prosecutes the same to completion; or 25 (iii) If Tenant assigns its assets for the benefit of its creditors; or (iv) If the sequestration or attachment of or execution on any material part of Tenant's Personal Property essential to the conduct of Tenant's business occurs, and Tenant fails to obtain a return or release of such Personal Property within thirty (30) days thereafter, or prior to sale pursuant to such sequestration, attachment or levy, whichever is earlier, or (v) If Tenant abandons the Premises; or (vi) If a court makes or enters any decree or order other than under the bankruptcy laws of the United States adjudging Tenant to be insolvent; or approving as properly filed a petition seeking reorganization of Tenant; or directing the winding up or liquidation of Tenant and such decree or order shall have continued for a period of sixty (60) days. B. Remedies. Upon a default, Landlord shall have the following -------- remedies, in addition to all other rights and remedies provided by law or otherwise provided in this Lease, to which Landlord may resort cumulatively or in the alternative: (i) Landlord may continue this Lease in full force and effect, and this Lease shall continue in full force and effect as long as Landlord does not terminate this Lease, and Landlord shall have the right to collect Rent when due. (ii) Landlord may terminate Tenant's right to possession of the Premises at any time by giving written notice to that effect, and relet the Premises or any part thereof. Tenant shall be liable immediately to Landlord for all costs Landlord incurs in reletting the Premises or any part thereof, including, without limitation, broker's commissions, expenses of cleaning and redecorating the Premises required by the reletting and like costs. Reletting may be for a period shorter or longer than the remaining term of this Lease. No act by Landlord other than giving written notice of termination to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Premises or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On termination, Landlord has the right to remove all Tenant's Personal Property and store name at Tenant's cost and to recover from Tenant as damages: (a) The worth at the time of award of the unpaid Rent and other sums due and payable which had been earned at the time of termination; plus (b) The worth at the time of award of the amount by which the unpaid Rent and other sums due and payable, which would have been payable after termination until the time of award exceeds the amount of such Rent loss that Tenant proves could have been reasonably avoided; plus (c) The worth at the time of award of the amount by which the unpaid rent and other sums due and payable for the balance of the Term after the time of award exceeds the amount of such Rent loss that Tenant proves could be reasonably avoided; plus 26 (d) Any other amount necessary to compensate Landlord for all the detriment proximately caused by Tenant's failure to perform Tenant's obligations under this Lease, or which, in the ordinary course of things, would be likely to result therefrom, including, without limitation, any costs or expenses incurred by Landlord: (i) in retaking possession of the Premises; (ii) in maintaining, repairing, preserving, restoring, replacing, cleaning, altering or rehabilitating the Premises or any portion thereof, including such acts for reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for any other costs necessary or Appropriate to relet the Premises; plus (e) At Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by the laws of the State of California. The "worth at the time of award", of the amounts referred to in paragraphs 26.B.(ii)(a) and 26.B.(ii)(b) is computed by allowing interest at the Interest Rate on the unpaid rent and other sums due and payable from the termination date through the date of award. The "worth at the time of award" of the amount referred to in paragraph 26.B.(ii)(c) is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (l%). Tenant waives redemption or relief from forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or under any other present or future law, in the event Tenant is evicted or Landlord takes possession of the Premises by reason of any default of Tenant hereunder. (iii) Landlord may, with or without terminating this Lease, re- enter the Premises and remove all persons and property from the Premises; such property may be removed and stored in a public warehouse or elsewhere at the cost of and for the account of Tenant. No reentry or taking possession of the Premises by Landlord pursuant to this paragraph shall be construed as an election to terminate this Lease unless a written notice of such intention is given to Tenant. C. Landlord's Default. Landlord shall not be deemed to be in default ------------------ in the performance of any obligation required to be performed by it hereunder unless and until it has failed to perform such obligation within thirty (30) days after receipt of written notice by Tenant to Landlord specifying the nature of such default; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be deemed to be in default if it shall commence such performance within such 30-day period and thereafter diligently prosecute the same to completion. 27. Subordination. ------------- If the holder or holders of any ground or underlying lease, mortgage or deed of trust which affects the Premises ("Encumbrance") shall require that this Lease be prior and superior to the lien of such Encumbrance, within fifteen (15) days of written request of Landlord to Tenant, Tenant shall execute, have acknowledged and deliver any and all documents or instruments, in the form presented to Tenant, which Landlord or the holder of such Encumbrance deems necessary or desirable for such purposes. Provided that the applicable holder of the Encumbrance executes, acknowledges and delivers a commercially reasonable subordination, 27 nondisturbance and attornment agreement, Landlord shall have the right to cause this Lease to be and become and remain subject and subordinate to any and all Encumbrances which are now or may hereafter be executed covering the Premises or the Property or any renewals, modifications, consolidations, replacements or extensions thereof, for the full amount of all advances made or to be made thereunder and without regard to the time or character of such advances, together with interest thereon and subject to all the terms and provisions thereof, and within fifteen (15) days after Landlord's written request, Tenant shall execute any commercially reasonable instruments, releases or other documents required by Landlord or the holder of the Encumbrance to make this Lease subordinate to any lien of the Encumbrance. If Tenant fails to do so, it shall be deemed that this Lease is subordinated. Any instrument describing such lease or mortgage or deed of trust to which this Lease may be subordinated shall include, as a condition precedent to Tenant's obligation to execute same, commercially reasonable nondisturbance provisions to the effect that, notwithstanding such subordination, the holder of the Encumbrance agrees that so long as Tenant faithfully discharges all obligations on its part to be kept and performed under this Lease in accordance with its terms, its tenancy will not be affected by any default under such lease or mortgage or deed of trust, and in the event of termination of such lease or foreclosure or sale under power of sale or deed in lieu of sale, or any transfer of Landlord's interest, all rights, benefits, privileges and remedies of Tenant under this Lease shall remain in effect. Notwithstanding anything to the contrary set forth in this paragraph, Tenant hereby attorns and agrees to attorn to any entity purchasing or otherwise acquiring the Premises at any sale or other proceeding or pursuant to the exercise of any other rights, powers or remedies under such Encumbrance. 28. Notices. ------- Any notice or demand required or desired to be given under this Lease shall be in writing and shall be personally served or in lieu of personal service may be given by mail. If given by mail, such notice shall be deemed to have been given when seventy-two (72) hours have elapsed from the time when such notice was deposited in the United States mail, registered or certified, and postage prepaid, addressed to the party to be served. At the date of execution of this Lease, the addresses of Landlord and Tenant are as set forth in paragraph 1. After the Commencement Date, the address of Tenant shall be the address of the Premises. Either party may change its address by giving notice of same in accordance with this paragraph. 29. Attorneys' Fees. --------------- If either party brings any action or legal proceeding for damages for an alleged breach of any provision of this Lease, to recover rent, or other sums due, to terminate the tenancy of the Premises or to enforce, protect or establish any term, condition or covenant of this Lease or right of either party, the prevailing party shall be entitled to recover as a part of such action or proceedings, or in a separate action brought for that purpose, reasonable attorneys' fees and costs. 30. Estoppel Certificates. --------------------- Tenant shall within fifteen (15) days following written request by Landlord: 28 (i) Execute and deliver to Landlord any documents, including estoppel certificates, in the form prepared by Landlord (a) certifying that this Lease is unmodified and in full force and effect or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect and the date to which the Rent and other charges are paid in advance, if any, and (b) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of Landlord, or, if there are uncured defaults on the part of the Landlord, stating the nature of such, uncured defaults, and (c) evidencing the status of the Lease as may be required either by a lender making a loan to Landlord to be secured by deed of trust or mortgage covering the Premises or a purchaser of the Premises from Landlord. Tenant's failure to deliver an estoppel certificate within fifteen (15) days after delivery of Landlord's written request therefor shall be conclusive upon Tenant (a) that this Lease is in full force and effect, without modification except as may be represented by Landlord, (b) that there are now no uncured defaults in Landlord's performance and (c) that no Rent has been paid in advance. If Tenant fails to so deliver a requested estoppel certificate within the prescribed time it shall be conclusively presumed that this Lease is unmodified and in full force and effect except as represented by Landlord. (ii) Deliver to Landlord the current financial statements of Tenant, and financial statements of the two (2) years prior to the current financial statements year, with an opinion of a certified public accountant, including a balance sheet and profit and loss statement for the most recent prior year, all prepared in accordance with generally accepted accounting principles consistently applied. 31. Transfer of the Premises by Landlord. ------------------------------------ In the event of any conveyance of the Premises and assignment by Landlord of this Lease, Landlord shall be and is hereby entirely released from all liability under any and all of its covenants and obligations contained in or derived from this Lease occurring after the date of such conveyance and assignment and Tenant agrees to attorn to such transferee provided such transferee assumes Landlord's obligations under this Lease. 32. Landlord's Right to Perform Tenant's Covenants. ---------------------------------------------- If Tenant shall at any time fail to make any payment or perform any other act on its part to be made or performed under this Lease, and such failure shall continue after the expiration of any applicable grace or cure periods provided in this Lease, Landlord may, but shall not be obligated to and without waiving or releasing Tenant from any obligation of Tenant under this Lease, make such payment or perform such other act to the extent Landlord may deem desirable, and in connection therewith, pay expenses and employ counsel. All sums so paid by Landlord and all penalties, interest and costs in connection therewith shall be due and payable by Tenant on the next day after any such payment by Landlord, together with interest thereon at the Interest Rate from such date to the date of payment by Tenant to Landlord, plus collection costs and attorneys' fees. Landlord shall have the same rights and remedies for the nonpayment thereof as in the case of default in the payment of Rent. 29 33. Tenant's Remedy. --------------- If, as a consequence of a default by Landlord under this Lease, Tenant recovers a money judgment against Landlord, such judgment shall be satisfied only out of the proceeds of sale received upon execution of such judgment and levied thereon against the right, title and interest of Landlord in the Premises and out of Rent or other income from such property receivable by Landlord or out of consideration received by Landlord from the sale or other disposition of all or any part of Landlord's right, title or interest in the Premises, and neither Landlord nor its agents shall be liable for any deficiency. 34. Mortgagee Protection. -------------------- If Landlord defaults under this Lease. Tenant will notify any beneficiary of a deed of trust or mortgagee of a mortgage covering the Premises, and offer such beneficiary or mortgagee a reasonable opportunity to cure the default, including time to obtain possession of the Premises by power of sale or a judicial foreclosure, if such should prove necessary to effect a cure. 35. Brokers. ------- Tenant warrants and represents that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except for Cornish and Carey Commercial, which represents both Landlord and Tenant, and that it knows of no real estate broker or agent who is or might be entitled to a commission in connection with this Lease. 36. Acceptance. ---------- This Lease shall only become effective and binding upon full execution hereof by Landlord and delivery of a signed copy to Tenant. Tenant, at its option, may record a short form memorandum of this Lease. Upon the expiration or sooner termination of this Lease, Tenant shall execute and deliver to Landlord a quitclaim deed in recordable form releasing, remising and quitclaiming to Landlord all right, title and interest of Tenant in and to the Premises. 37. Modifications for Lender. ------------------------ If, in connection with obtaining any initial financing for the construction and development of the Premises, Landlord's lender shall request reasonable modification to this Lease as a condition to such financing, Tenant shall not unreasonably withhold, delay or defer its consent thereto, provided such modifications do not materially adversely affect Tenant's rights or obligations hereunder. 38. Parking. ------- Tenant shall have the exclusive right to use all parking spaces located within the boundaries of the Premises, upon terms and conditions, as may from time to time be reasonably established by Landlord, until such time as Landlord constructs any buildings on the Property for occupancy by any tenant(s) other than Tenant. In such event, upon completion of such building(s) the Outside Area, including the parking areas, shall be converted to common area, 30 available for the non-exclusive use by Tenant and any other tenant(s) of the Property, and Tenant shall have nonexclusive right to use Tenant's pro rata share of all parking spaces located within the boundaries of the Property, but not less than 210 parking spaces. Should parking charges or surcharges of any kind be imposed on the parking facilities by any governmental agency, Tenant shall reimburse Landlord for such charges and/or surcharges or, if possible, shall pay such charges and/or surcharges directly to the governmental agency and, in such event. Tenant shall provide Landlord with proof that such charges and/or surcharges have been paid by Tenant. 39. Option to Purchase. If (i) Tenant gives the notice described in ------------------ paragraph 2.B. and Landlord does not for any reason commence construction of the Building within nine (9) months from the date of Tenant's notice (as extended for delays caused by force majeure), or (ii) Landlord has not given notice of Landlord's intent to proceed as described in paragraph 2.B. on or before the date which is forty-eight (48) months from the Close of Escrow, or (iii) Landlord has timely given notice of Landlord's intent to proceed but has not commenced construction of the Building within nine (9) months from the date of Landlord's notice (as extended for delays caused by force majeure), or (iv) Landlord has commenced construction of the Building but has not completed construction of the Building within twelve (12) months from the commencement of construction (as extended by delays caused by force majeure) then, provided that Tenant is not in default under this Lease, the Premises 1 Lease or the Premises 2 Lease at the time of Tenant's exercise, Tenant shall have the option to purchase the Premises on the terms and conditions set forth herein. In the event that commencement of construction or completion of construction is at any time delayed by force majeure, Landlord shall promptly notify Tenant in writing of the commencement and expiration of any period of such delay and the cause or causes of such delay. Tenant shall exercise its option within sixty (60) days after the right to exercise the option commences by giving Landlord written notice of its exercise. The Premises subject to the option shall be located as shown on EXHIBIT A and shall consist of sufficient land to permit development --------- and construction of a two-story building of approximately 60,000 square feet with sufficient on-site parking and off-site parking to satisfy the then existing parking requirements of the City of Redwood City or other governmental agency with jurisdiction (the "Option Land"). The off-site parking shall be provided by Landlord on the Property pursuant to a reciprocal parking agreement between Landlord and Tenant providing for perpetual reciprocal parking rights. The purchase price for the Premises shall be Seventeen and 47/100ths Dollars ($17.47) per square foot of the Option Land, adjusted for inflation based upon increases in the Index from the date of this Lease until the date of Tenant's notice of exercise (which increases shall be calculated in the same manner provided for in paragraph 5.C. of this Lease), plus any outstanding balance of any construction loan relating solely to the construction of the Premises (but excluding any amount relating to the acquisition price paid by Landlord for the Premises) plus any out-of-pocket costs paid by Landlord for the construction of the Building (but only to the extent not already included in the loan). The purchase price shall be paid by Tenant to Landlord in cash upon the close of escrow. In addition to the purchase price, all costs incurred to create the Premises as a separate legal parcel; prepare the reciprocal parking agreement; construct Tenant's share of the parking spaces (approximately 210 spaces); and to prepare any covenants, conditions and restrictions required to govern the operation, use and maintenance of any other common areas to be utilized by Landlord and Tenant, including without limitation, legal fees, engineering and consultant fees, permit and approval fees, construction costs, and recording costs shall be paid by Tenant. The cost of constructing any parking spaces subject to the reciprocal parking agreement in excess of Tenant's share shall be paid, by Landlord. Upon 31 exercise of the option by Tenant, Landlord and Tenant shall use good faith efforts to execute a purchase agreement incorporating the foregoing terms and conditions within sixty (60) days after the date of Tenant's notice of exercise. Tenant shall have right to rescind its exercise of the option by giving Landlord written notice within thirty (30) days after Landlord informs Tenant of the construction loan balance and out-of-pocket costs described above. Close of escrow under the purchase agreement shall occur within thirty (30) days after the date the parcel map creating the Premises as a separate legal parcel is recorded, but not later than nine (9) months from the date of Tenant's exercise of the option, unless close of escrow is delayed due to force majeure, in which event close of escrow shall occur as soon as reasonably possible. If, however, Tenant fails to exercise the option to purchase the Premises within the sixty (60) day exercise period, or Tenant timely rescinds its exercise, the option shall expire, and this Lease and all rights and obligations of Landlord and Tenant hereunder shall terminate; provided, however, that Tenant shall retain any rights to claim damages to the extent that Landlord has breached its obligations under this Lease. 40. General. ------- A. Captions. The captions and headings used in this Lease are for the -------- purpose of convenience only and shall not be construed to limit or extend the meaning of any part of this Lease. B. Executed Copy. Any fully executed copy of this Lease shall be ------------- deemed an original for all purposes. C. Time. Time is of the essence for the performance of each terra, ---- condition and covenant of this Lease. D. Choice of Law. This Lease shall be construed and enforced in ------------- accordance with the laws of the State of California. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant. E. Gender: Singular, Plural. When the context of this Lease requires, ------------------------ the neuter gender includes the masculine, the feminine, a partnership or corporation or joint venture, and the singular includes the plural. F. Binding Effect. The covenants and agreement contained in this -------------- Lease shall be binding on the parties hereto and on their respective successors and assigns to the extent this Lease is assignable. G. Waiver. The waiver by Landlord of any breach of any term, ------ condition or covenant, of this Lease shall not be deemed to be a waiver of such provision or any subsequent breach of the same or any other term, condition or covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach at the time of acceptance of such payment. No covenant, term or condition of this Lease shall be deemed to have been, waived by Landlord unless such waiver is in writing signed by Landlord. 32 H. Entire Agreement. This Lease is the entire agreement between the ---------------- parties, and there are no agreements or representations between the parties except as expressed herein. Except as otherwise provided herein, no subsequent change or addition to this Lease shall be binding unless in writing and signed by the parties hereto. I. Authority. If Tenant is a corporation or a partnership, each --------- individual executing this Lease on behalf of said corporation or partnership, as the case may be, represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said entity in accordance with its corporate bylaws, statement of partnership or certificate of limited partnership, as the case may be, and that this Lease is binding upon said entity in accordance with its terms. Landlord, at its option, may require a copy of such written authorization to enter into this Lease. J. Exhibits. All exhibits, amendments, riders and addenda attached -------- hereto are hereby incorporated herein and made a part hereof. K. Lease Summary. The Lease Summary attached to this Lease is ------------- intended to provide general information only. In the event of any inconsistency between the Lease Summary and the specific provisions of this Lease, the specific provisions of this Lease shall prevail. 33 THIS LEASE is effective as of the date the last signatory necessary to execute the Lease shall have executed this Lease. TENANT: Dated: AMPEX CORPORATION, a Delaware Corporation ------------------- By: --------------------------------- Its: -------------------------------- By: --------------------------------- Its: -------------------------------- LANDLORD Dated: MARTIN/CAMPUS ASSOCIATES, L.P., -------------------- a California limited partnership By Martin/Redwood Partners, L.P. a California limited partnership, General Partner By: The Martin Group of Companies, Inc. a California corporation, General Partner By: --------------------------- Its: -------------------------- 34 EXHIBIT C -- PART 2 FIRST AMENDMENT TO LEASE THIS FIRST AMENDMENT TO LEASE (the "First Amendment") is made and entered into as of this 10th day of September, 1998 by and between MARTIN/CAMPUS ASSOCIATES NO. 6, L.P., a Delaware limited partnership ("Landlord"), and AMPEX CORPORATION, a Delaware corporation ("Tenant"). R E C I T A L S: This First Amendment is entered into upon the basis of, and with reference to the following facts, understandings and intentions of the parties: A. Martin/Campus Associates, L.P., a Delaware limited partnership ("Original Landlord"), and Tenant entered into that certain Lease dated January 19, 1996 which demised those certain premises to be situated in a building to be constructed by Landlord, together with the exclusive right to use a certain Outside Area (as defined in the Lease), located in the City of Redwood City, California, as more particularly described in the Lease (the "Premises"). B Original Landlord assigned all of its right, title and interest as landlord under the Lease to Landlord pursuant to that certain Assignment and Assumption of Tenant Leases dated as of December 22, 1997 (the "Assignment of Lease"). C. Landlord and Tenant desire to modify and amend the terms of the Lease (i) to provide for the surrender of the exclusive use of that portion of the Premises designated as the Outside Area, and (ii) in lieu thereof, to designate common areas for which Tenant shall have the nonexclusive right to use and for which Landlord shall assume maintenance obligations, and to require Tenant to pay a proportionate share of the cost therefor, all as more fully set forth herein. NOW, THEREFORE, for good and valuable consideration, including the mutual covenants contained in the Lease and in this First Amendment, Landlord and Tenant hereby agree as follows: 1. Defined Terms. Except as expressly provided in this First Amendment to ------------- the contrary, terms which are defined in the Lease shall have the same meaning when used in thus First Amendment. 2. Premises. Paragraph 2 of the Lease is hereby deleted in its entirety -------- and the following paragraph is inserted in place thereof: "Landlord hereby leases to Tenant and Tenant hereby leases from Landlord that certain building to be constructed by Landlord, consisting of approximately 59,760 square feet (the "Building") in the City of Redwood City, County of San Mateo, State of California, together with the exclusive use of the Outside Patio Area described in Paragraph 3.H., as more particularly shown on EXHIBIT A (collectively, --------- the "Premises"). The Premises also include the appurtenant right to use in common with other tenants of the Property (as defined below) the Common Area (as defined below) of the Property owned by Landlord." 3. Definitions. Paragraph 3 of the Lease is hereby amended (a) to delete ----------- in its entirety paragraph 3.H (the definition of "Outside Area") and (b) to insert the following new definitions: "B, 1. Common Area. All areas and facilities within the Property which are not within buildings wholly or partially leased to or occupied by tenants or not otherwise appropriated to the exclusive occupancy of tenants, including the Parking Area, the sidewalks, pedestrian ways, driveways, signs (other than Tenant's signs), pools, ponds, service delivery and loading facilities, common storage areas, common utility facilities and all other areas on the Property established by Landlord and/or its successors for non-exclusive use. Landlord may, by written notice to Tenant, elect in its sole discretion to increase and/or decrease the Common Area from time to time during the Term for any reason whatsoever (including without limitation an election by Landlord and/or its successors in their sole discretion to make changes to the buildings situated on the Property, and/or to subdivide, sell, exchange, dispose of, transfer, or change the configuration of all or any portion of the Common Area from time to time), so long as Landlord does not (i) unreasonably interfere with ingress to or egress from the Building; (ii) permanently reduce the number of parking spaces available for Tenant's use below the minimum requirements set forth in paragraph 38; (iii) move the Parking Area materially farther from the Building; (iv) materially decrease the visibility of Tenant's signage located on the Building or within the Property as of the date of this First Amendment or future Tenant's identification signage installed on the exterior of the Building in accordance with paragraph 20 (provided that Landlord alternatively may relocate Tenant's signage at Landlord's expense to a location mutually acceptable to Landlord and Tenant as may be agreed by the parties prior to such relocation); or (v) reconfigure the Common Area located within those certain areas surrounding the Building as highlighted in yellow on EXHIBIT A and designated as the "Protected Areas." No such --------- subdivision, sale, exchange, disposition, transfer, or change to the configuration of all or any portion of the Common Area shall cause the Common Area to be increased or decreased unless and until Landlord has given Tenant written notice of such increase or decrease. Landlord shall have exclusive control of the Common Area and may at any time close any part thereof for periods not to exceed thirty (30) days (subject to delays due to causes beyond Landlord's control), exclude and restrain anyone from any part thereof, except the bonafide customers, employees and invitees of Tenant who use the Common Area in accordance with the reasonable rules and regulations as Landlord may from time to time promulgate. In exercising any such rights, Landlord shall not unreasonably disrupt Tenant's business. 2 "B.2. Common Area Maintenance Expenses. The total of all costs and -------------------------------- expenses paid or incurred by Landlord in connection with the operation, maintenance, ownership, repair and replacement of the Common Area, as calculated in accordance with generally accepted accounting principles, consistently applied. Without limiting the generality of the foregoing and subject to the exclusions set forth below, Common Area Maintenance Expenses include all costs of and expense for: (i) resurfacing, resealing, remarking, painting, repainting, striping or restriping the Parking Area (but excluding certain parking lot repairs to the Parking Area designated as the Phase III Parking Lot Resurfacing area on EXHIBIT A-1 to be performed ----------- pursuant to that certain Amendment to Bay Road Lease and Douglas/Broadway Lease between Landlord and Tenant dated July 14, 1998); (ii) maintenance, repair and replacement of sidewalks, curbs, paving, walkways, Parking Area, Property signs, landscaping, planting and irrigation systems, trash facilities, loading and delivery areas, lighting, drainage and common utility facilities associated with Parking Area lighting, signage and irrigation of landscaping, directional or other signs, markers and bumpers; (iii) wages, salaries, benefits, payroll burden fees and charges of non-executive personnel (but including Landlord's property manager to extent the manager is utilized, in lieu of retaining independent contractors, for the supervision of the maintenance or repair of the Common Area) employed by Landlord and the charges of all independent contractors retained by Landlord (to the extent on a percentage basis of time spent that such personnel and contractors are utilized by Landlord) for the maintenance or repair of the Property, but excluding the cost of any security services except to the extent provided in paragraph 41); (iv) depreciation or amortization (or in lieu thereof, rental payments) on all tools, equipment and machinery used in the operation and maintenance of the Common Area; (v) premiums for Comprehensive General Liability Insurance or Commercial General Liability Insurance, casualty insurance, workers compensation insurance or other insurance on the Common Area, or any portion thereof or interest therein, and any deductibles (which deductible shall not exceed $15,000, increased annually by 3%) payable with respect to such insurance policies other than earthquake insurance for which the deductible shall not be included in Common Area Maintenance Expenses; (vi) cleaning, collection, storage and removal of trash, rubbish, dirt and debris, and sweeping and cleaning the Common Area; (vii) all personal property or real property taxes and assessments levied or assessed on the Property, or any portion thereof or interest therein, including without limitation the Real Property Taxes for the Premises, if applicable under paragraph 15.A; (viii) reasonable legal, accounting and other professional services for the operation of the Common Area, including reasonable costs, fees and expenses of contesting the validity or applicability of any law, ordinance, rule, regulation or order relating to the Building, and of contesting, appealing or otherwise attempting to reduce any Real Property Taxes assessed against 3 the Property; (ix) any alterations, additions or improvements required to be made to the Common Area in order to reduce Common Area Maintenance Expenses or to protect the safety of occupants of the Property (provided in the latter case that such alterations, additions or improvements are not necessitated solely as a result of the use and occupancy of the Common Area by a new tenant of the Property or as a result of new tenant improvements to any building on the Property, other than in or on the Building, and further provided in any case that the cost of any such alterations, additions, improvements or capital improvements, together with interest at the rate of ten percent (10%) per annum, if applicable, the rate paid by Landlord on funds borrowed for the purpose of constructing or installing such alterations, shall be amortized over the useful life of the alteration, addition, improvement or capital improvement in question and included in Common Area Maintenance Expenses for each year over which such costs are amortized and that the annual amount of such amortized costs passed through as an expense shall not exceed the cost savings realized in such year); (x) all costs and expenses incurred in performing any alterations, additions or improvements required to be made to the Common Area in order to comply with applicable laws, ordinances, rules, regulations and orders enacted after the date hereof, provided that the cost of any such alterations, additions, improvements or capital improvements, together with interest at the rate of ten percent (10%) per annum, or, if applicable, the rate paid by Landlord on funds borrowed for the purpose of constructing or installing such alterations, shall be amortized over the useful life of the alteration, addition, improvement or capital improvement in question and included in Common Area Maintenance Expenses for each year over which such costs are amortized; (xi) any and all payments due and owing on behalf of the Property or any portion thereof with respect to any CC&R's to the extent such payments are in lieu of or substitution for other Common Area Maintenance Expenses, and (xii) all costs and expenses related to the adoption and maintenance of a portion of Highway 101 (Tenant's Percentage Share of which shall not exceed $430 per year, increased annually by 3%). However, notwithstanding the foregoing or anything to the contrary in this Lease, Common Area Maintenance Expenses shall not include the cost of or expenses for the following: (A) leasing commissions, attorneys' fees or other costs or expenses incurred in connection with negotiations or disputes with other tenants of the Property or attorneys' fees incurred which must be capitalized for income tax purposes; (B) depreciation of buildings in the Property; (C) payments of principal, interest, late fees, prepayment fees or other charges on any debt secured by a mortgage covering the Property, or rental payments under any ground lease or underlying lease; (D) any penalties incurred due to Landlord's violation of any governmental rule or authority (but not excluding the cost of compliance therewith, if such cost is chargeable to Tenant pursuant to this Lease); (E) items for which Landlord is 4 reimbursed by insurance; (F) all costs associated with the operation of the business of the entity which constitutes "Landlord", as distinguished from the costs of operations, including, but not limited to, costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Tenant may be in issue), costs of selling, syndicating, financing, mortgaging, or hypothecating any of the Landlord's interest in the Property and/or Common Area, or any portion thereof, costs of any disputes between Landlord and its employees, costs of disputes of Landlord with Building management or costs paid in connection with disputes with Tenant or any other tenants; (G) all costs (including permit, license and inspection fees) incurred in renovating or otherwise improving or decorating, painting or redecorating space for other tenants in the Property; (H) the creation of any reserves for equipment or capital replacement; (I) all costs arising from monitoring, cleaning up and otherwise remediating any release of Hazardous Materials at the Premises; (J) any Real Property Taxes or costs for which Landlord is separately and directly reimbursed by Tenant or any other tenant of the Property which are assessed against the Premises or the premises leased by such other tenant(s); (K) any costs for security services; (L) any costs of repairs for damage or destruction occasioned by fires or other casualty (except the deductible amount permitted under item (v) above); (M) any costs due to replacement or failure of Landlord's computer hardware or software or other equipment used in connection with the operation of the Common Area due to so called "Year 2000" issues relating to the inability to distinguish between dates before and after January 1, 2000; and (N) all capital expenditures not described in items (ix) and (x) above. "H. Outside Patio Area. The patio area located outside and adjacent ------------------ to the Building, as more particularly shown on EXHIBIT A." --------- "H-1. Parking Area. All Common Area on the Property (except ------------ sidewalks and service delivery facilities) now or hereafter designated by Landlord for the parking or access of motor vehicles, including roads, traffic lanes, vehicular parking spaces, landscaped areas and walkways, and including any parking structure constructed during the Term. Landlord and/or its successors may, by written notice to Tenant, elect in their sole discretion to increase and/or decrease the Parking Area from time to time during the Term for any reason whatsoever (including without limitation an election by Landlord and/or its successors in their sole discretion to make changes to the buildings situated on the Property, and/or to subdivide, sell, exchange, dispose of, transfer, or change the configuration of all or any portion of the Parking Area from time to time), so long as such changes to the Parking Area do not reduce the number of parking spaces available for Tenant's use below the minimum requirements set forth in paragraph 38 for periods in excess of thirty (30) days (subject to delays due to causes beyond Landlord's control), materially impair access to or from the Building to and from the Parking 5 Area or move the Parking Area materially farther from the Building. No such subdivision, sale, exchange, disposition, transfer, or change to the configuration of all or any portion of the Parking Area shall cause the Parking Area to be increased or decreased unless and until Landlord has given Tenant written notice of such increase or decrease. "I.1. Property. The real property shown on EXHIBIT A consisting of -------- --------- approximately nine and 31/100ths (9.31) acres and the buildings and permanent improvements located thereon, within which the Premises are located. "K.1. Rentable Area. The aggregate square footage in any one or more ------------- buildings on the Property, as appropriate, as reasonably determined by Landlord's architect from time to time in accordance with BOMA Standard (ANSI Z65.1 1980) for full floor office occupancy. The Rentable Area of the building is 59,760 square feet and the Rentable Area of all of the buildings on the Property is 191,910 square feet. "Q.1. Tenant's Percentage Share. The ratio (expressed as a ------------------------- percentage) of the total Rentable Area of the Premises to the total Rentable Area of all of the buildings located on the Property owned by Landlord from time to time, which as of the date hereof shall equal 31.14% (i.e., the Rentable Area of the Premises divided by the Rentable Area of the buildings located on the Property owned by Landlord as of the date hereof.) Tenant's Percentage Share shall be recalculated each and every time that the amount of Rentable Area contained in Premises is adjusted, or the Premises is expanded, buildings are added to or removed from the Property, or there is a change in the total Rentable Area of those buildings located on the Property owned by Landlord, or Landlord sells, exchanges, or otherwise transfers any or all of the buildings located on the Property (including without limitation the Building). The parties acknowledge and agree that the total Rentable Area of all of the buildings located on the Property owned by Landlord may increase and/or decrease from time to time during the Term, since Landlord may elect in its sole discretion to sell a building or buildings or to make changes to the buildings it owns." 4. Lease Term. Paragraph 4 of the Lease is hereby amended by deleting the ---------- first three sentences therefrom and inserting in place thereof the following: "The term shall be a period of ten (10) years commencing on the date (the "Commencement Date") that (i) the Building Shell and the Tenant Improvements as defined in EXHIBIT B (other than the Excluded --------- Improvements as defined below) have been substantially completed in accordance with the plans and specifications identified in EXHIBIT F, --------- except for punchlist items which do not prevent Tenant from using the Premises for its permitted use and (ii) the building inspector for the City of Redwood City has noted on the permit for such improvements that 6 occupancy thereof is permitted (the "Initial Substantial Completion"). Completion of the following items (the "Excluded Items") shall not be a condition to the commencement of the term of the Lease: (A) the parking areas crosshatched on EXHIBIT A-1 and designated as ----------- the "Phase II Parking Improvements" and the "Phase III Parking Lot Resurfacing"; (B) the landscaping within the Phase II Parking improvements and the landscaping areas with the improvements described in clause 4(C) below; (C) the proposed improvements to Broadway located in front of 530 Broadway and in front of the Phase III Parking Lot Resurfacing area; (D) three (3) pairs of book-matched maple wood doors identified as: (i) Doors 127A located between Lobby 101 and the training/conference room identified as Room 137; (ii) Doors 130A located between Corridor 126 and the Open Space Office 130; and (iii) Doors 136B located between the lunch room and the training/conference identified as Room 137 (all such rooms, corridors and doors are more particularly shown on the floor plan prepared by Hellmuth Obata & Kassabaum, Inc., identified as Drawing 4-2A-1, dated June 25, 1998); (E) one (1) bi-folding door system to be installed in the training/conference room identified as Room 137, such room being shown on the floor plan, prepared by Hellmuth Obata & Kassabaum, Inc., identified as Drawing 4-2A-1, dated June 25, 1998); (F) any and all Tenant Improvements within the area shown as Room 200 on the floor plan prepared by Hellmuth Obata & Kassabaum, Inc., identified as Drawing 4-2A-2, dated June 25, 1998; and (G) all floor tiling within the interior of the elevator cabs. "The Excluded Improvements shall be substantially completed in accordance with the following schedule: (i) the Phase II Parking Improvements described in clause (A) and the related landscaping shall be substantially completed on or before six (6) weeks after the Commencement Date; (ii) the Phase III Parking Lot Resurfacing, and the proposed improvements to Broadway described in clause (C) and the related landscaping shall be substantially completed on or before nine (9) weeks after the Commencement Date; (iii) the doors described in clause 7 (D) shall be installed ten (10) weeks after approval by Tenant's architect of the shop drawings or submittal therefor (iv) the folding door system described in clause (E) shall be installed eight (8) weeks after approval of Tenant's architect of the shop drawings or submittal therefor; (v) the Tenant Improvements within the Executive Area shall be substantially completed within a reasonable time after receipt of necessary permits therefor from the City of Redwood City; and (vi) the floor tiling within the interior of the elevator cabs shall be installed within two (2) weeks after Tenant occupies the Premises. In the event of any delay by Landlord in the completion of any Excluded Improvements in accordance with the foregoing schedule, Tenant shall be entitled to a per diem rent credit until such improvement has been substantially completed in an amount equal to the dollar amount yet to be expended by Landlord for such uncompleted improvement." 5. Additional Rent. Paragraph 5.E of the Lease is hereby amended to add --------------- in the second line thereof after the words "including, without limitation," the words "Common Area Maintenance Expenses pursuant to paragraph 5.G.,". 6. Common Area Maintenance Expenses. The following paragraph is added as -------------------------------- a new paragraph 5.G of the Lease: "G. Common Area Maintenance Expenses. -------------------------------- (1) Estimated Payments. Commencing as of the Effective Date and ------------------ continuing throughout the entire Term, Tenant shall pay Tenant's Percentage Share of all Common Area Maintenance Expenses paid or payable by Landlord in each year. On the Effective Date and during December of each calendar year or as soon thereafter as practicable, Landlord shall give Tenant notice of its estimate of amounts payable under this paragraph 5.G.(1) for the ensuing calendar year. Such notice shall show in reasonable detail the basis on which the estimate was determined. On or before the first day of each month during the ensuing calendar year, Tenant shall pay to Landlord one-twelfth (1/12th) of such estimated amounts, 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, in its reasonable judgment, that the amounts payable under this paragraph 5.G.(I) for the current calendar year will vary from its then-current estimate by more than five percent (5%), Landlord may, by notice to Tenant, showing in reasonable detail the basis for such variance, revise its estimate for such year, in which case subsequent payments by Tenant for such year shall be based upon such revised estimate. Landlord's election not to give the notice described in the foregoing sentence shall not affect Landlord's ability to charge Tenant for, nor Tenant's liability to pay for, any shortfall in the estimated payments for such calendar year previously made by Tenant, as set forth in paragraph 5.G.(2). 8 "(2) Adjustment. Within one hundred twenty (120) days after the ---------- close of each calendar year or as soon after such 120-day period as reasonably practicable, Landlord shall deliver to Tenant a reasonably detailed statement of Common Area Maintenance Expenses for such calendar year, certified by Landlord or its property manager, subject to Tenant's right to audit as hereinafter provided. At that time, Landlord shall also deliver to Tenant a statement, certified as correct by Landlord, of the adjustments to be made pursuant to paragraph 5.G.(1) above. If Landlord's statement shows that Tenant owes an amount that is less than the estimated payments for such calendar year previously made by Tenant, Landlord may elect, in its sole discretion, to either refund such excess to Tenant within thirty (30) days after delivery of the statement, or offset such overpayment against Monthly Rent due or remaining due under this Lease; provided that if no Monthly Rent remains due, Landlord shall refund such excess to Tenant within thirty (30) days after delivery of the statement. If such statement shows 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 thirty (30) days after delivery of the statement. "(3) Last Lease Year. If this Lease shall terminate on a day --------------- other than the last day of a calendar year, the adjustment in Minimum Rent applicable to the calendar year in which such termination shall occur shall be prorated on the basis which the number of days from the commencement of such calendar year to and including such termination date bears to three hundred sixty (360). The termination of this Lease shall not affect the obligations of Landlord and Tenant pursuant to paragraph 5.G.(2) to be performed after such termination," 7. Repairs and Maintenance. Paragraph 17.A of the Lease is hereby amended ----------------------- by adding the words "Landlord shall repair, maintain and operate the Common Area and" to the beginning thereof. Paragraph 17.B. is hereby amended by deleting therefrom the third, fourth, fifth and sixth sentences regarding Tenant's obligation to maintain the Outside Area. In lieu thereof the following sentences shall be inserted providing for Tenant's obligation to maintain and repair the Outside Patio Area: "Tenant shall also maintain the Outside Patio Area in good order, condition and repair, consistent with the reasonable maintenance standards established by Landlord for the balance of the Common Area. If at any time Landlord determines that Tenant's repair and maintenance of the Outside Patio Area is not consistent with the reasonable maintenance standards established by Landlord for the balance of the Common Area, Landlord shall notify Tenant in writing of any such deficiencies. If Tenant fails to cure such deficiencies within thirty (30) days after receipt of Landlord's notice, Landlord shall have the right, on thirty (30) days' written notice to Tenant, to assume responsibility for maintenance and repair of the Outside Patio Area. In such event, Tenant shall reimburse Landlord monthly, as Additional Rent, for the costs incurred by Landlord to maintain and repair the Outside Patio Area." 9 8. Parking Areas. Paragraph 38 is hereby deleted and the following is ------------- inserted in place thereof: "Tenant shall have the non-exclusive right, in common with any other tenants or occupants of the Property, to use up to 199 unassigned parking spaces, upon terms and conditions, as may from time to time be reasonably established by Landlord (provided that such terms and conditions shall not include an imposition by Landlord of a charge for such parking). Ten (10) of such 199 unassigned spaces (as identified on EXHIBIT A) shall be designated as visitor parking spaces for use by --------- Tenant's visitors. Landlord shall install signage, at Tenant's sole cost and expense, designating such spaces for that purpose. Landlord shall not change the designation of such visitor parking spaces without obtaining Tenant's prior written consent, which shall not be unreasonably withheld. Landlord shall have no obligation to monitor or enforce the use of the parking spaces designated for Tenant's visitors for such purpose. "Should parking charges or surcharges of any kind be imposed on the parking facilities by a governmental agency, Tenant shall reimburse Landlord for such charges and/or surcharges or, if possible, shall pay such charges and/or surcharges directly to the governmental agency and, in such event, Tenant shall provide Landlord with proof that such charges and/or surcharges have been paid by Tenant." 9. Security. The following paragraph is hereby added to the Lease as -------- paragraph 41: "41. Security. Tenant shall be solely responsible for providing such -------- security services for the Premises and the Common Area surrounding or adjacent to the Premises as an owner or manager of such property would be obligated to provide. At the request of Tenant, Landlord shall not be responsible for providing such security services in connection with Landlord's operation of the Common Area. Tenant may later elect to have Landlord assume responsibility for the security of the Common Area surrounding or adjacent to the Premises and, upon such election by Tenant, Landlord's costs in providing such services shall be included in Common Area Maintenance Expenses notwithstanding anything to the contrary contained in paragraph 3.B.2." 10. Exhibits. EXHIBIT A attached to the lease is hereby deleted and -------- --------- EXHIBIT A attached hereto is inserted in place thereof. A new EXHIBIT A-1 and - --------- ----------- EXHIBIT F attached hereto are added to the Lease. - --------- 11. Exhibit B. Paragraph 2 of EXHIBIT B is hereby amended to add the --------- following sentence to the end thereof: "Tenant Improvements shall not include any improvements to the 18,793 square foot area located on the first floor of the Building and designated as 10 Room 124 on the floor plan prepared by Hellmuth Obata & Kassabaum, Inc. and identified as Drawing 4-2A-1, dated June 25, 1998 ("Room 124"), which improvements shall be constructed by Tenant, at its sole cost and expense, in accordance with paragraph 13 of the Lease." Paragraph 6(a) of EXHIBIT B is hereby amended to add the following: "The Initial Allowance and the Additional Allowance shall be provided for a maximum of 40,967 square feet. Tenant has elected to have Room 124 (as defined above) to remain unfinished. Tenant acknowledges that no Tenant Improvements Allowance shall be provided by Landlord for the tenant improvements to Room 124. At such time as Tenant intends to construct any improvements to Room 124, such improvements shall be deemed Alterations and shall be subject to the provisions of paragraph 13." 12. Effective Date. The effective date of this First Amendment shall be -------------- the date which is the Effective Date under that certain Partial Termination of Lease between Landlord and Tenant dated as of the date hereof and executed simultaneously herewith. 13. Interpretation of Amendment. This First Amendment and Lease (as --------------------------- previously amended) shall be construed as a whole in order to effectuate the intent of the parties to amend the Lease in the manner specified in this First Amendment. All provisions of the Lease affected by this First Amendment shall be deemed amended regardless of whether so specified in this First Amendment. Subject to the foregoing, if any provision of the Lease conflicts with any provision of this First Amendment, the provision of this First Amendment shall control. 14. No Further Amendment. Except as amended by this First Amendment, the -------------------- Lease shall continue in full force and effect and in accordance with its terms. [SIGNATURES FOLLOW ON NEXT PAGE] 11 IN WITNESS WHEREOF, the parties have executed this First Amendment as of the date first hereinabove set forth. LANDLORD: MARTIN/CAMPUS ASSOCIATES NO. 4, L.P., a Delaware limited partnership By: MARTIN/REDWOOD PARTNERS, L.P., a California limited partnership General Partner By: TMG REDWOOD LLC, a California limited liability company General Partner By: THE MARTIN GROUP OF COMPANIES, INC. a California corporation Managing Member By: [signature illegible] ----------------------------------- Name: --------------------------------- Title: -------------------------------- TENANT: ANTEX CORPORATION a Delaware corporation By: [signature illegible] ---------------------------- Name: -------------------------- Title: ------------------------- By: ---------------------------- Name: -------------------------- Title: ------------------------- 12 March 29th, 1999 John Patrick McGovern 2533 South Highway 101 Suite 280 Cardiff by the Sea, CA 92007 Dear Pat. We are pleased to offer you employment with Fogdog, Inc. (hereinafter "Fogdog") as General Counsel, with a start date of March 30th, 1999 and reporting to the company CFO. The terms and commitments of your employment with Fogdog are as follows: 1. You will be employed to work full time and exclusively for the Company. This will be staged such that you will spend 20% of time during first two (2) weeks, 40% next two (2) weeks, 60% during the following four (4) weeks and 100% thereafter . 2. Salary. Base salary of $10,000 per month, which is equal to $120,000 ------ per year. 3. Bonus. You will have the opportunity to earn a bonus in addition to ----- your base salary. Performance targets to earn the bonus are to be determined, and shall be attached to this agreement as an addendum. The target for the bonus is 20% of your salary with the opportunity to earn more through performance accelerators (as attached). You must be employed by Fogdog at the time the bonus is payable to be eligible to receive the bonus. 4. Stock Options. Subject to approval by the Board of Directors of Fogdog ------------- at the next scheduled meeting on March 31, 1999, we are pleased to offer you participation within Fogdog's stock option plan at a level of 135,000 common ISO shares. Options are vested over four years, with 33,750 options vesting at the end of the first 12 months and monthly vesting in equal increments thereafter. The exercise price per share will be the fair market value (current value is $.22 per share) of the options as determined by the Board of Directors after your start date. In the event of an acquisition (Corporate Transaction) of the company during the 1st six months of employment, six months of the first year's options, to the extent outstanding at that time but not otherwise fully exercisable, shall automatically accelerate prior to the Corporate Transaction closing. If the event takes place during the second six months of the 1st year, the remainder of the 1st year's option shall accelerate (up to a max of 6 months) thus yielding 12 months of vesting in total. No such acceleration shall occur if (i) the options are assumed by any successor corporation, or (ii) such acceleration would impact any pooling of interest. In event (ii), the accelerated option would be replaced with a cash incentive which preserves the spread existing on the unvested option at the time of the Corporate Transaction (excess of fair market value of such option over the aggregate exercise price payable). 5. Relocation Package. You are eligible for reimbursement of allowable ------------------ relocation expenses and other benefits, as described in the attached Relocation Policy. Additionally, we will offer you an additional relocation reimbursement of $10,000, to be used as you see fit for your moving and living expenses. 13 6. Health Benefits. For the duration of employment, you shall be entitled --------------- to participate in the Company's health insurance, life insurance and disability insurance plans to the extent permitted by law, that may from time to time be adopted by the Board. The Company reserves the right to amend, modify or terminate any employee benefits at any time for any reason. Your portion of the cost will be determined at enrollment based on plan selected. 7. 401(k). For the duration of employment, you are eligible to ------ participate in Fogdog's 401(k) Savings Plan. The Company reserves the right to amend, modify or terminate this benefit at any time for any reason. 8. Vacation. You will accrue paid vacation days at a rate of one (1) day -------- per month of employment. 9. Family & Sick Leave. You will accrue paid family and sick leave at a ------------------- rate of one-half day (1/2) per month of employment. 10. At Will Employment. Your employment with Fogdog is at-will and can be ------------------ terminated or modified at any time, with or without cause, at the option of either you or Fogdog. Fogdog's right to terminate your employment includes the right to reduce the scope of your duties and responsibilities and the amount of your compensation. This provision may be modified only in writing, signed by an officer of the company. Except as otherwise provided herein, upon the termination of your employment with Fogdog, you shall immediately cease to accrue salary, vacation, benefits, vesting of stock options and all other compensation. If employment is terminated for reasons other than cause, employee will be entitled to a 3 month severance package (salary and benefits only). For purposes of this offer letter "cause" is defined as Gross Negligence or a Felony Conviction. 11. Expense Reimbursement. Corporate travel and other company-related --------------------- expenses incurred by you on your personal accounts shall be reimbursed. Those expenses plus any travel and company-related expenses incurred on any Fogdog company account are to be approved by your direct supervisor prior to event. 12. Confidentiality. For the duration of employment and after any --------------- termination of employment, you will keep all Cedro information confidential and proprietary, including but not limited to, new product development, business practices, and corporate initiatives. In any case, Fogdog will, at its sole discretion, provide written authorization to allow you to reveal such information. You may be asked to sign additional confidentiality documentation. If this offer of employment is acceptable to you, please sign a copy of this letter and return it to me. Best Regards, /s/ Tim Harrington Tim Harrington Chief Executive Officer 14 I accept your offer of employment as outlined in this letter. I acknowledge receiving a copy of my job duties. I understand that my employment can be terminated at any time, with or without cause. Signature Date /s/ John Patrick McGovern - --------------------------------------------- John Patrick McGovern 15 EX-10.8 11 LETTER AGREEMENT - ROBIN SMITH EXHIBIT 10.8 December 9, 1997 Robin Smith Mill Valley, California Dear Robin, The following outlines the terms of the employment agreement between Cedro Group, Inc. ("Cedro") and you. 1. You will be employed to work full time and exclusively for the Company. 2. Compensation. $7,500 per month. Effective upon venture funding of $1.5 million or more ("Venture Funding"), your salary will increase to $11,250 per month. Venture Funding shall not include bridge financing and is subject to the approval of the board. 2. Bonus. Upon Venture Funding, you will have the opportunity to earn up to $50,000 bonus in 1998. Performance targets to earn the bonus will be determined by the Company in the budget for 1998, and shall be attached to this agreement as an addendum. You must be employed by Cedro at the time the bonus is payable to be eligible to receive the bonus. The time during which performance is measured may vary depending on when a Venture Funding occurs. 3. Options. Subject to approval by the Board of Directors of Cedro and compliance with applicable law, 337,110 ISOs (post-split) within Cedro's 1996 Stock Option Plan will be granted at the start of the Term (see below). Options are vested over four years, with 84,277 options vesting at the end of the first year, and 7,023 options vesting each month thereafter. Vesting base date shall be July 1, 1996. The exercise price per share will be the fair market value of the options as determined by the Board of Directors. These options would accelerate to be fully vested upon completion of an initial public offering (IPO). These options would also accelerate to be fully vested upon completion of an acquisition or merger of Cedro by or with another company where Cedro is not the surviving entity ("Acquisition"), unless such acceleration would make the Acquisition ineligible for the selected accounting treatment if such treatment is material to the transaction. If any such options do not accelerate in accordance with the foregoing, and you do not receive and accept fully vested replacements therefor, then Cedro will use reasonable good faith efforts to provide you shortly after the close with compensation comparable to any reduction in the total profit you would otherwise have earned on such unvested options. 4. Secondary Grant of Options. Subject to approval by the Board of Directors of Cedro and compliance with applicable law, 235,000 ISOs (post-split) within Cedro's 1996 Stock Option Plan will be granted at the start of the Term (see below). Options are vested over four years, with 58,750 options vesting at the end of the first year, and 4,895 options vesting each month thereafter. Vesting base date shall be July 1, 1997. The exercise price per share will be the fair market value of the options as determined by the Board of Directors. Upon completion of a Venture Funding, any unvested options that would otherwise vest during the first two years of the four year vesting schedule shall accelerate to be fully vested and the balance of the options shall vest in accordance with the original schedule during the last two years of the four year vesting schedule. 5. The "Term" of the agreement will begin on October 1, 1997. 6. Health insurance shall be provided for you and/or your family by Cedro for the duration of your employment with Cedro should you desire it. Medical, vision, and dental coverage under Cedro's policy are included in this benefits package. Your portion of the cost for four family members is $115.45 per month and is subject to change. 7. You will accrue paid vacation days at a rate of one and a half (1.5) days per month of employment. Maximum vacation accrual is 15 days. You will accrue paid family and sick leave at a rate of one-half day (1/2) per month of employment. 8. You will initially report to Brett Allsop, President or such other person as the President designates. 9. Your initial responsibilities will be to grow and manage the Multi-Brand Store business and assist in strategic business development for the company. Within these areas, your responsibilities will include profit and loss accountability, human resources (hiring, termination, reviews, compensation), budgeting, and planning for divisional operations. 10. Your initial title will be Vice President of Business Development and General Manager of Multi-Brand Stores. 11. Cedro may alter your title, supervisor, responsibilities and duties from time to time as it deems appropriate. 12. Your employment with the Cedro is at-will and can be terminated or modified at any time, with or without cause, at the option of either you or Cedro. Cedro's right to terminate your employment includes the right to reduce the scope of you duties and responsibilities and the amount of your compensation. 13. Except as otherwise provided in this paragraph, upon the termination of your employment with Cedro you shall immediately cease to accrue salary, vacation, benefits, vesting of stock options and all other compensation. If you are terminated by Cedro other than for Cause prior to December 31, 1998 you will be entitled to the following: . for the period ended twelve weeks following the week in which you were terminated you will be entitled to receive you then current salary, then effective medical benefits for you and your family, and continued vesting of stock options. -2- . you will also be entitled to accelerated vesting (i) under paragraph 3, if prior to your termination Cedro has received a bona fide written proposal for an Acquisition from another company and prior to the end of the twelve week period Cedro closes the Acquisition with such company, and (ii) under paragraph 4, if prior to your termination Cedro has received a bona fide written term sheet for a Venture Financing from a potential investor and prior to the end of the twelve week period Cedro closes a Venture Financing with such investor. "Cause" means (a) your failure to satisfactorily perform your duties and ----- obligations of employment, as the same may be altered by the Cedro from time to time, which are not remedied in a reasonable period of time after receipt of written notice from the Cedro, (b) your conviction of a felony or your theft, embezzlement, fraud, dishonesty, misappropriation, or conversion of funds or property of Cedro, (c) your breach of any agreement with the Cedro or your inducement of any customer, consultant, employee, or supplier of the Company to breach any agreement with the Cedro or to cease or adversely change its business relationship with the Cedro, or (d) your breach of a fiduciary duty owing by you to Cedro or your commission of an act that is intended, or that would reasonably be foreseen, to cause in material harm to the goodwill or reputation of Cedro. 14. Except for agreements relating to your obligations with respect to intellectual property, this agreement constitutes the entire agreement respecting your employment with the Cedro and supersedes the terms of any other prior or contemporaneous oral or written offers or agreements relating to your employment. This agreement shall not be changed except in a writing signed by the parties. No waiver shall be binding unless executed in writing by the party making the waiver. No waiver shall be deemed a waiver of any other provision or constitute a continuing waiver. 15. The parties shall use reasonable good faith efforts to resolve any dispute by negotiations or mediation. If negotiation and mediation fail, any party may submit any dispute concerning this agreement to final and binding arbitration pursuant to the commercial rules of the American Arbitration Association. Arbitration shall take place in a neutral, mutually convenient location / Santa Clara County, California. At the request of any party, the arbitrators, attorneys, parties to the arbitration, witnesses, experts, court reporters, or other persons present at the arbitration shall agree in writing to maintain the strict confidentiality of the arbitration proceedings. Arbitration shall be conducted by a single, neutral arbitrator or, at the election of any party, three neutral arbitrators, appointed in accordance with the commercial rules of the American Arbitration Association. The award of the arbitrator shall be enforceable according to the applicable provisions of the California Code of Civil Procedure, sections 1280 et seq. Notwithstanding the foregoing, a party may apply to a court of competent jurisdiction / the arbitrator for prejudgment remedies and emergency relief in the form of a temporary restraining order pending final determination of a claim through arbitration in accordance with this Section. The parties shall share the costs of arbitration equally. The arbitrator shall not have the power to award punitive, consequential, indirect, or special damages. -3- If you are in agreement with the terms of this offer, please sign below to indicate your acceptance. We are looking forward to continued successes and growth with you. Best Regards, /s/ Brett Allsop Brett Allsop President Accepted: /s/ Robin Smith 12/9/97 - ---------------------- ------------- Robin Smith Date -4- EX-10.10 12 EMPLOYMENT AGREEMENT - ROBERT CHEA EXHIBIT 10.10 EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (the "Employment Agreement"), dated as of this 12th day of June, 1998 is entered into by and between Cedro Group, Inc. (the "Company"), and Robert Chea ("Executive"). This Employment Agreement shall only become enforceable and effective on the calendar date on which the Company closes its venture financing in the amount of approximately $4,500,000 (the "Effective Date"). In consideration of the mutual covenants and agreements hereinafter set forth, the parties agree as follows: 1. EMPLOYMENT. ---------- 1.1 Position. During the Employment Term (as hereinafter -------- defined) and subject to the terms and conditions set forth herein, the Company agrees to employ Executive as its Vice President of Technology, reporting directly to the Company's President and Chief Operating Officer. 1.2 Duties. Executive will be employed as Vice President of ------ Technology. Executive shall diligently, and to the best of his ability, perform all such duties incident to his position and use his best efforts to promote the interests of the Company. 1.3 Time to be Devoted to Employment. During the Employment -------------------------------- Term, Executive shall devote his full time and energy to the business of the Company. Executive hereby represents that he is not a party to any agreement which would be an impediment to entering into this Employment Agreement and that he is permitted to enter into this Employment Agreement and perform the obligations hereunder. 2. COMPENSATION AND BENEFITS. ------------------------- 2.1 Annual Salary. In consideration of and as compensation for ------------- the services agreed to be performed by Executive hereunder, the Company agrees to pay Executive a starting annual base salary of $90,000, payable in accordance with the Company's regular payroll schedule ("Base Salary"), less applicable withholdings and deductions. The Base Salary will be subject to change at the sole discretion of the Board of Directors of the Company (the "Board"). 2.2 Bonus Plan. Executive will be eligible to receive an annual ---------- bonus payment of up to 25% of his current base salary. Payment of the bonus will be at the sole discretion of the Board and will be based on achievement of certain milestones to be determined by the Board. 2.3 Stock Option. Subject to approval by the Board at the first ------------ regularly scheduled Board meeting held after the Effective Date, Executive will be granted an option under the Company's 1996 Stock Option Plan (the "Plan") to purchase 50,000 shares of the Company's Common Stock (the "Option"). The option exercise price per share will be the fair market value per share of the Company's Common Stock on the option grant date, as determined by the Board. The Option will be an incentive stock option to the maximum extent permissible under the Federal tax laws. 12,500 of the option shares will vest effective January 1, 1999 and the remainder will vest in 36 equal monthly installments thereafter over Executive's period of service with the Company measured from January 1, 1999. Subject to Section 4.4, the remaining terms of the Option will be set forth in the Plan and the form option agreements. 2.4 Repurchase Right. Executive and the Company agree that the ---------------- Company shall be permitted to purchase from Executive up to 500,000 shares (subject to adjustment for stock splits, dividends, recapitalizations and the like) of the Company's Common Stock owned by Executive on the date hereof (the "Shares") at the Fair Market Value thereof if at any time during the Employment Term Executive terminates this Employment Agreement pursuant to Section 4.1(iv) hereof (voluntary departure without Good Reason) (the "Repurchase Right"). The Repurchase Right shall lapse with respect to 1/30th of the Shares at the end of each month of the Employment Term; provided, however, that the Repurchase Right shall lapse with respect to all of the Shares (a) immediately prior to an initial public offering of the Company or the acquisition of the Company in a Corporate Transaction (as defined in Section 11.3.1 of the Plan), (b) upon termination of this Employment Agreement pursuant to Sections 4.1(i) (death), 4.1(ii) (disability) or 4.1(v) (by Executive for Good Reason), or (c) upon the Company hiring a technology officer with a title, duties and responsibilities senior to those of Executive. The Repurchase Right shall be exercisable by written notice delivered by the Company within thirty (30) days after Executive's termination of employment pursuant to Section 4.1(iv). The notice shall indicate the date set for the closing of the repurchase, which shall not be more than ten (10) business days after the end of the thirty (30)-day exercise period, and at the closing the Company shall pay the purchase price of the repurchased shares in cash, and the Executive shall concurrently deliver the stock certificates for the repurchased shares, each duly-endorsed by him for transfer. If the Repurchase Right is not exercised during such thirty (30)-day exercise period, the Repurchase Right shall lapse in its entirety. The Repurchase Right shall be assignable by the Company. For purposes of this Employment Agreement, "Fair Market Value" shall mean the value of the Shares being repurchased hereunder based upon the exercise price which the Board would then assign to incentive stock options granted under the Plan. 2.5 Participation in Benefit Plans. During the Employment Term, ------------------------------ Executive shall be entitled to participate in the Company's health insurance, life insurance and disability insurance plans to the extent permitted by law, that may from time to time be adopted by the Board. The Company reserves the right to amend, modify or terminate any employee benefits at any time for any reason. 2.6 Reimbursement of Expenses. The Company shall reimburse ------------------------- Executive for all reasonable professional development expenses, such as classes and seminars, and for all reasonable business expenses, such as a mobile phone, incurred by Executive on behalf of the Company, provided that: (i) such reasonable expenses are ordinary and necessary expenses incurred on behalf of the Company, and (ii) Executive provides the Company with itemized accounts, receipts and other documentation for such reasonable expenses as are required by the Company. 2 2.7 Vacation. During the Employment Term, Executive will be -------- entitled to 15 days of paid vacation per annum, which may be carried over and used in any year during the Employment Term. 3. EMPLOYMENT TERM. --------------- 3.1 Employment Term. The "Employment Term" means the period --------------- commencing on the Effective Date and terminating on the earlier of two years and six months from the Effective Date or as set forth in Section 4.1. 3.2 Notice of Renewal. At least sixty (60) days prior to the ----------------- natural expiration of the period ending two years and six months from the Effective Date and sixty (60) days prior to each one year anniversary thereafter, if applicable, the Company shall give Executive written notice of whether the Company will be seeking a one-year extension of Executive's services under this Employment Agreement or subsequent one-year period, if applicable. Unless such notice indicates that there will be no extension, the terms of this Employment Agreement (other than Section 2.4) shall be automatically renewed for successive one-year periods. However, Executive's employment with the Company will continue unless terminated by Executive or the Company as set forth in Section 4.1. 4. TERMINATION OF EMPLOYMENT. ------------------------- 4.1 Method of Termination. Executive's employment pursuant to --------------------- this Employment Agreement and the Employment Term provided for herein shall terminate upon the first of the following to occur: (i) Executive's death; (ii) Date that written notice is deemed given or made by the Company to Executive that as a result of any physical or mental injury or disability, he is unable to perform the essential functions of his job, with or without reasonable accommodation. Such notice may be issued when the Board has reasonably determined that Executive has become unable to perform substantially his services and duties hereunder with or without reasonable accommodation because of any physical or mental injury or disability, and that it is reasonably likely that he will not be able to resume substantially performing his services and duties on substantially the terms and conditions as set forth in this Employment Agreement; (iii) Date that written notice is deemed given or made by the Company to Executive of termination for "cause." For purposes of this Employment Agreement, "cause" shall mean any one of the following: (A) Gross negligence or the repeated failure of Executive, following the receipt of written notice from the Board of its dissatisfaction with Executive's performance, to perform his duties and responsibilities to the reasonable satisfaction of the Board, or any breach by Executive of his fiduciary duties to the Company or any material term of this Employment Agreement. For purposes of this Employment Agreement, any act or acts or omission or omissions by Executive that have a material adverse effect on the Company's 3 operations, prospects, reputation or business shall be deemed to be a breach of his duties and responsibilities to the Company; or (B) The conviction of Executive for a felony. (iv) Date that written notice is deemed given or made by Executive of his resignation or voluntary departure from the Company without Good Reason (as hereinafter defined); or (v) Date that written notice is deemed given or made by Executive of his resignation or voluntary departure from the Company for Good Reason. For purposes of this Employment Agreement, "Good Reason" shall mean Executive's resignation or departure by reason of: (A) a change in Executive's position with the Company which materially reduces Executive's level of responsibilities or title; (B) a material reduction in Executive's level of compensation (including base salary, fringe benefits and any bonus award (unrelated to any executive officer-wide reduction to save expenses)); or (C) a relocation of Executive's principal place of employment with the Company by more than seventy-five (75) miles. (vi) Date that written notice is deemed given or made by the Company to Executive of Executive's termination without "cause." Nothing herein alters Executive and the Company's separate right to terminate the employment relationship at any time, for any reason, with or without cause. 4.2 Effect of Termination for Cause, Executive's Resignation or ----------------------------------------------------------- Voluntary Departure Without Good Reason. Upon (i) the termination of Executive - --------------------------------------- for cause; or (ii) Executive's resignation or voluntary departure without Good Reason; Executive will not be entitled to any additional compensation or other rights or benefits from the Company; and, as a result, the Company shall be obligated to pay Executive only that portion of his Base Salary that Executive has earned prior to the effective date of the termination of Executive's employment with the Company. 4.3 Effect of Executive's Death or Disability. Other than as set ----------------------------------------- forth in Section 2.4, upon Executive's departure pursuant to Section 4.1(i) (death) or 4.1(ii) (disability) of this Employment Agreement, Executive will not be entitled to any additional compensation or other rights or benefits from the Company; and, as a result, the Company shall be obligated to pay Executive only that portion of his Base Salary that Executive has earned prior to the effective date of the termination of Executive's employment with the Company. 4.4 Effect of Termination Without Cause or Executive's Voluntary ------------------------------------------------------------ Departure from the Company for Good Reason. In the event the Company terminates - ------------------------------------------ Executive's employment with the Company without cause or Executive voluntarily departs from 4 the Company for Good Reason, the Company's Repurchase Right shall lapse as set forth in Section 2.4, and Executive will be entitled to his then existing Base Salary for a period of twelve (12) weeks from the date of termination payable in accordance with the Company's regular payroll schedule and the Company will also reimburse Executive for his COBRA premiums to continue his medical insurance coverage pursuant to COBRA for the period of twelve (12) weeks from the date of termination. In addition, the Option shall accelerate and vest as to six additional monthly installments immediately prior to such termination. 4.5 Resignation as an Officer and Director. In the event Executive's -------------------------------------- employment with the Company terminates for any reason, Executive agrees to immediately resign as an officer and/or director of the Company. 5. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE. ---------------------------------------------------- 5.1 Executive understands that the Company and its affiliates possess Proprietary Information (as defined below) which is important to its business and that this Employment Agreement creates a relationship of confidence and trust between Executive and the Company and its affiliates with regard to Proprietary Information. Nothing in this Section 5 shall be deemed modified or terminated in the event of the termination or expiration of this Employment Agreement. 5.2 For purposes of this Employment Agreement, "Proprietary Information" is information that was or will be developed, created, or discovered by or on behalf of the Company and its affiliates and predecessors, or is developed, created or discovered by Executive while performing services under this Employment Agreement, or which became or will become known by, or was or is conveyed to the Company and its affiliates which has commercial value in the Company's and its affiliates' business. "Proprietary Information" includes, but is not limited to, trade secrets, ideas, techniques, business, product, or franchise development plans, customer information, franchisee information and any other information concerning the Company's and its affiliates' actual or anticipated business, development, personnel information, or which is received in confidence by or for the Company and its affiliates from any other person. 5.3 At all times, both during the term of this Employment Agreement and after its termination, Executive will keep in confidence and trust, and will not use or disclose, any Proprietary Information without the prior written consent of the Board. 5.4 Executive understands that the Company and its affiliates possess or will possess "Company Documents" which are important to its business. For purposes of this Employment Agreement, "Company Documents" are documents or other media that contain or embody Proprietary Information or any other information concerning the business, operations or plans of the Company and its affiliates, whether such documents have been prepared by Executive or by others. "Company Documents" include, but are not limited to, blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, personnel files, tapes or printouts and other printed, typewritten or handwritten documents. All Company Documents are and shall remain the sole property of the Company. Executive agrees not to 5 remove any Company Documents from the business premises of the Company or deliver any Company Documents to any person or entity outside the Company, except as required to do in connection with performance of the services under this Employment Agreement. Executive further agrees that, immediately upon the Company's request and in any event upon completion of Executive's services, Executive shall deliver to the Company all Company Documents, apparatus, equipment and other physical property or any reproduction of such property. 5.5 During the term of this Employment Agreement and for one year thereafter, Executive will not encourage or solicit any employee of the Company or any affiliate to leave the Company or any affiliate for any reason. 5.6 Non-Competition. During the Employment Term and for one year --------------- thereafter, Executive shall not directly or indirectly: (i) own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any enterprise which is engaged in any business competitive with that which the Company is at the time conducting or proposing to conduct; provided, however, that such restriction shall not apply to any passive investment representing an interest of less than two percent (2%) of an outstanding class of publicly traded securities of any corporation or other enterprise which is not, at the time of such investment, engaged in a business geographically competitive with the Company's business; or (ii) encourage or solicit any Company employee to leave the Company's employ for any reason or interfere in any material manner with employment relationships at the time existing between the Company and its current employees, except as may be required in any bona fide termination decision regarding any Company employee. 5.7 Executive acknowledges that the specialized nature of his knowledge of the Company's Proprietary Information, trade secrets and other intellectual property are such that a breach of his covenant not to compete or confidentiality obligations contained in this Section 5 of this Employment Agreement would necessarily and inevitably result in a disclosure, misappropriation and misuse of such Proprietary Information, trade secrets and other intellectual property. Accordingly, Executive acknowledges and agrees that such a breach would inflict unique and irreparable harm upon the Company and that the Company shall be entitled, in addition to its other rights and available remedies, to enforce, by injunction or decree of specific performance, Executive's obligations set forth herein. 6. RESTRICTIVE COVENANT. -------------------- During the Employment Term: 6.1 Executive shall devote substantially all of his time and energy to the performance of Executive's duties described herein, except during periods of illness or vacation periods. 6 6.2 Executive shall not directly or indirectly provide services to or through any person, firm or other entity except the Company, unless otherwise authorized by the Company in writing. 6.3 Executive shall not render any services of any kind or character for Executive's own account or for any other person, firm or entity without first obtaining the Company's written consent. 6.4 Notwithstanding the foregoing, Executive shall have the right to perform such incidental services as are necessary in connection with (i) his private passive investments, but only if Executive is not obligated or required to (and shall not in fact) devote any managerial efforts which interfere with the services required to be performed by him hereunder, (ii) his charitable or community activities or (iii) participation in trade or professional organizations, but only if such incidental services do not significantly interfere with the performance of Executive's services hereunder. 7. MISCELLANEOUS. ------------- 7.1 Notices. All notices, demands and requests required by this ------- Employment Agreement shall be in writing and shall be deemed to have been given or made for all purposes (i) upon personal delivery, (ii) one day after being sent, when sent by professional overnight courier service, (iii) five days after posting when sent by registered or certified mail, or (iv) on the date of transmission when sent by telegraph, telegram, telex, or other form of "hard copy" transmission, to either party hereto at the address set forth below or at such other address as either party may designate by notice pursuant to this Section 7. If to the Company, to: Brett Allsop Cedro Group, Inc. 3031 Tisch Way 100 Plaza East San Jose, CA 95128 And a Copy to: Warren Lazarow, Esq. Brobeck, Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, CA 94303 If to Executive, to: Robert Chea 936 Scott Street Palo Alto, CA 94301 7 7.2 Assignment. This Employment Agreement shall be binding on, and ---------- shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, that Executive may not assign, transfer or delegate his rights or obligations hereunder and any attempt to do so shall be void. 7.3 Deductions. All amounts paid to Executive hereunder are subject ---------- to all withholdings and deductions required by law, as authorized under this Employment Agreement, and as authorized from time to time. 7.4 Entire Agreement. This Employment Agreement contains the entire ---------------- agreement of the parties with respect to the subject matter hereof. 7.5 Amendment. This Employment Agreement may be modified or amended --------- only by a written agreement signed by the Board and Executive. 7.6 Waivers. No waiver of any term or provision of this Employment ------- Agreement will be valid unless such waiver is in writing signed by the party against whom enforcement of the waiver is sought. The waiver of any term or provision of this Employment Agreement shall not apply to any subsequent breach of this Employment Agreement. 7.7 Counterparts. This Employment Agreement may be executed in ------------ several counterparts, each of which shall be deemed an original, but together they shall constitute one and the same instrument. 7.8 Severability. The provisions of this Employment Agreement shall ------------ be deemed severable, and if any part of any provision is held illegal, void or invalid under applicable law, such provision may be changed to the extent reasonably necessary to make the provision, as so changed, legal, valid and binding. If any provision of this Employment Agreement is held illegal, void or invalid in its entirety, the remaining provisions of this Employment Agreement shall not in any way be affected or impaired but shall remain binding in accordance with their terms. 7.9 Governing Law. THIS EMPLOYMENT AGREEMENT AND THE RIGHTS AND ------------- OBLIGATIONS OF THE COMPANY AND EXECUTIVE HEREUNDER SHALL BE DETERMINED UNDER, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS APPLIED TO AGREEMENTS AMONG CALIFORNIA RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY WITHIN CALIFORNIA. 7.10 Arbitration. The Executive understands and agrees that, as a ---------- condition of his employment with the Company, any and all disputes that the Executive may have with the Company, or any of its employees, officers, directors, agents or assigns, which arise out of the Executive's employment or investment or compensation shall be resolved through final and binding arbitration, as specified in this Employment Agreement. This shall include, without limitation, any controversy, claim or dispute of any kind, including disputes relating to any employment by the Company or the termination thereof, claims for breach of contract or breach of the covenant of good faith and fair dealing, infliction of emotional distress, defamation and any claims of discrimination, harassment or other claims under Title VII of the 8 Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Employee Retirement Income Securities Act, or any other federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of the Executive's employment with the Company or its termination. The only claims not covered by this Employment Agreement are claims for benefits under the unemployment insurance or workers' compensation laws, and any claims pursuant to paragraph 5 of this Employment Agreement which will be resolved pursuant to those laws. Any disputes and/or claims covered by this Employment Agreement shall be submitted to final and binding arbitration to be conducted in Santa Clara County, California, in accordance with the rules and regulations of the American Arbitration Association. The Executive and the Company will split the cost of the arbitration filing and hearing fees and the cost of the arbitrator, provided that the arbitrator will have authority to award these fees to the prevailing party. Each side will bear its own attorneys' fees, provided that the arbitrator will have authority to award attorneys' fees to the prevailing party unless a statutory section at issue in the dispute authorizes the award of attorneys' fees, in which case the arbitrator has authority to make such award as permitted by the statute in question. The arbitration shall be instead of any civil litigation; this means that the Executive is waiving any right to a jury trial, and that the arbitrator's decision shall be final and binding to the fullest extent permitted by law and enforceable by any court having jurisdiction thereof. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. "COMPANY" Cedro Group, Inc. By: /s/ Brett Allsop ---------------------------------- Name: Brett Allsop Title: Chief Executive Officer "EXECUTIVE" /s/ Robert Chea -------------------------------------- Robert Chea 9 EX-10.11 13 AMENDED AND RESTATED EMPLOYMENT AGREEMENT - BRETT ALLSOP EXHIBIT 10.11 AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Employment Agreement"), dated as of this 5th day of April, 1999 is entered into by and between Fogdog, Inc. (formerly known as Cedro Group, Inc.) (the "Company"), and Brett Allsop ("Executive"). This Amended and Restated Employment Agreement amends and restates the Employment Agreement between the Company and Executive dated as of June 12, 1998 and is effective as of October 24, 1998 (the "Effective Date"). In consideration of the mutual covenants and agreements hereinafter set forth, the parties agree as follows: 1. EMPLOYMENT. ---------- 1.1 Position. During the Employment Term (as hereinafter -------- defined) and subject to the terms and conditions set forth herein, the Company agrees to employ Executive as the president of its international division and remain as Chairman of the Board (A Company Officer), reporting directly to the Company's Chief Executive Officer. 1.2 Duties. Executive shall diligently, and to the best of his ------ ability, perform all such duties incident to his position and use his best efforts to promote the interests of the Company. 1.3 Time to be Devoted to Employment. During the Employment -------------------------------- Term, Executive shall devote his full time and energy to the business of the Company. Executive hereby represents that he is not a party to any agreement which would be an impediment to entering into this Employment Agreement and that he is permitted to enter into this Employment Agreement and perform the obligations hereunder. 2. COMPENSATION AND BENEFITS. ------------------------- 2.1 Annual Salary. In consideration of and as compensation for ------------- the services agreed to be performed by Executive hereunder, the Company agrees to pay Executive a starting annual base salary of $105,000, payable in accordance with the Company's regular payroll schedule ("Base Salary"), less applicable withholdings and deductions. The Base Salary shall be increased to $120,000, less applicable withholdings and deductions, effective upon Executive's relocation to the international office. The Base Salary will be subject to change at the sole discretion of the Company's Board of Directors (the "Board"). Executive will receive a supplement to Base Salary to be determined by the Board upon relocation of Executive to the international office to compensate Executive for the higher cost of living abroad. Such supplement shall be effective upon relocation of Executive to the international office. This supplement will be based upon the ORC Survey data annually provided by Price WaterhouseCoopers. The Company will also pay for tax and payroll (hypo) submissions. Employee will continue to pay Hypothetical tax rates (including CA State Income Tax) to the benefit of the company. The company will account and pay for all US and UK filings and the actual taxes paid in those countries. The purpose is to maintain an equitable standard of living within the US and it is understood that the company may benefit from these arrangements. 2.2 Bonus Plan. Executive will be eligible to receive an annual ---------- bonus of up to 25% of his base salary in 1998. Effective in 1999, Executive will be eligible to receive an annual bonus of up to 20% of base salary, upon achievement of objectives mutually determined by Executive and the Company's Chief Executive Officer. 2.3 [RESERVED] N/A 2.4 Repurchase Right. Executive and the Company agree that the ---------------- Company shall be permitted to purchase from Executive up to 173,333 shares (subject to adjustment for stock splits, dividends, recapitalizations and the like) of the Company's Common Stock owned by Executive on the date hereof (the "Shares") at the Fair Market Value thereof if at any time during the Employment Term Executive terminates this Employment Agreement pursuant to Section 4.1(iv) hereof (voluntary departure without Good Reason) (the "Repurchase Right"). The Repurchase Right shall lapse with respect to 1/26th of the Shares at the end of each month of the Employment Term; provided, however, that the Repurchase Right shall lapse with respect to all of the Shares (a) immediately prior to an initial public offering of the Company or the acquisition of the Company in a Corporate Transaction (as defined in Section 11.3.1 of the Plan), or (b) upon termination of this Employment Agreement pursuant to Sections 4.1(i) (death) or 4.1(ii) (disability) or 4.1(v) (by Executive for Good Reason). The Repurchase Right shall be exercisable by written notice delivered by the Company within thirty (30) days after Executive's termination of employment pursuant to Section 4.1(iv). The notice shall indicate the date set for the closing of the repurchase, which shall not be more than ten (10) business days after the end of the thirty (30)-day exercise period, and at the closing the Company shall pay the purchase price of the repurchased shares in cash, and the Executive shall concurrently deliver the stock certificates for the repurchased shares, each duly-endorsed by him for transfer. If the Repurchase Right is not exercised during such thirty (30)-day exercise period, the Repurchase Right shall lapse in its entirety. The Repurchase Right shall be assignable by the Company. For purposes of this Employment Agreement, "Fair Market Value" shall mean the value of the Shares being repurchased hereunder based upon the exercise price which the Board would then assign to incentive stock options granted under the Plan. 2.5 Participation in Benefit Plans. During the Employment Term, ------------------------------ Executive shall be entitled to participate in health, life and disability insurance commensurate with all such benefit plans then offered to United States employees, as determined by, and from time to time adopted by the Board. The Company reserves the right to amend, modify or terminate any employee benefits at any time for any reason. Your portion of the cost will be determined at enrollment. Coverage for your spouse and/or any dependents is available at additional cost. 2.6 Reimbursement of Expenses. The Company shall reimburse ------------------------- Executive for all reasonable management approved expenses including, a) professional and language development expenses such as classes and seminars, b) business development expenses, such as travel and entertainment and cellular telephone, and c) expenses incurred in 2 setting up office operations, such as rent for office space, telephone lines, office supplies and equipment, printing, furniture, taxes, documentation, insurance and fees. 2.7 Vacation. During the Employment Term, Executive will be -------- entitled to 19 days of paid vacation per annum, which may be carried over and used in any year during the Employment Term (plus four days for overseas time). 2.8 Relocation Expenses. Each year, Executive shall be ------------------- reimbursed for the cost of two (2) round trip airline tickets, coach or comparable class, for his immediate family for trips to the United States. The Executive shall remain in the international office for the remainder of the Employment Term. Company shall pay for all reasonable expenses for moving goods overseas comparable with moving expenses of employees posted overseas including shipping, package, storage, consulting, and insurance. Upon the expiration of the Employment Term, the Company shall pay all relocation expenses and transportation fees back to the United States should Executive so desire. The Company shall pay all housing expenses for up to two (2) months upon arrival at the international location in an executive apartment or hotel determined by the Company. The Company shall pay for the cost of storage of Executive's furnishings in the United States for the duration of the Employment Term. If he decides to move back before the end of his term, he pays for the relocation. Additionally, the Company will pay basic housing costs for Executive while overseas. The housing that is chosen must be comparable (within reason) to current U.S. standards. Executive agrees to pay the company $2300 per month, in semi-monthly deductions from payroll after the 2 month temporary housing allowance is over OR if permanent housing is found sooner. Housing costs may include local taxes assessed (if any), but not utilities and insurance. 2.9 Automobile. If reasonably required for professional use, ---------- the Company shall reimburse Executive for reasonable expenses of leasing and insuring an automobile for Executive's use during the Employment Term. 3. EMPLOYMENT TERM. --------------- 3.1 Employment Term. The "Employment Term" means the period --------------- commencing on the Effective Date and terminating on the earlier of two years and two months from the Effective Date or as set forth in Section 4.1. 3.2 Notice of Renewal. At least sixty (60) days prior to the ----------------- natural expiration of the period ending two years and two months from the Effective Date and sixty (60) days prior to each one year anniversary thereafter, if applicable, the Company shall give Executive written notice of whether the Company will be seeking a one-year extension of Executive's services under this Employment Agreement or subsequent one-year period, if applicable. Unless such notice indicates that there will be no extension, the terms of this Employment Agreement (other than Section 2.4) shall be automatically renewed for successive one-year periods. However, Executive's employment with the Company will continue unless terminated by Executive or the Company as set forth in Section 4.1. 3 4. TERMINATION OF EMPLOYMENT. ------------------------- 4.1 Method of Termination. Executive's employment pursuant to --------------------- this Employment Agreement and the Employment Term provided for herein shall terminate upon the first of the following to occur: (i) Executive's death; (ii) Date that written notice is deemed given or made by the Company to Executive that as a result of any physical or mental injury or disability, he is unable to perform the essential functions of his job, with or without reasonable accommodation. Such notice may be issued when the Board has reasonably determined that Executive has become unable to perform substantially his services and duties hereunder with or without reasonable accommodation because of any physical or mental injury or disability, and that it is reasonably likely that he will not be able to resume substantially performing his services and duties on substantially the terms and conditions as set forth in this Employment Agreement; (iii) Date that written notice is deemed given or made by the Company to Executive of termination for "cause." For purposes of this Employment Agreement, "cause" shall mean any one of the following: (A) Gross negligence or the repeated failure of Executive, following the receipt of written notice from the Board of its dissatisfaction with Executive's performance, to perform his duties and responsibilities to the reasonable satisfaction of the Board, or any breach by Executive of his fiduciary duties to the Company or any material term of this Employment Agreement. For purposes of this Employment Agreement, any act or acts or omission or omissions by Executive that have a material adverse effect on the Company's operations, prospects, reputation or business shall be deemed to be a breach of his duties and responsibilities to the Company; or (B) The conviction of Executive for a felony. (iv) Date that written notice is deemed given or made by Executive of his resignation or voluntary departure from the Company without Good Reason (as hereinafter defined); or (v) Date that written notice is deemed given or made by Executive of his resignation or voluntary departure from the Company for Good Reason. For purposes of this Employment Agreement, "Good Reason" shall mean Executive's resignation or departure by reason of: (A) a change in executive's position with the Company which materially reduces Executive's level of responsibilities or title; or (B) a material reduction in executive's level of compensation (including base salary, fringe benefits and any bonus award (unrelated to any executive officer-wide reduction to save expenses)). 4 (vi) Date that written notice is deemed given or made by the Company to executive of Executive's termination without "cause." Nothing herein alters Executive and the Company's separate right to terminate the employment relationship at any time, for any reason, with or without cause. 4.2 Effect of Termination for Cause, Executive's Resignation or ----------------------------------------------------------- Voluntary Departure. Upon (i) the termination of Executive for cause; Executive - ------------------- will not be entitled to any additional compensation or other rights or benefits from the Company; and, as a result, the Company shall be obligated to pay Executive only that portion of his Base Salary that Executive has earned prior to the effective date of the termination of Executive's employment with the Company. If executive resigns for any reason (ii), Executive will be entitled to his then existing Base Salary for a period of thirteen (13) weeks from the date of termination, payable in accordance with the Company's regular payroll schedule. If it is deemed employee resigns for "Good Reason" (as defined above), employee is entitled to twenty six (26) weeks from date of termination. 4.3 Effect of Executive's Death or Disability. Other than as ----------------------------------------- set forth in Section 2.4, upon Executive's departure pursuant to Section 4.1(i) (death) or 4.1(ii) (disability) of this Employment Agreement, Executive will not be entitled to any additional compensation or other rights or benefits from the Company; and, as a result, the Company shall be obligated to pay Executive only that portion of his Base Salary that Executive has earned prior to the effective date of the termination of Executive's employment with the Company. 4.4 Effect of Termination Without Cause. In the event the ----------------------------------- Company terminates Executive's employment with the Company without cause or the Company's Repurchase Right shall lapse as set forth in Section 2.4, and Executive will be entitled to his then existing Base Salary for a period of twenty-six (26) weeks from the date of termination payable in accordance with the Company's regular payroll schedule and the Company will also reimburse Executive for his COBRA premiums to continue his medical insurance coverage pursuant to COBRA for the period of twenty-six (26) weeks from the date of termination. In addition, in the event the Company terminates Executive's employment with the Company without cause, the Company will also pay all reasonable relocation expenses for return of Executive and his family to the United States 4.5 Resignation as an Officer and Director. In the event -------------------------------------- Executive's employment with the Company terminates for any reason, Executive agrees to immediately resign as an officer and/or director of the Company. 5. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE. ---------------------------------------------------- 5.1 Executive understands that the Company and its affiliates possess Proprietary Information (as defined below) which is important to its business and that this Employment Agreement creates a relationship of confidence and trust between Executive and the Company and its affiliates with regard to Proprietary Information. Nothing in this Section 5 5 shall be deemed modified or terminated in the event of the termination or expiration of this Employment Agreement. 5.2 For purposes of this Employment Agreement, "Proprietary Information" is information that was or will be developed, created, or discovered by or on behalf of the Company and its affiliates and predecessors, or is developed, created or discovered by Executive while performing services under this Employment Agreement, or which became or will become known by, or was or is conveyed to the Company and its affiliates which has commercial value in the Company's and its affiliates' business. "Proprietary Information" includes, but is not limited to, trade secrets, ideas, techniques, business, product, or franchise development plans, customer information, franchisee information and any other information concerning the Company's and its affiliates' actual or anticipated business, development, personnel information, or which is received in confidence by or for the Company and its affiliates from any other person. 5.3 At all times, both during the term of this Employment Agreement and after its termination, Executive will keep in confidence and trust, and will not use or disclose, any Proprietary Information without the prior written consent of the Board. 5.4 Executive understands that the Company and its affiliates possess or will possess "Company Documents" which are important to its business. For purposes of this Employment Agreement, "Company Documents" are documents or other media that contain or embody Proprietary Information or any other information concerning the business, operations or plans of the Company and its affiliates, whether such documents have been prepared by Executive or by others. "Company Documents" include, but are not limited to, blueprints, drawings, photographs, charts, graphs, notebooks, customer lists, computer disks, personnel files, tapes or printouts and other printed, typewritten or handwritten documents. All Company Documents are and shall remain the sole property of the Company. Executive agrees not to remove any Company Documents from the business premises of the Company or deliver any Company Documents to any person or entity outside the Company, except as required to do in connection with performance of the services under this Employment Agreement. Executive further agrees that, immediately upon the Company's request and in any event upon completion of Executive's services, Executive shall deliver to the Company all Company Documents, apparatus, equipment and other physical property or any reproduction of such property. 5.5 During the term of this Employment Agreement and for one year thereafter, Executive will not encourage or solicit any employee of the Company or any affiliate to leave the Company or any affiliate for any reason. 5.6 Non-Competition. During the Employment Term, Executive --------------- shall not directly or indirectly: (i) own, manage, operate, join, control or participate in the ownership, management, operation or control of, or be employed by or connected in any manner with, any enterprise which is engaged in any business competitive with that which the Company is at the time conducting or proposing to conduct; provided, however, that such restriction shall not apply to any passive investment representing an interest of less than two percent (2%) of an 6 outstanding class of publicly traded securities of any corporation or other enterprise which is not, at the time of such investment, engaged in a business geographically competitive with the Company's business; or (ii) encourage or solicit any Company employee to leave the Company's employ for any reason or interfere in any material manner with employment relationships at the time existing between the Company and its current employees, except as may be required in any bona fide termination decision regarding any Company employee. 5.7 Executive acknowledges that the specialized nature of his knowledge of the Company's Proprietary Information, trade secrets and other intellectual property are such that a breach of his covenant not to compete or confidentiality obligations contained in this Section 5 of this Employment Agreement would necessarily and inevitably result in a disclosure, misappropriation and misuse of such Proprietary Information, trade secrets and other intellectual property. Accordingly, Executive acknowledges and agrees that such a breach would inflict unique and irreparable harm upon the Company and that the Company shall be entitled, in addition to its other rights and available remedies, to enforce, by injunction or decree of specific performance, Executive's obligations set forth herein. 6. RESTRICTIVE COVENANT. -------------------- During the Employment Term: 6.1 Executive shall devote substantially all of his time and energy to the performance of Executive's duties described herein, except during periods of illness or vacation periods. 6.2 Executive shall not directly or indirectly provide services to or through any person, firm or other entity except the Company, unless otherwise authorized by the Company in writing. 6.3 Executive shall not render any services of any kind or character for Executive's own account or for any other person, firm or entity without first obtaining the Company's written consent. 6.4 Notwithstanding the foregoing, Executive shall have the right to perform such incidental services as are necessary in connection with (i) his private passive investments, but only if Executive is not obligated or required to (and shall not in fact) devote any managerial efforts which interfere with the services required to be performed by him hereunder, (ii) his charitable or community activities or (iii) participation in trade or professional organizations, but only if such incidental services do not significantly interfere with the performance of Executive's services hereunder. 7. MISCELLANEOUS. ------------- 7.1 Notices. All notices, demands and requests required by this ------- Employment Agreement should be in writing and shall be deemed to have been given or made 7 for all purposes (i) upon personal delivery, (ii) one day after being sent, when sent by professional overnight courier service, (iii) five days after posting when sent by registered or certified mail, or (iv) on the date of transmission when sent by telegraph, telegram, telex, or other form of "hard copy" transmission, to either party hereto at the address set forth below or at such other address as either party may designate by notice pursuant to this Section 7. If to the Company, to: Tim Harrington Fogdog, Inc. 3031 Tisch Way 100 Plaza East San Jose, CA 95128 And a Copy to: Warren Lazarow, Esq. Brobeck, Phleger & Harrison LLP Two Embarcadero Place 2200 Geng Road Palo Alto, CA 94303 If to Executive, to: Brett Allsop 936 Scott Street Palo Alto, CA 94301 7.2 Assignment. This Employment Agreement shall be binding on, ---------- and shall inure to the benefit of, the parties hereto and their respective heirs, legal representatives, successors and assigns; provided, however, the Executive may not assign, transfer or delegate his rights or obligations hereunder and any attempt to do so shall be void. 7.3 Deductions. All amounts paid to Executive hereunder are ---------- subject to all withholdings and deductions required by law, as authorized under this Employment Agreement, and as authorized from time to time. 7.4 Entire Agreement. This Employment Agreement contains the ---------------- entire agreement of the parties with respect to the subject matter hereof. 7.5 Amendment. This Employment Agreement may be modified or --------- amended only by a written agreement signed by the Board and Executive. 7.6 Waivers. No Waiver of any term or provision of this ------- Employment Agreement will be valid unless such waiver is in writing signed by the party against whom enforcement of the waiver is sought. The waiver of any term or provision of this Employment Agreement shall not apply to any subsequent breach of this Employment Agreement. 8 7.7 Counterparts. This Employment Agreement may be executed in ------------ several counterparts, each of which shall be deemed an original, but together they shall constitute one and the same instrument. 7.8 Severability. The provisions of the Employment Agreement ------------ shall be deemed severable, and if any part of any provision is held illegal, void or invalid under applicable law, such provision may be changed to the extent reasonably necessary to make the provision, as so changed, legal, valid and binding. If any provision of the Employment Agreement is held illegal, void or invalid in its entirety, the remaining provisions of this Employment Agreement shall not in any way be affected or impaired but shall remain binding in accordance with their terms. 7.9 Governing Law. THIS EMPLOYMENT AGREEMENT AND THE RIGHTS AND ------------- OBLIGATIONS OF THE COMPANY AND EXECUTIVE HEREUNDER SHALL BE DETERMINED UNDER, GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA AS APPLIED TO AGREEMENTS AMONG CALIFORNIA RESIDENTS ENTERED INTO AND TO BE PERFORMED ENTIRELY WITHIN CALIFORNIA. 7.10 Arbitration. The Executive understands and agrees that, as ----------- a condition of his employment with the Company, any and all disputes that the Executive may have with the Company, or any of its employees, officers, directors, agents or assigns, which arise out of the Executive's employment or investment or compensation shall be resolved through final and binding arbitration, as specified in this Employment Agreement. This shall include, without limitation, any controversy, claim or dispute of any kind, including disputes relating to any employment by the Company or the termination thereof, claims for breach of contract or breach of the covenant of good faith and fair dealing, infliction of emotional distress, defamation and any claims of discrimination, harassment or other claims under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans With Disabilities Act, the Employee Retirement Income Securities Act, or any other federal, state or local law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of the Executive's employment with the Company or its termination. The only claims not covered by this Employment Agreement are claims for benefits under the unemployment insurance or workers' compensation laws, and any claims pursuant to paragraph 5 of this Employment Agreement which will be resolved pursuant to those laws. Any disputes and/or claims covered by this Employment Agreement shall be submitted to final and binding arbitration to be conducted in Santa Clara County, California, in accordance with the rules and regulations of the American Arbitration Association. The Executive and the Company will split the cost of the arbitration filing and hearing fees and the cost of the arbitrator, provided that the arbitrator will have authority to award these fees to the prevailing party. Each side will bear its own attorneys' fees, provided that the arbitrator will have authority to award attorneys' fees to the prevailing party unless a statutory section at issue in the dispute authorizes the award of attorneys' fees, in which case the arbitrator has authority to make such award as permitted by the statute in question. The arbitration shall be instead of any civil litigation; this means that the Executive is waiving any right to a jury trial, and that the arbitrator's decision shall be final and 9 binding to the fullest extent permitted by law and enforceable by any court having jurisdiction thereof. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the date first above written. "COMPANY" Fogdog, Inc. By: /s/ Tim Harrington ------------------------------------ Name: Tim Harrington Title: Chief Executive Officer "EXECUTIVE" /s/ Brett Allsop --------------------------------------- Brett Allsop 10 EX-10.12 14 LETTER AGREEMENT - TIMOTHY JOYCE EXHIBIT 10.12 August 23, 1999 Tim Joyce 12 Dover Way Lake Oswego, OR 97034 Dear Tim, We are pleased to offer you employment with Fogdog, Inc. (hereinafter "Fogdog") as President, with a start date of August 26th, 1999. The terms and commitments of your employment with Fogdog are as follows: 1. You will be employed to work full time and exclusively for the Company. 2. Salary. Base salary of $23,333.33 per month, which is equal to $280,000 per ------ year. 3. Bonus. You will have the opportunity to earn a bonus in addition to your ----- base salary. Performance targets to earn the bonus are as attached to this agreement. The target for the bonus is 20% of your salary with the opportunity to earn more through performance accelerators. You must be employed by Fogdog at the time the bonus is payable to be eligible to receive the bonus. 4. Stock Options. Subject to approval by the Board of Directors of Fogdog, we ------------- are pleased to offer you participation within Fogdog's stock option plan at a level of 1,000,000 common ISO shares. Options are vested over four years, with 125,000 options vesting at the end of the first six months and monthly vesting in equal increments of 20,833 options thereafter. If, within 30 days from your start date, Nike Inc opens Fogdog up as a retail account for its premium product (including Nike, Air Jordan, and Alpha product lines), you will receive a bonus grant of 125,000 shares, which shall be fully vested at the six month cliff date. The exercise price per share will be the fair market value (current value is $.88 per share) of the options as determined by the Board of Directors after your start date. In the event of an acquisition (Corporate Transaction) of the company during the first twelve months of employment, twenty-four months' of options, to the extent outstanding at that time but not otherwise fully exercisable, shall automatically accelerate. No such acceleration shall occur if i) the options are assumed by any successor corporation or ii) such acceleration would impact any pooling of interest. In event ii) the accelerated option would be replaced with a cash incentive which preserves the spread existing on the unvested option at the time of the Corporate Transaction (excess of fair market value of such option over the aggregate exercise price payable). 5. Relocation Package. Upon the relocation of your family, you are eligible ------------------ for reimbursement of allowable relocation expenses, as described in the attached Relocation Policy, up to $50,000. Also upon the relocation of your family, we will offer you an additional relocation reimbursement of $30,000, to be used as you see fit for your moving and living expenses. Additionally, we will offer you up to $20,000 to reimburse you for temporary housing for yourself until such time as your family relocates. 6. Health Benefits. For the duration of employment, you shall be entitled to --------------- participate in the Company's health insurance, life insurance and disability insurance plans to the extent permitted by law, that may from time to time be adopted by the Board. 7. 401(k). For the duration of employment, you are eligible to participate in ------ Fogdog's 401(k) Savings Plan. The Company reserves the right to amend, modify or terminate this benefit at any time for any reason. 8. Vacation. You will accrue paid vacation days at a rate of one and one-half -------- (1.5) days per month of employment. 9. Family & Sick Leave. You will accrue paid family and sick leave at a rate ------------------- of one-half day (1/2) per month of employment (18 days per year). 10. At Will Employment. Your employment with Fogdog is at-will and can be ------------------ terminated or modified at any time, with or without cause, at the option of either you or Fogdog. This provision may be modified only in writing, signed by the CEO of the company. Except as otherwise provided herein, upon the termination of your employment with Fogdog you shall immediately cease to accrue salary, vacation, benefits, vesting of stock options and all other compensation. If employment is terminated for reasons other than cause, you will be entitled to a 6 month severance package (salary and benefits only). 11. Expense Reimbursement. Corporate travel and other company-related --------------------- expenses incurred by you on your personal accounts shall be reimbursed. Those expenses plus any travel and company-related expenses incurred on any Fogdog company account are to be approved by your direct supervisor prior to event. 12. Confidentiality. For the duration of employment and after any termination --------------- of employment, you will keep all Cedro information confidential and proprietary, including but not limited to, new product development, business practices, and corporate initiatives. In any case, Fogdog will, at its sole discretion, provide written authorization to allow you to reveal such information. You may be asked to sign additional confidentiality documentation. If this offer of employment is acceptable to you, please sign a copy of this letter and return it to me no later than 5:00pm PST, August 25th, 1999. Best Regards, /s/ Marcy von Lossberg Marcy von Lossberg Chief Financial Officer I accept your offer of employment as outlined in this letter. I acknowledge receiving a copy of my job duties. I understand that my employment can be terminated at any time, with or without cause. Signature Date /s/ Tim Joyce 8/25/99 - ------------------------------ ------------------------ Tim Joyce EX-10.13 15 ORDER FULFILLMENT SERVICES AGREEMENT EXHIBIT 10.13 ORDER FULFILLMENT SERVICES AGREEMENT ORDER FULFILLMENT SERVICES AGREEMENT (this "Agreement") dated as of the seventeenth day of September 1999, by and between Keystone Fulfillment, Inc. ("Keystone"), a Delaware corporation with a principal place of business located at 101 Kindig Lane, Hanover, Pennsylvania, and Fogdog, Inc. ("Fogdog,"), a California corporation with a principal place of business located at 500 Broadway, Redwood City, California. W I T N E S S E T H: WHEREAS, Keystone and its affiliates are engaged in the business of direct response marketing to consumers; WHEREAS, Fogdog is engaged in the business of the direct marketing of sporting goods (the "Fogdog Merchandise") and proposes to continue to conduct for the Term (as defined below) of this Agreement to market Fogdog Merchandise to consumers through its website(s) (the "Fogdog Business"); WHEREAS, Fogdog proposes that Keystone provide fulfillment and other services respecting the Fogdog Business; and WHEREAS, subject to the terms and conditions herein contained, Keystone desires to provide such services as set forth herein; NOW, THEREFORE, in consideration of the premises and the covenants hereinafter made by the parties hereto, Fogdog and Keystone agree as follows: 1. Appointment: Acceptance. Subject to the terms and conditions set forth in ------------------------ this Agreement, Fogdog hereby appoints Keystone to coordinate and/or perform the services described herein for the Term. Keystone hereby accepts such appointment and agrees to coordinate and/or perform such services as provided herein for the Term. 2. Fulfillment Services. Keystone will provide or coordinate fulfillment -------------------- services to Fogdog in connection with the Fogdog, Business such services being described, and to be performed in accordance with the Performance Standards and Statement of Work set forth, in Exhibit C. Fees for these --------- services are to be billed to and paid by Fogdog in accordance with the fee schedule set forth in Exhibit A attached hereto and made a part hereof. --------- [*] Except for shipping work performed by third-party carriers, Keystone shall remain liable for all work it outsources under this Agreement. 3. Certain Fogdog Obligations. Fogdog will: -------------------------- CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. a. pay Keystone per the fee schedule attached as Exhibit A for, and --------- reimburse Keystone for all reimbursable expenses as described and at the rates indicated in Exhibit A which are incurred by Keystone in connection with, all services performed by Keystone on Fogdog's behalf; b. arrange for delivery of Fogdog Merchandise to Keystone's facility, in accordance with the standard vendor compliance procedures set forth in Exhibit B attached hereto and made a part hereof, as the same may be --------- modified from time to time by the parties; c. [*] d. pay for all costs of stationery and packaging and other supplies required in connection with the Fogdog Business, such items to be billed by Keystone in accordance with Exhibit A; --------- e. arrange and pay for the disposition of any overstocks remaining unsold at the end of the Term of this Agreement, including payment of all costs of customs duties, transportation and insurance after the Term of this Agreement; and f. provide Keystone on or prior to the execution and delivery of this Agreement with a duly executed original Pennsylvania resale certificate and sales tax exemption certificate. 4. Reporting: Invoice; Right to Suspend Services for Nonpayment. [*] ------------------------------------------------------------- 5. Representations and Warranties. ------------------------------ a. Each Party represents and warrants to the other: that it has full power and authority to enter into this Agreement and to undertake its obligations pursuant hereto; that this Agreement constitutes a valid and binding agreement of such party, enforceable in accordance with its terms (except as enforceability may be limited by creditors' rights laws and equitable remedies); that the execution, 2 [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. delivery and performance of this Agreement do not and will not conflict with or result in a breach of or constitute a default under any provision of the charter or by-laws of such party, or give rise to any default under any material contractual obligation of such party or violate any provisions of any law, rule, regulation, order, writ, judgment, injunction, statute, decree, determination or award having applicability to such party or any of its affiliates or its or their properties; and that it is duly qualified or licensed in all jurisdictions wherein the nature of the business conducted by it or the character or location of its properties makes such qualification or licensing necessary, except where the failure so to be qualified or licensed would not, if left unremedied, impair the other party's ability to perform its respective obligations under this Agreement. b. Fogdog represents and warrants to Keystone that in the conduct of the Fogdog Business as it pertains to any and all Fogdog Merchandise, and other items supplied by Fogdog or one of its vendors, Keystone handles, comes into contact with, or has possession of: Fogdog is the absolute owner of all its patents, trademarks, service marks, trademark and service mark applications, trade names, copyrights, trade secrets and other intellectual property used in its business and/or to be used in the Fogdog Business, or has, to its knowledge, and will use its best efforts to continue to have during the Term of this Agreement, all necessary authority of the corporations, partnerships and individuals whose products and services will be offered for sale in the Fogdog Business to use their patents, trademarks, service marks, trade names, trademark and service mark registrations, copyrights, trade secrets and other intellectual property for all purposes of conducting the Fogdog Business. Fogdog's Business, as it pertains to any and all Fogdog Merchandise, and other items supplied by Fogdog or one of its vendors, Keystone handles, comes into contact with, or has possession of, as conducted or as currently proposed to be conducted does not and will not, to Fogdog's knowledge after due inquiry, cause Fogdog to infringe or violate any patents, trademarks, service marks, trade names, copyrights, licenses, trade secrets or other proprietary or intellectual property rights (including, without limitation, rights of privacy and publicity) of any other person or entity. 6. Vendor. Fogdog will be the vendor of Fogdog Merchandise to Fogdog Business ------ customers. Fogdog will be responsible for any required sales tax registrations, filings and remittances. Fogdog shall provide Keystone with a schedule of all jurisdictions for which Keystone is to bill Fogdog's customers for sales and use tax pursuant to section 2(f) of this Agreement. For each jurisdiction listed, such schedule shall indicate whether the non- merchandise components (e.g. delivery charges, insurance, etc.) of Fogdog's customer billing shall be included in the tax base for calculating sales and use tax. Fogdog shall provide Keystone with a product matrix schedule, by SKU number and jurisdiction, indicating each jurisdiction in which the sales price of such SKU number shall be wholly or partially exempt from sales and use tax. For any SKU number partially exempt from sales and use tax, the limits of such exemption shall be indicated. All products not appearing on the product matrix schedule shall be included in the tax base in all jurisdictions for which Fogdog has requested Keystone to bill sales and use tax. The schedules to be provided by Fogdog in accordance with this section shall be 3 provided to Keystone no later than thirty (30) days prior to the commencement of order processing pursuant to section 2(a) of this Agreement. Pursuant to Section 2(f) of this Agreement, Keystone shall bill Fogdog's customers for sales and use taxes for Pennsylvania and such other jurisdictions appearing on Fogdog's schedule of jurisdictions for which Keystone is to bill Fogdog's customers for sales and use tax. Sales and use taxes shall be billed at the current rate, as reported by Vertex or such other third-party national sales tax rate directory as may be used by Keystone, for the date on which orders to Fogdog's customers are received. Keystone makes no representations or warranties as to the accuracy of the information provided by Vertex or any other third-party national sales tax directory. Keystone shall amend the schedule listing the jurisdictions, products and/or other amounts billed to Fogdog's customers for which it bills sales and use taxes within thirty (30) days of receipt of a written request for an amendment from Fogdog. Keystone shall not be held responsible for the collection of sales and use taxes that are unpaid by Fogdog's customers nor for any failure to bill the proper sales and use taxes provided Keystone has complied with the provisions of this section. 7. Compliance with Laws. In performing its obligations under this Agreement, -------------------- each party shall comply with all applicable federal, state and local laws, rules, regulations and orders. 8. Confidentiality. The parties (including their officers, directors, --------------- shareholders, affiliates, agents, employees, consultants, other representatives, successors, and assigns) agree that all confidential or proprietary information (the "Confidential Information"), including, without limitation, customer names, addresses and other related data and pricing, fulfillment and other operational information, received by each as a result of the project contemplated hereby, shall be maintained in strictest confidence, shall not be disclosed to anyone other than employees or agents of the respective parties whose duties require access to such information, and shall be used solely by the parties to carry out this Agreement and the transactions contemplated thereby. Keystone specifically agrees not to use for its own Purposes, or to provide to a third party, any customer or mailing lists of Fogdog that comes into its possession without the prior written consent of Fogdog,. The parties further agree that any public statements made by either party concerning this Agreement or the transactions contemplated herein, unless required by law, shall require the prior written approval of the other party. In addition, should either party be required to disclose the Confidential Information or any part of it to the Securities and Exchange Commission, the par-ties agree to cooperate with each to obtain confidential treatment of such information. 9. Effectiveness and Termination. ----------------------------- a. This Agreement shall be effective as of the date first set forth above and shall continue in full force and effect through [*] ("the Term"), unless earlier terminated by either party upon: [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4 (1) if not cured within [*] following written notice thereof, the failure of the other party to comply substantially with any material provision of this Agreement, including but not limited to: (a) Section 2 payment obligations and Exhibit A; (b) Section 4; (c) Section 5; (d) Section 12; (e) Exhibit C: Merchandise Receipt Performance Standards; (f) Exhibit C: Collate, Printing, Picking, Packing and Shipping Performance Standards for Regular Orders; (g) Exhibit C: Inventory Shrinkage; and (h) Exhibit C: Priority Order Processing. (2) the commencement of any voluntary or involuntary bankruptcy, insolvency, reorganization, readjustment of debt, dissolution (except by way of merger or consolidation), liquidation of debt, or other insolvency proceeding by or against the other party; (3) the suspension or termination of the other party's business or the appointment of a receiver, trustee, or similar officer to take charge of a substantial part of the other party's assets; (4) the other party admitting in writing its inability to pay its debts when due; or (5) [*] prior written notice given to the other party. Fogdog will pay all reasonable expenses associated with moving inventory out of Keystone's facilities should Keystone terminate this Agreement pursuant to this Section 9. b. Upon termination of this Agreement, if Fogdog has failed to pay any undisputed amounts due hereunder, Keystone shall have a lien against any remaining Fogdog Merchandise until payment by Fogdog of all undisputed outstanding amounts, subject to the provisions of the Uniform Commercial Code or other relevant law. Such remedy shall be cumulative and in addition to any other remedies Keystone may have in law or equity. 10. Automatic Renewal of Agreement. This Agreement shall be automatically ------------------------------ renewed for successive [*] periods after the Term (each also a "Term") unless either party provides the other party with written notice at least [*] before the end of the then current Term that such party does not want to renew this Agreement. 11. No-Hire. Each party agrees that, during and for a period of [*] ------- after the Term, or, if this Agreement is earlier terminated, then for the period when the Agreement is in effect and thereafter for a period of [*] from the date of the Agreement's [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 5 termination, neither it nor any of its affiliates or associates, directly or indirectly, will solicit with a view toward hiring any of the current officers, employees, consultants, or other representatives of the other (as officer, employee, consultant or otherwise) without obtaining the prior written consent of the other party. 12. Indemnification; Limitation on Liability [*] ---------------------------------------- [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [*] 13. Force Majeure; No Consequential Damages. In the event that either party --------------------------------------- shall be unable to perform under this Agreement because of circumstances constituting a force majeure, including, without limitation, acts of God, accident, fire, flood, explosion, the elements, strikes, embargo, sabotage, acts of war or of military authorities, civil disturbances, transportation stoppages, acts or omissions of carriers, inability to secure fuel, failures of electrical supply or communications services, acts of computer hackers, or other causes beyond its control, such party shall not be deemed to be in breach of this Agreement or liable to the other for failure to perform hereunder. None of the foregoing, however, shall excuse any failure of either party to pay money as and when due hereunder. In no case shall either party be liable to the other for any consequential, incidental or indirect losses or damages of any kind arising out of or in any way connected with this Agreement, even if such party has been advised of the possibility of such losses or damages. 7 [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 14. Binding Effect, No Assignment. This Agreement shall be binding upon and ----------------------------- inure to the benefit of the parties hereto and their respective successors and assigns. [*] Any purported assignment or other transfer in violation of this section shall be null and void. 15. Independent Contractors: No Third-Party Rights. Nothing contained in this ----------------------------------------------- agreement shall be construed to give either party the power to direct or control the day-to-day activities of the other. The parties are, and in all respects of their relationship to one another and their respective performances hereunder shall be, independent contractors, and neither this Agreement nor anything herein contained shall be deemed or construed to constitute the parties as partners, joint venturers, principal and agent, co-owners or otherwise as participants in a joint or common undertaking. 16. Modification; No Waiver; Severability. No modification or waiver of any ------------------------------------- provision of this Agreement shall be effective unless and only to the extent expressed in a mutually executed agreement. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise of any right, power or privilege. Should any provision of this Agreement be determined to be void, invalid or otherwise unenforceable by any court of competent jurisdiction, such determination shall not affect the remaining provisions hereof, which shall remain in full force and effect. 17. Governing Law; Jurisdiction. This Agreement shall be governed by and --------------------------- construed under the laws of the State of Pennsylvania, without regard to such state's conflict of laws rules. THE PARTIES HEREBY AGREE TO SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE FEDERAL OR STATE COURTS LOCATED IN THE STATE OF PENNSYLVANIA, AND HEREBY WAIVE ANY OBJECTION BASED ON VENUE OR FORUM NON CONVENIENS WITH RESPECT TO ANY ACTION INSTITUTED THEREIN AND ANY RIGHT TO TRIAL BY JURY. 18. Notices. Except as otherwise provided in this Agreement, notices required ------- to be given pursuant to this Agreement will be effective upon receipt (or upon rejection of receipt) when hand-delivered in writing, sent by prepaid express delivery courier, sent by first class certified mail, return receipt requested, with postage fully prepaid, or sent by facsimile followed by a confirmation letter of such delivery method, to the parties at the respective addresses and numbers below: 8 [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. (a) if to Keystone: Keystone Fulfillment, Inc. 5022 Hollins Road Roanoke, VA Attention: Gary Firebaugh Vice President Telephone: 540-561-7746 Facsimile: 540-561-7755 With a copy to: Hanover Direct, Inc. 1500 Harbor Boulevard Weehawken, NJ 07087 Attention: General Counsel Telephone: 201-272-3484 Facsimile: 201-272-3495 (b) if to Fogdog: Fogdog, Inc. 500 Broadway Redwood City, CA 94063 Attention: Mohan Komanduri Director of Logistics Telephone: 650-980-2577 Facsimile: 650-980-2600 with a copy to: Fogdog, Inc. 500 Broadway Redwood City, CA 94063 Attention: Pat McGovern General Counsel Telephone: 650-980-2546 Facsimile: 650-980-2608 19. Survival; Injunctive Relief; Remedies Cumulative. The confidentiality and ------------------------------------------------ no-hire provisions hereof shall survive the expiration or earlier termination of this Agreement and the consummation or termination of the transactions contemplated hereby. The parties agree that the remedy at law for any breach of such provisions would be inadequate; that the injured party shall be entitled to seek injunctive relief in addition to any other remedy to which it may be entitled. Notwithstanding the expiration or earlier termination of this 9 Agreement neither party hereto shall be released from any liability or obligation hereunder (whether in the nature of indemnification or otherwise) which has already accrued as of the time of such expiration or termination or which thereafter might accrue in respect of any act or omission of such party prior to such expiration or termination. The remedies provided herein are cumulative and not exclusive of any other remedies that a party may have in law or equity. 20. Entire Agreement; Counterparts. With respect to the matters contemplated ------------------------------ herein, this Agreement constitutes the entire understanding between the parties and supersedes all prior oral and written communications, negotiations, understandings and agreements between such parties in relation to the subject matter hereof. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which shall constitute the same agreement. 21. Number and Gender. Whenever appropriate in this Agreement, terms in the ----------------- singular number shall include the plural (and vice versa) and each gender form shall include all others. 22. Headings. Section headings contained in this Agreement are for reference -------- purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 23. Drafting. This Agreement shall be treated as an agreement that was jointly -------- drafted by all parties signing it and shall not be read against any particular drafter of the Agreement or any provision therein. 24. Attorneys' Fees and Litigation Expenses. In the event that any legal --------------------------------------- proceeding concerning the validity, enforcement or interpretation of the provisions of this Agreement is instituted, the prevailing party in such proceeding shall be entitled to recover its reasonable attorneys' fees and other litigation expenses incurred in such proceeding, in addition to any other relief to which it may be entitled, from the losing party. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. KEYSTONE FULFILLMENT, INC. By: /s/ Gary A. Firebaugh ----------------------------------- Name: Gary A. Firebaugh Title: Vice President, Marketing FOGDOG, INC. By: /s/ Timothy Harrington ----------------------------------- Name: Timothy Harrington --------------------------------- Title: CEO -------------------------------- 10 Exhibit A Schedule of Fees [*] 11 [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Orders/month [*] [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 12
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[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 15 Exhibit B Standard Vendor Compliance Procedures Packaging Vendors are expected to deliver merchandise in prepackaged units exactly as they are to be sold to the customer. All items require packaging that will protect them during distribution, storage, handling and shipping. There are four package formats that are acceptable to Keystone: Polybags -------- Non-fragile items can be packaged in individual, fully vented polybags labeled with the Fogdog item number. Multiple items of the same item number may be packed into a master carton. Polybags are appropriate for small items which will not easily break during handling and for textile items. Boxes ----- Items may be packaged in a retail box made from kraft board or corrugated boxes. This may be appropriate for non-fragile items or where there is sufficient inner protection to prevent damage from shock or vibration. If the product is exposed, or the item may fall out of the package during conveyance, a polybag, shrink film or over-box must be used. These items must be delivered in a master carton. Protective Packaging -------------------- Items which can easily break must have protection sufficient to withstand the normal distribution handling and shipping environment. Ship-Alone Packaging --------------------- Items that are greater than 23 inches in length or weigh more than 30 pounds must be packaged in mailable containers. These items will be sent directly to the customer and will not be over-boxed. Master Cartons -------------- Items less than 23 inches in length or less than 30 pounds should be in master cartons. The master carton size should not exceed 36"L x 26"W x 20"H, nor exceed 50 pounds. Each master carton must contain only one Fogdog item number. Labeling Individual Unit Label --------------------- 16 Each individual selling unit must have an identification label. The label must show the Fogdog item number and the country of origin. This does not necessarily need to be externally marked. Master Carton Labeling ---------------------- Each master carton must have the following information clearly marked or labeled on the outside of the carton: . Fogdog . Fogdog Item Number . Purchase Order Number . Color . Quantity . Case Number ___ of ____ . Made in: . Destination Shipping Requirements Advance Shipping Notification (ASN) ----------------------------------- All inbound shipments must be scheduled through the Traffic Department using an ASN. This must be faxed to the Traffic Department at (717) 633- 3202 at least 3 days before shipping. The Traffic Department will return the form within 24 hours with a Request Number. Questions about ASNs should be directed to the Traffic Coordinator at (717) 633-3276. Loading the Truck ----------------- The truck must be loaded by purchase order and then by item number within that purchase order. Packing List ------------ A detailed packing list must accompany each shipment and should be attached to the last container/pallet loaded in the trailer. There should be one packing list for each purchase order shipped. Routing Guide For inbound shipments arriving at Keystone with collect freight terms, the carriers shown in this routing guide should be used. Other carriers may be used if agreed to in writing by Keystone before shipments are originated. Shipments weighing under 125 pounds: ----------------------------------- Use RPS. Call (800) 762-3725 for instructions or supplies 17 Shipments weighing between 125 pounds and 4,999 pounds and occupying less ------------------------------------------------------------------------- than 1/3 of a 48 foot trailer: ----------------------------- Use the carrier shown in the chart following this section. Shipments weighing between 5,000 pounds or more and/or occupying more than -------------------------------------------------------------------------- 1/3 of a 48 foot trailer: ------------------------ Call the Traffic Coordinator at (717) 633-3276 to schedule merchandise pickup. Items not complying with the requirements contained in this Exhibit may be prepped or re-worked by Keystone at the expense of Fogdog at the sole discretion of Keystone. 18 Shipments weighing between 125 pounds and 4,999 pounds and occupying less ------------------------------------------------------------------------- than 1/3 of a 48 foot trailer should be shipped by the carrier shown for ------------------------------------------------------------------------ the origin state in this table: ------------------------------ State Carrier - ----- ------- AL Roadway NM Roadway AR Roadway NV Roadway AZ Roadway NY Overnite CA Roadway OH Roadway CO Roadway OR Roadway CT Overnite PA Overnite DC Overnite RI Overnite DE Overnite SC Overnite FL Roadway SD Roadway GA Roadway TN Roadway IA Roadway TX Roadway ID Roadway UT Roadway IL Roadway VA Overnite IN Roadway VT Roadway KS Roadway WA Roadway KY Roadway WI Roadway LA Roadway WV Overnite MA Overnite WY Roadway MD Overnite ME Overnite MI Roadway MN Roadway MO Roadway MS Roadway MT Roadway NC Overnite ND Roadway NE Roadway NH Overnite NJ Overnite 19 Exhibit C Keystone Services, Performance Standards, and Statement of Work OVERALL SCOPE Fogdog will receive orders via the Internet. Fogdog will authorize credit cards and transmit orders to Keystone Fulfillment, Inc. (KFI). KFI will pick, pack and ship the orders. KFI will prepare and send to Fogdog a file for shipped orders, including delivery-tracking information. Fogdog will bill the credit cards and resolve declines and charge backs from the bank. KFI will transmit the inventory snapshot and inventory transaction files to Fogdog at least once per day. Fogdog will transmit to KFI item numbers, purchase orders and vendor information. KFI will update Fogdog with an order status file at least twice per work day (actual frequency to be agreed upon by KFI and Fogdog). Interfaces and System Setup Work will begin on September 15, 1999 to develop system interfaces and setup an account on the KFI system. Programming will be performed by Fogdog so files sent to KFI comply with the formats contained in Exhibit G of this agreement for purchase order, item, vendor and order files. KFI will perform programming so files sent to Fogdog meet the formats contained in Exhibit G of this agreement for order status and inventory status. Shipment of products to Fogdog customers will begin no later than October 11, 1999. Information Set Up Fogdog will transfer to KFI item, purchase order, and vendor files. Forecasting Fogdog will make every attempt to provide a daily forecast for receipts, shipments, gift box units and gift wrapping units, within [*] of actual numbers in order for KFI to meet standards. Fogdog will have this forecast to KFI by 5 PM Eastern Standard Time on each Monday for the week beginning three weeks later. If actuals fall outside of the [*] KFI will not be bound to the performance standards contained in this agreement but will do everything within reason to meet these standards. If actuals are over [*] of the forecast, the account executive will call for an operational overview with both KFI and Fogdog representatives. The purpose of this overview will be to determine the best short-term operational plan to work out of the backlog situation. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 20 If actuals fall below [*] of the forecast, Fogdog will pay KFI the equivalent of the charge for receiving, shipping, gift boxing, and gift wrapping, [*] of the forecasted orders or units respectively. Merchandise Receipt Fogdog's vendors will follow vendor compliance guidelines contained in this Agreement, including providing KFI with advance shipping notification. KFI will receive and enter into inventory all items meeting purchase order requirements and not requiring prep within one business day. KFI will provide a 10% basic inspection at the piece level for product identification and count verification. Receipts requiring sortation into one sku per carton, will be available for sale 2 business days after arrival at KFI's facility. Multi-sku receipts with inner packs that will withstand the rigors of material handling within the warehouse will be available for sale one business day after arrival at KFI's facility. For item(s) not meeting purchase order requirements, a problem order manual log will be generated and contact made to Fogdog to resolve incoming problems within one business day. At Fogdog's request, KFI will provide kitting services. Quality Inspection Any merchandise requiring additional quality control and/or prep work must be approved by Fogdog in advance of work performed. Merchandise Storage Fogdog's inventory will be stored solely in KFI's Kindig Lane facility, unless Fogdog authorizes Keystone in writing to store Fogdog's inventory off-site, and will be segregated from other active and reserve Keystone inventory. Merchandise will be stored in a clean, climate controlled space that offers reasonable protection from temperature and water damage and includes functioning sprinklers. In addition, for items identified by Fogdog as "high value", a secure storage area with limited access will be used. Order Origination Customers will place orders through the Internet. The inventory snapshot and transaction files will be transmitted once per day by KFI to Fogdog and will be used to calculate availability at the time of order. Fogdog will authorize the order, check for frauds, and create a file with the customer's name, address, product number, and quantity. KFI will initiate a file transfer to its system at least twice per work day (actual frequency to be agreed upon by KFI and Fogdog) [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 21 KFI will, at a frequency to be agreed upon by KFI and Fogdog, but not less than twice each work day, transmit files to Fogdog to update inventory and order status information, including cancellations. COLLATE PRINTING, PICKING, PACKING, AND SHIPPING Regular Orders All items available for picking (excluding back orders) are released on a collate to the distribution center for shipping at the conclusion of the order run. [*] of all in stock, non-damaged non-problem orders transmitted to KFI prior to the midday order processing run, up to [*] of the Fogdog forecast mentioned above, will be shipped on the same day. If less than [*] of all in stock, non-damaged, non-problem orders transmitted to KFI prior to the midday order processing run, up to [*] of the Fogdog forecast mentioned above, are not shipped the same day, KFI will upgrade its shipping services, and bear the costs of such upgrades, to bring the orders up to the [*] level as follows: 1) UPS Ground to UPS 3-day select; 2) UPS 3-day select to UPS 2nd day air; 3) UPS 2nd day air to UPS next day air; 4) USPS parcel post to USPS Priority Mail; 5) USPS Priority Mail to USPS Express Mail Service. 100% of the orders carried over will be shipped by the end of the next business day. (During high volume periods, as determined by Keystone in its sole discretion, Keystone will use reasonable efforts to implement weekend and evening schedules to maintain this standard.) QUALITY ASSURANCE On a weekly basis, outbound order accuracy and order presentation will be at minimum [*]. If outbound order accuracy is at or above [*] at the order level for a given week, Fogdog and KFI will share equally the cost of return postage and shipping charges for replacement items required to correct the outbound order accuracy errors. If outbound order accuracy is below [*], the parties shall share equally the cost of return postage and shipping charges for replacement items required to correct the first [*] and thereafter KFI will bear the entire cost of return postage and shipping charges for replacement items required to correct the outbound order accuracy errors. Outbound order accuracy is measured by the following criteria: (1) correct item(s) in the package; (2) presence of gift boxing and/or gift wrapping per Fogdog instructions; and (3) sufficient dunnage to protect item(s) during shipping. Order presentation is defined as correct inserts, labeling and/or other package appearance work per Fogdog instructions. Distribution Distribution will receive the collates (packing slips) at the conclusion of each order run. KFI will pick, pack and ship the order, using a label bearing Fogdog's name and logo as specified by Fogdog, together with the return address specified by Fogdog. Products will [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 22 be shipped using Fogdog's designated carrier(s). Orders shipped via UPS will ship under a Fogdog designated UPS Shipper Number and account. The completed shipment record and tracking information will be transmitted to Fogdog via the order status file. Fogdog will bill the customer and credit Fogdog's bank account. Credit Card Processing and Charge Backs After the order is shipped, KFI will send the shipment confirmation file to Fogdog. Fogdog will process the billing of the credit cards. Returns Customer returns, including credit card credits, will be processed by Fogdog at its facility. Items to be returned to inventory will be sent by Fogdog to KFI and processed as new receipts. Order Cancellations Fogdog will cancel orders in its system if the file has not been transferred to KFI. Once orders have been transferred to KFI, orders can be canceled before they are released to the Distribution Center. If orders have progressed beyond the cancellation point, Fogdog can contact the account executive and reasonable efforts will be made by KFI to manually track down the orders in the warehouse. KFI will notify Fogdog whether or not KFI was able to locate and cancel the orders. Inventory Shrinkage KFI will be responsible for inventory accuracy at these levels: . [*] in aggregate as determined by physical inventory . [*] in aggregate on 12 week cycle counts after adjustments made for active recounts If there is shrinkage above these levels, KFI will pay the cost to replace those goods. Priority Order Processing All priority orders, up to a maximum of [*] per day, received by KFI prior to 3:00 p.m. Eastern Standard Time will be shipped that same day. Reports The reports referred to in Exhibit E of this agreement will be available to Fogdog at daily, weekly and/or monthly frequencies as requested in writing by Fogdog. Inventory KFI will conduct cycle counting of the reserve storage for a complete turnover every 12 weeks. An annual physical inventory is also available with two months' written notice. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 23 Return to Vendor and other Inventory Handling KFI will destock and return to Fogdog, its vendor(s) or other Fogdog designated parties, as the case may be, any rejected or overstock Fogdog Merchandise at Fogdog's discretion and at Fogdog's expense. Keystone Inserts KFI will not include any inserts relating to KFI in any order without the prior written consent of Fogdog. Certain Definitions: "Business day," for all purposes of Keystone Standards and the Direct Marketing Services Agreement to which this is attached, shall mean Monday through Friday except any day that is a United States national holiday. 24 Exhibit D Keystone Account Executive Job Description Reports To: Vice President Operations of Keystone SUMMARY Provides and leverages service to Fogdog for the purpose of meeting contractual obligations and generating additional business by performing the following duties. ESSENTIAL DUTIES AND RESPONSIBILITIES include the following. Other duties may be assigned. . Develops strong working relationships with companies doing business with Fogdog. . Provides required reports for Fogdog as specified in this Agreement. . Works with companies doing business with Fogdog to identify and communicate marketing projections related to orders, receipts, returns or other data that will affect service levels to customer service and fulfillment management teams. . Monitors and communicates attainment of contractual performance standards to Fogdog's customer service and fulfillment operations, making recommendations for improvements as necessary. . Provides Fogdog with information and advice on the best methods to use to improve throughput and cost. . Works with all operating divisions to set up new Fogdog accounts. . Schedules meetings and tours for companies doing or potentially doing business with Fogdog. . Conducts off-line or on-line research to resolve customer problems. . Assures compliance with pertinent laws and regulations. . Position will require hours outside of normal schedule and may involve periodic overnight travel. . Insures that staff has required resources and equipment to perform their duties. SUPERVISORY RESPONSIBILITIES: The Account Executive will directly supervise 1 to 2 Assistant Account Executives. The Account Executive will carry out supervisory responsibilities in accordance with Keystone's policies and applicable laws. 25 Responsibilities include interviewing, hiring, and training employees; planning, assigning and directing work; appraising performance; rewarding and disciplining employees; addressing complaints and resolving problems. QUALIFICATIONS: To perform this job successfully, the Account Executive must be able to perform each essential duty satisfactorily. The requirements listed below are representative of the knowledge, skill, and/or ability required. Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions. EDUCATION and/or EXPERIENCE: Associate's Degree (A.A.) or equivalent from two-year college or technical school; or six months to one year related experience and/or training; or equivalent combination of education and experience. LANGUAGE SKILLS: Ability to read, analyze, and interpret general business periodicals, professional journals, technical procedures, or governmental regulations. Ability to write reports, business correspondence and procedure manuals. Ability to effectively present information and respond to questions from groups of managers, Fogdog representatives, customers, and the general public. MATHEMATICAL SKILLS: Ability to add, subtract, multiply, and divide in all units of measure, using whole numbers, common fractions, and decimals. Ability to compute rate, ratio, and percentages and to draw and interpret bar graphs. REASONING ABILITY: Ability to define problems, collect data, establish facts, and draw valid conclusions. Ability to interpret an extensive variety of technical instructions in mathematical or diagram form and deal with several abstract and concrete variables. Ability to manage multiple projects and priorities. COMPUTER KNOWLEDGE: Experience with Microsoft Office Suite products including Word, Exchange and Excel. Ability to create business correspondence in Word and Exchange. Ability to create spreadsheets in Excel using simple calculations and equations. Knowledge of PowerPoint is a plus. Experience in MACS, Lawson, PowerPoint or other software common to Keystone/Hanover Direct is a plus. PHYSICAL DEMANDS: The physical demands described here are representative of those that must be met by the Account Executive to successfully perform the essential functions of this job. Reasonable accommodations may be made to enable individuals with disabilities to perform the essential functions. While performing the duties of this job, the Account Executive is regularly required to sit and talk and/or listen. The Account Executive frequently is required to stand; use hands to finger, handle, or feel; and reach with hands and arms. The Account Executive is occasionally required to walk and stoop, kneel, crouch or crawl. The Account Executive must occasionally lift and/or move up to 25 pounds. 26 Exhibit E Standard System Reporting Listing Actual Offer Page Analysis -------------------------- Daily Demand ------------ Daily Return ------------ Inventory Value Report ---------------------- Items by Location ----------------- Key History Analysis -------------------- Key History II -------------- Order Fill Rate Analysis ------------------------ Out of Stock Report ------------------- Product Forecast Report ----------------------- Product Return By Date Range ---------------------------- Product Sales By Source ----------------------- Purchase Order Analysis ----------------------- Receiving Recap --------------- Sales By How Paid Date ---------------------- Shipped Sales By Catalog ------------------------ Shipped Sales By Division ------------------------- Summary Backorder Report ------------------------ Ticket Receiving ---------------- Where It Is ------------ 27 Exhibit F 1994 Q4 and Year 2000 Order Volume and SKU Projections The following information reflects Fogdog's projected SKU and order volumes for product fulfilled through Keystone. SKU and order information for October 1999 through December 1999: - ---------------------------------------------------------------- Average daily orders: [*] by December 1999 Peak daily orders: [*] (first week of December) SKU's: [*] (Approximate breakdown: 30% apparel, 30% footwear, 30% large hardgoods, and 10% small accessories) SKU and order information for the year 2000: Annual order volume: [*] SKU's : growing to [*] [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 28 EX-10.14 16 NIKE LETTER AGREEMENT DATED SEPTEMBER 17, 1999 EXHIBIT 10.14 September 17, 1999 Tim Harrington Fogdog, Inc. 500 Broadway Redwood City, California 94063 Re: Term Sheet --- ---------- Dear Tim: The attached Term Sheet memorialize the principal terms and conditions of a series of transactions in which (i) NIKE USA, Inc., an Oregon corporation ("NIKE USA") will open Fogdog, Inc., a California corporation ("Fogdog"), as a NIKE USA retail account; (ii) Bauer NIKE Hockey USA, Inc., a Vermont corporation ("BNH-USA") will open Fogdog as a BNH-USA retail account; (iii) NIKE Team Sports, Inc., a California corporation ("NTS"), will open Fogdog as an NTS retail account; (iv) NIKE.com, a division of NIKE Retail Services, Inc., an Oregon corporation ("NIKE.com"), will agree to sell to Fogdog, out of NIKE.com's inventory of available products, products necessary to fill retail orders received by Fogdog; (v) Fogdog will issue to NIKE USA a warrant to purchase 6,171,524 shares of Fogdog's Series C Preferred Stock; and (vi) NIKE USA, Fogdog and Fogdog's principal investors will agree on certain rights and restrictions applicable to NIKE USA's equity investment in Fogdog. By executing this letter, each of the undersigned acknowledges and agrees that the attached Term Sheet constitutes the binding agreement of such party with respect to the transactions described above and that NIKE USA's equity investment shall occur pursuant to such agreement. Each of the parties further acknowledges and agrees that the parties contemplate replacing this "short-form" agreement with a series of additional definitive long-form agreements as soon as practicable. Notwithstanding the foregoing, until such time as such definitive long-form agreements are entered into between the parties, the attached Term Sheet shall continue to constitute the binding agreement of the parties. Each party will be responsible for its own fees and costs in negotiating and entering into this transaction. If you agree to the terms set forth in the attached Term Sheet, please sign a copy of this letter in the space indicated below and return it to me. We can then have our attorneys prepare drafts of the definitive long form agreements. CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. Sincerely, NIKE USA, INC. By: /s/ Philip H. Knight ________________________ Philip H. Knight, CEO The undersigned parties agree with the terms and conditions set forth above and on the attached Term Sheet: FOGDOG, INC. By: /s/ Tim Harrington _______________________ Tim Harrington, CEO BAUER NIKE HOCKEY USA, INC. By: /s/ Philip H. Knight ___________________________________ Philip H. Knight, Attorney-in-Fact NIKE TEAM SPORTS, INC. By: /s/ Philip H. Knight ___________________________________ Philip H. Knight, CEO NIKE RETAIL SERVICES, INC. By: /s/ Philip H. Knight ___________________________________ Philip H. Knight, CEO FOGDOG PREFERRED STOCKHOLDERS: VENROCK ASSOCIATES II, L.P. By: [signature illegible] ________________________________ Name: Title: General Partner DRAPER FISHER ASSOCIATES FUND IV, L.P. By: [signature illegible] ________________________________ Name: Title: J.H. WHITNEY III, L.P. By: J.H. Whitney Equity Partners III, L.L.C. Its General Partner By: /s/ Michael Brooks _________________________________ Michael Brooks Managing Member SPROUT CAPITAL VIII, L.P. By: DLJ Capital Corp. Its: Managing General Partner /s/ Alexander Rosen ____________________________________ By: Alexander Rosen Its: Attorney In Fact FOGDOG COMMON STOCKHOLDERS: BRETT M. ALLSOP AND AMY K. ALLSOP, TRUSTEES OF THE BRETT AND AMY ALLSOP FAMILY 1999 TRUST. By: /s/ Brett M. Allsop _______________________________ Name: Brett M. Allsop Title: Trustee By: /s/ Amy K. Allsop _______________________________ Name: Amy K. Allsop Title: Trustee ROBERT S. CHEA /s/ Robert S. Chea __________________________________ ANDREW Y. CHEN /s/ Andrew Y. Chen __________________________________ TERM SHEET 1. Agreement by NIKE USA to open Fogdog, Inc. as a NIKE USA Retail Account. ----------------------------------------------------------------------- 1.1 Account Application. NIKE USA and Fogdog agree, which agreement shall ------------------- be memorialized in greater detail pursuant to an Account Application and Agreement on NIKE USA's standard form (the "Account Application"), that NIKE USA will open Fogdog as a NIKE USA retail account. The Account Application will govern all purchases and sales of NIKE products from NIKE USA, except to the extent the Account Application is amended by the Web Sales Agreement referred to in Section 1.2 of this Term Sheet. The Account Application shall indicate that Fogdog is authorized to sell NIKE products only through Fogdog's retail web site (i.e., Fogdog.com) and other sites described in Section 1.2.2 of this Term Sheet, and only to consumers with shipping addresses in the United States or U.S. military installations where NIKE USA sells products (including APO/FPO). Any sales by Fogdog from any other physical location or web site or any direct or indirect sales or transshipments to another retailer, distributor or broker is strictly forbidden by the Account Application and shall be considered a material breach. Fogdog shall be authorized in the Account Application to purchase the full line of generally available NIKE products, including footwear, apparel, equipment, accessories, ACG, Brand Jordan, golf, specialty categories, etc. 1.2 Web Sales Agreement. NIKE USA and Fogdog agree, which agreement shall ------------------- be memorialized in greater detail pursuant to a Web Sales Agreement (the "Web Sales Agreement"), to the following terms and conditions: 1.2.1 Relationship to Account Application and Other Documents ------------------------------------------------------- . In the event of any direct conflict or inconsistency between the Account Application and the Web Sales Agreement, the Web Sales Agreement will govern. 1.2.2 Grant of Right -------------- . During the term of the Web Sales Agreement, as determined in accordance with Section 1.2.16 of this Term Sheet, Fogdog will have the right to market and sell NIKE USA products only on Fogdog.com, or other web sites that are (i) hosted on file servers owned or leased and operated by Fogdog and (ii) --- operated under Fogdog's trademarks and trade name, whether or not "co- branded" with the trademarks or trade names of other entities, and are not (iii) "co-branded" with the trademarks or trade names of ----------- manufacturers of sports and fitness or "athleisure" products, retailers who derive a substantial portion of their revenues from the sale of such products, or any other entity who holds itself out as such a manufacturer or retailer or is perceived by a significant portion of the public to be such a manufacturer or retailer. Notwithstanding the foregoing, Fogdog shall retain the right to purchase banner advertising on World Wide Web Portals and other URLs that link to Fogdog.com. . Fogdog's rights and duties shall not be assigned or delegated or transferred by operation of law without NIKE USA's prior written consent, which may be granted or withheld at NIKE USA's sole discretion; provided, however, that NIKE USA will not unreasonably withhold its consent to an assignment of rights and delegation of duties to a wholly owned subsidiary of Fogdog that may be incorporated to operate a Fogdog web site of the type described in this Section 1.2.2; and provided further that NIKE USA hereby consents to the proposed re-incorporation of Fogdog in Delaware, as long as the successor corporation succeeds to all of the rights and obligations of Fogdog hereunder. . Fogdog does not have the right to sell product purchased from NIKE for the account of third parties. . Fogdog is prohibited from selling products to consumers with shipping addresses outside of the United States, except consumers at U.S. military installations where NIKE USA sells products (including APO/FPO). NIKE USA agrees to consider amending the Account Application and Web Sales Agreement to permit sales to parties outside of the United States, but any such expansion shall be at NIKE USA's sole discretion based on all relevant factors, including but not limited to applicable regulatory requirements, NIKE USA's obligations to third parties, consistency with NIKE USA affiliates' practices and policies in international markets, and the potential for disruption of relationships with existing customers of NIKE USA's affiliates. Notwithstanding the foregoing, NIKE USA agrees to amend the Account Application and Web Sales Agreement to permit sales to consumers outside of the United States in any country in which NIKE.com is allowed to sell, except to the extent such sales would cause or constitute a violation of any agreement with a third party. To the extent sales outside the United States would require the approval of any NIKE USA affiliate, NIKE USA shall be obligated to secure such approval on terms and conditions no less favorable to Fogdog than the terms and conditions set forth in this Term Sheet, the Account Application and the Web Sales Agreement. 1.2.3 Exclusivity ----------- . Fogdog agrees to use NIKE USA and its affiliates as the exclusive suppliers of NIKE brand products to Fogdog. . For a period commencing on the date hereof and ending on [*], NIKE USA shall not open, and shall prevent its affiliates from opening, any "new internet-only account," which shall be defined as any retailer that sells only on the World Wide Web and does not fall within one of the following exceptions: (i) any entity which is an affiliate, as defined in Section 7.1 of this Term Sheet, of a current or future NIKE USA account that derives the majority of its revenue from traditional "brick and mortar" retail stores (for example, a special purpose web operating subsidiary of an existing NIKE customer); or (ii) any entity which serves as the e-commerce or web sales outsourcing provider for a current or future NIKE USA account that derives the majority of its revenue from traditional "brick and mortar" retail stores. In addition, for a period commencing on the date hereof and ending on [*] NIKE USA shall not invest, and shall prevent its affiliates from investing, in the securities of any entity of the type described in exception (ii) of the preceding sentence. The foregoing exceptions are intended to ensure that NIKE USA does not have an obligation to Fogdog to restrict the opportunities of its core customer base to sell NIKE products over the World Wide Web (any such restrictions shall be made unilaterally by NIKE USA after considering all relevant business and legal considerations). NIKE acknowledges that the foregoing exception for affiliates of current or future NIKE USA accounts is not intended to cover "spinoffs" whose outstanding securities are publicly traded or owned by venture capital firms or other financial investors. Sales by NIKE USA or its affiliates to such spinoffs on or before [*] would constitute a breach of this Term Sheet and the definitive Web Sales Agreement. . Fogdog acknowledges that NIKE USA's affiliate, NIKE.com, will continue to buy goods from NIKE USA for sale on the World Wide Web, and that nothing in the Web Sales Agreement or the definitive agreements limits the ability of any NIKE USA affiliate (or any NIKE USA account with a web sales presence) to sell on the web in direct competition with Fogdog. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. . Fogdog may sell its securities to competitors of NIKE USA; provided that any such sale of securities representing a [*] [*] [*] and have the consequences described in Section 1.2. 16. 1.2.4 Ownership and use of the NIKE Trademarks ---------------------------------------- . Nothing in this agreement or any other agreement between the parties does or will affect NIKE's ownership of the NIKE trademarks. Similarly, nothing in this agreement or any other agreement between the parties does or will affect Fogdog's ownership of the Fogdog trademarks. NIKE USA acknowledges that by opening Fogdog as a NIKE USA account NIKE USA is granting Fogdog an implied license to advertise NIKE products subject to the provisions of this Term Sheet and the definitive agreements. 1.2.5 Pricing ------- . Based on consideration of the projected volumes of Fogdog's purchases, Fogdog's willingness to bear a portion of NIKE's costs of rapidly making product available to Fogdog for the Holiday '99 season, and other cost-related considerations unique to the e-commerce environment, NIKE USA will extend to Fogdog pricing terms in accordance with the strategic discount package described below in this Section 1.2.5. As indicated below, Fogdog will also be eligible to participate in all of the programs associated with similarly situated retailers (Co-op, [*], etc) on a negotiated basis. [*] [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 1.2.6 Co-op [*] --------- . Purchase of NIKE USA products will result in Co-op accruals of [*] Co-op funds available in Fogdog's co-op account may be used by Fogdog in accordance with the rules generally applicable to NIKE USA's co-op program. [*] will be available in amounts ranging from [*] of sales to Fogdog, the precise percentage to be determined by NIKE [*] in accordance with the criteria usually applied in administering its [*] budget. 1.2.7 Special Make-Ups ---------------- . Special make-ups are defined as footwear styles (combinations of materials, colors, features, etc.) which are developed by NIKE USA and its affiliates for sale to a single retailer. Special make-ups may share features, colors, etc. with products generally available in NIKE's line of products, or special make-ups for other customers, but they are different enough to be objectively perceived as unique by the average footwear consumer. . Fogdog has the right to receive exclusive special make-ups provided Fogdog meets the order eligibility criteria usually applied by NIKE USA for such products. Such criteria include, for example, the nature of the special make-up (e.g., unique color combination vs. unique outsole with special tooling requirements), production capacity, order volumes, etc. . Fogdog acknowledges that NIKE may engage in special make-up projects with various retailers who order extraordinary volumes, are willing to fund development costs, or are otherwise willing to contribute to NIKE's product creation process. These projects may result in features or technologies that are not eligible for incorporation into special make-ups that Fogdog may desire to order. One example is tuned air technology. 1.2.8 Early Releases -------------- . Early releases are defined as products intended to be included in NIKE USA's generally available line of products but which are released to a select retailer or group of retailers at least [*] prior to general availability. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. . Under present NIKE USA assumptions and operating procedures, Fogdog is eligible to receive, on a non-exclusive basis, [*] NIKE reserves the right to consider such factors as category emphasis in determining which early releases will be available to Fogdog. 1.2.9 Special Promotional Programs. ---------------------------- . Fogdog is allowed to purchase substantially all products available to NIKE.com in connection with NIKE.com's special promotional programs. Examples include special limited edition letterman's jackets, golf gift packs, etc. This does not include special make-ups or early releases or products that are made to order by NIKE USA for NIKE.com's customers. 1.2.10 Assistance with Web Site [*] ---------------------------- . Without cost to Fogdog (except as reflected in Section 4.5), NIKE USA will provide as much assistance as possible, given NIKE's internal resource constraints and obligations to third parties, to provide [*] to Fogdog, including product and other images, the provision of samples for image development, etc. . Without cost to Fogdog (except as reflected in Section 4.5), NIKE USA will allow Fogdog to use NIKE's conversion charts for footwear sizing and the NIKE apparel sizing program as such charts are released within the NIKE USA organization. . NIKE USA shall own all right, title and interest in and to any content provided or created by NIKE USA, [*] 1.2.11 Specialty Footwear ------------------ . Fogdog has the right to return for a full price refund (i.e., NIKE USA's list price less the discount applicable to Fogdog),[*] of the aggregate purchase price in any selling season of product in NIKE's "specialty footwear" categories (the precise percentage [*] [*] to be determined by Fogdog in its sole discretion). Any such returns must be received by NIKE USA [*] after the date of receipt by Fogdog. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 1.2.12 Dedicated Sales and Service Team. -------------------------------- . Without cost to Fogdog (except as reflected in Section 4.5), Fogdog will initially have priority access to a team of 3-5 individuals including a strategic account manager, customer service representative, footwear account executive and apparel/equipment account executive. As Fogdog's volumes grow, these will become dedicated resources (again, at no additional cost to Fogdog) if necessary to ensure that Fogdog receives excellent service. . Within 72 hours after execution of this Term Sheet by Fogdog, this team will commence showing NIKE USA's product line to Fogdog, working with Fogdog on a merchandizing and order strategy, and doing everything reasonably possible to obtain an agreed upon selection of available NIKE products for the Holiday '99 season. . Without cost to Fogdog (except as reflected in Section 4.5), NIKE USA's "EKINs" will be available to Fogdog on a priority basis to train Fogdog's customer service and site content people regarding the technical and performance aspects of NIKE products. 1.2.13 [*] . Fogdog will use its best efforts, consistent with its privacy obligations to its customers, to provide NIKE USA with [*] provided that any such information must be reasonably material in terms of the uses permitted by the last paragraph of this Section 1.2.13. . Fogdog will use its best efforts and act as soon as reasonably possible to amend its privacy policy to include a feature where prospective customers have the opportunity to electronically "opt-in" to have their information provided to NIKE USA and its affiliates. . Fogdog will act as soon as reasonably possible to ask its existing customers who have engaged in past transactions with Fogdog or registered with Fogdog whether they would consent to the provision of their customer and transaction information to NIKE USA and its affiliates. This could be in connection [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. with an announcement of the new relationship between NIKE and Fogdog. . NIKE USA shall not, and shall not allow its affiliates to, directly or indirectly use Fogdog's customer data to solicit Fogdog's customers (for example, by advertising the availability of product on NIKE.com or at another retailer's store or web site), but may use such data for brand enhancement purposes (for example, announcing appearances by NIKE-affiliated athletes or providing information about NIKE sponsored events, provided that such brand enhancing activities do not direct potential purchasers to a named retailer or retail location). 1.2.14 Approval of Advertising and Advertising on Fogdog.com. ----------------------------------------------------- . NIKE USA will have the right of reasonable prior approval of marketing efforts, including advertising and web site design, that involves display of the NIKE marks or assets generally associated with the brand (e.g., use of athletes associated with NIKE). Such right of reasonable prior approval shall not require Fogdog to submit marketing proposals, designs or concepts that are substantially similar to proposals, designs or concepts that have been previously approved. All advertising involving athlete images must be submitted for approval at least 10 days prior to use, and NIKE USA reserves the right to delay or prohibit Fogdog's use of such images to the extent necessary to fulfill NIKE USA's contractual obligations to third parties. . Fogdog will comply with all trademark usage guidelines promulgated by NIKE from time to time. . Fogdog will use commercially reasonably efforts to advertise the availability of closeout or reduced price inventory at an auction page or other location within Fogdog's web site that is separate from the location of Fogdog's other advertising for NIKE products. . In the event Fogdog grants the right to third parties to advertise (whether through banner advertising or otherwise) on Fogdog.com, NIKE shall be afforded [*] of or advertiser on Fogdog.com. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 1.2.15 Confidentiality/Publicity ------------------------- . Unless otherwise mutually agreed upon by the parties as to the timing and content of any public announcement or press release, each of the parties agrees to keep the terms of this Term Sheet and the definitive agreements and all other information exchanged by the parties confidential, subject to the usual exceptions for disclosures required by statute, rule or regulation or other applicable law (for example, the federal and state securities laws). NIKE acknowledges that Fogdog will be required by applicable law to disclose the terms of this Term Sheet and, if applicable, the definitive agreements, to potential investors in connection with Fogdog's contemplated private placement of Series D Preferred Stock. Fogdog agrees to make such disclosures only to individuals who agree to keep such information confidential in accordance with NIKE USA's standard form of Confidentiality Agreement. . Fogdog will apply to the S.E.C. for and use its best efforts to obtain confidential treatment for the terms of this Term Sheet and the agreements embodied herein and the definitive agreements on the grounds that they contain confidential pricing information. NIKE USA will identify in writing prior to the initial filing of Fogdog's preliminary registration statement on Form S-1 all of the terms that NIKE USA believes should be covered by the request for confidential treatment. 1.2.16 Term and Termination -------------------- . The Web Sales Agreement will have an initial term that will commence on the date hereof and end on [*]. . On or after the end of the initial term, if Fogdog's aggregate actual purchases of NIKE products from [*] do not exceed [*] of Fogdog's aggregate projections for the [*] quarter comparison period, NIKE may at any time terminate the Web Sales Agreement. NIKE USA will give notice of its election to terminate at least [*] days before the termination date. In such event, NIKE would honor reasonable orders received prior to such election. Fogdog's purchase projections, which the parties acknowledge are aspirational and are to be used solely for purposes of the termination provision, are as follows: [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. [*] . At the end of the initial term, if Fogdog's aggregate actual purchases of NIKE products from calendar [*] do exceed [*] of Fogdog's aggregate projections for the [*] quarter comparison period, NIKE will not have the right to terminate the Web Sales Agreement and the term shall extend for an additional [*] year extension term ending [*]. . On or after the end of the [*] year renewal term, if Fogdog's aggregate actual purchases of NIKE products from calendar [*] do not exceed [*] of Fogdog's aggregate projections for the [*] quarter comparison period, NIKE may at any time terminate the Web Sales Agreement. NIKE USA will give notice of its election to terminate at least 60 days before the termination date. In such event, NIKE would honor reasonable orders received prior to such election. Fogdog's purchase projections, which the parties acknowledge are aspirational and are to be used solely for purposes of the termination provision, are as follows: [*] . At the end of the [*] year renewal term, if Fogdog's aggregate actual purchases of NIKE products from calendar [*] do exceed [*] of Fogdog's aggregate projections for the [*] quarter comparison period, and if it is reasonable for the parties to project annual purchases for the next four quarters to exceed [*] (based on futures orders, etc.), NIKE will not have the right to terminate the Web Sales Agreement and the term shall extend for an additional [*] year renewal term ending [*]. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. . The definitive Web Sales Agreement will contain the usual provisions for immediate early termination in the event of bankruptcy, insolvency, etc. . The definitive Web Sales Agreement will contain provisions for early termination in the event of material breach by either party and failure to cure [*]. Certain breaches will be defined as material and incurable and give rise to a right of immediate termination, including violation of intellectual property rights, breach of confidentiality, and failure to comply with the express prohibitions in the Account Application (transshipping, etc.). A sale of stock representing [*] percent or more of the voting power of Fogdog's outstanding voting securities or a sale of stock to a competitor of NIKE USA [*] will be considered to be a material, incurable breach by Fogdog and give rise to an immediate right of termination, but shall not result in liability to NIKE USA or any affiliate for money damages. Subject to the preceding sentence, in the event of a breach of this agreement either party may seek whatever remedies are available under applicable law. . Either party has the right to terminate the Web Sales Agreement without cause at any time upon 90 days notice to the other; provided that if NIKE makes such an election without cause [*] (i.e., except in accordance with exercise of NIKE USA's non-renewal option referred to above), it shall pay an early termination fee of [*] to Fogdog. . As used in this Term Sheet, the term "cause" shall mean a [*]. . In the event of non-renewal or early termination without cause, NIKE will honor all orders received prior to delivery of notice of termination. Termination for cause shall result in cancellation of all outstanding orders. . In the event of termination, non-renewal or expiration of the Web Sales Agreement, either party will have the right to terminate the Account Application. Similarly, in the event of termination of the Account Application either party will have the right to terminate the Web Sales Agreement. Termination [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. of the Account Application by NIKE without cause during the initial term (i.e., except in accordance with exercise of NIKE USA's non- renewal option referred to above) will result in an obligation to pay the [*] referred to above in connection with termination of the Web Sales Agreement. . Upon termination each party will return all confidential and/or proprietary information of the other, including but not limited to product images, sizing charts, product descriptions, etc. 1.2.17 Other Provisions ---------------- . The definitive Web Sales Agreement will have other provisions customary in an agreement of this nature. 2. Agreement by BNH-USA to open Fogdog, Inc. as a BNH-USA Retail Account. --------------------------------------------------------------------- BNH-USA agrees, which agreement shall be memorialized in greater detail pursuant to an account application agreement and Web Sales Agreement on terms and conditions substantially equivalent to those set forth above with respect to NIKE USA, to open Fogdog as an account. BNH-USA purchases shall count in determining application of the non-renewal option in the NIKE-USA Web Sales Agreement and vice versa. However, certain of the promises that relate specifically to NIKE USA's footwear products and sales programs (Coop, MDF, special make-ups, etc.) may not apply or may apply differently in the context of BNH-USA's product lines and programs. In such event, Fogdog will be eligible to participate in all programs available to BNH-USA retailers who are similarly situated in terms of the [*]. If BNH-USA does not maintain Co-op or MDF programs that are substantially similar to NIKE USA's programs, Fogdog may elect to have its purchases of BNH-USA products treated as purchases of NIKE USA products for purposes of calculating benefits under such programs. 3. Agreement by NTS to open Fogdog, Inc. as an NTS Retail Account. -------------------------------------------------------------- NTS agrees, which agreement shall be memorialized in greater detail pursuant to an account application agreement and Web Sales Agreement on terms and conditions substantially equivalent to those set forth above with respect to NIKE USA, to open Fogdog as an account. NTS purchases shall count in determining application of the non-renewal option in the NIKE-USA Web Sales Agreement and vice versa. However, certain of the promises that relate specifically to NIKE USA's footwear products and sales programs (Coop, [*], special make-ups, etc.) may not apply or may apply differently in the context of NTS's product lines and programs. In such event, Fogdog will be eligible to participate in all programs available to NTS retailers who are similarly situated in terms of the [*]. If NTS does not maintain Co-op or MDF programs that are substantially similar to NIKE USA's programs, Fogdog may [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. elect to have its purchases of NTS products treated as purchases of NIKE USA products for purposes of calculating benefits under such programs. 4. Agreement under which NIKE.com Will Agree to Sell to Fogdog. ----------------------------------------------------------- NIKE.com agrees to sell to Fogdog products available in NIKE.com's inventory of products available for retail sale pursuant to the following terms and conditions: 4.1 During the term of the Web Sales Agreement between NIKE USA and Fogdog, Fogdog will be entitled to place orders from time to time in its discretion, but only for product available in NIKE.com's existing inventory, and only for shipment to retail consumers in the U.S. (or APO/FPO) who placed corresponding orders with Fogdog. Fogdog will not have access to products that are made to order by NIKE USA for NIKE.com's customers. 4.2 Coordination Regarding Product Availability. ------------------------------------------- 4.2.1 The parties will work together in good faith to ensure adequate information flow regarding orders and product availability so that orders placed by Fogdog's customers are fulfilled promptly. 4.2.2 Fogdog shall have the right to order from NIKE.com [*] of NIKE brand product for a given calendar year, subject to product availability and NIKE.com's right to reasonably allocate product mix. 4.2.3 Fogdog will not have the right to buy special make-ups or early releases that NIKE.com receives from NIKE USA unless NIKE.com agrees otherwise. Subject to availability, Fogdog will be able to order substantially all special promotional products that NIKE.com receives. 4.3 Pricing. ------- 4.3.1 All products to be purchased by Fogdog shall be discounted to a price that is equal to the [*] except that in no event will NIKE.com be obligated to sell a product to Fogdog for less than it paid for that product. 4.3.2 NIKE.com will be entitled to charge Fogdog, [*] associated with FogDog's orders. 4.4 Assistance with Content; Access to Data; Confidentiality. Assistance --------------------------------------------------------- with content, access to data, and confidentiality are to be made or given on terms and conditions that are substantially similar to those outlined above for NIKE USA. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 4.5 Payments to Defray NIKE.com's Costs. In consideration of the pricing ----------------------------------- concessions by NIKE.com and NIKE USA, the start-up costs to be incurred by NIKE.com and NIKE USA in providing content-related assistance, and NIKE.com's and NIKE USA's start-up systems, communication, transportation and service costs, Fogdog will make an initial cash payment of [*] to NIKE.com upon execution of this Agreement and a second payment of [*] upon the earlier of [*] days after the closing of Fogdog's initial public offering ("IPO") or [*]. In addition, NIKE.com and Fogdog shall negotiate in good faith regarding compensation to NIKE.com for its ongoing (i.e., post start-up) efforts to assist Fogdog with image transfers, product training, ordering tasks, and fulfillment efforts. In no event shall NIKE.com seek to charge Fogdog for assistance that NIKE.com provides without charge to other accounts. 4.6 Term and Termination. The agreement will commence on the date hereof -------------------- and will continue until termination of the agreement between NIKE USA and Fogdog. 4.7 Other Provisions. The definitive agreement will have other provisions ---------------- customary in an agreement of this nature. 5. Agreements Relating to NIKE USA's Purchase of a Warrant for Fogdog ------------------------------------------------------------------ Preferred Stock. ---------------- 5.1 Warrant Agreement. NIKE USA and Fogdog agree, which agreement shall ------------------ be memorialized in greater detail pursuant to a definitive Warrant Agreement, that NIKE USA will purchase a warrant to purchase shares of Fogdog's Series C Preferred Stock. This agreement is on the following terms and conditions: 5.1.1 Price of Warrant ---------------- . NIKE USA will pay $1.00 for the warrant. 5.1.2 Reps and Warranties ------------------- . The definitive Warrant Agreement will include customary issuer representations and warranties (e.g., the warrant is duly authorized and validly issued; the preferred stock issuable upon exercise has been reserved and will, upon issuance and payment, be duly exercised and validly issued; etc.) and standard investor representations and warranties of NIKE USA. 5.1.3 Right of Participation. ---------------------- . NIKE USA will be offered the opportunity to maintain its ownership interest in Fogdog on all subsequent preferred stock financing rounds prior to Fogdog's IPO, except the contemplated offering of Fogdog's Series D Preferred Stock. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 5.1.4 Right of First Refusal ---------------------- . Prior to the IPO, Fogdog will have a right of first refusal on transfer of Fogdog securities by NIKE USA to any third party except an affiliate of NIKE USA. 5.1.5 Market Standoff Provision ------------------------- . NIKE USA agrees to a market stand off as to sales of Fogdog securities owned by NIKE USA for a [*] following the IPO. NIKE USA's shares shall be released from the standoff obligation over the three year period as follows: [*] of the shares shall be released from the restriction on the first anniversary date of the IPO; [*] of the shares shall be released from the restriction on the second anniversary date of the IPO; and the remaining [*] of the shares shall be released from the restriction on the third anniversary date of the IPO. NIKE will sign Credit Suisse First Boston's form of lockup agreement. NIKE USA's standoff obligation will terminate in connection with a sale of all or substantially all of the assets of Fogdog or the sale by Fogdog's shareholders of interests representing more than [*] of the total voting power of Fogdog's outstanding voting securities to one party or one or more related parties (i.e, sales by Fogdog's shareholders in a public offering will not terminate the standoff obligation). 5.1.6 Standstill Provision -------------------- . NIKE USA agrees to a standstill prohibiting NIKE USA or any affiliate after the IPO from purchasing additional shares of Fogdog from any third party without the prior written consent of Fogdog. 5.1.7 Restriction on Transfer to Competitors -------------------------------------- . NIKE USA will also agree not to sell its Fogdog securities to a competitor of Fogdog (which competitors are to be defined in the definitive agreement), except in connection with a sale of Fogdog which is approved by the shareholders in accordance with Fogdog's articles of incorporation. This provision shall not restrict sales to NIKE affiliates that may compete with Fogdog, or sales in the open market. [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. 5.1.8 Access to Financial Information. ------------------------------- . During the period prior to the IPO, NIKE USA will have access to Fogdog's financial information and business plans to the same extent as existing Fogdog investors with board seats. 5.2 Warrant. ------- 5.2.1 Vesting ------- . The warrant will be exercisable in full on the issue date. 5.2.2 Exercise Price -------------- . The warrant will have an exercise price of $1.0294 per share of Series C Preferred Stock. 5.2.3 Number of Shares of Series C Preferred Stock -------------------------------------------- . The number of shares of Series C Preferred Stock issuable upon exercise of the warrant shall be 6,171,524. . The number of shares issuable upon exercise of the warrant, and the exercise price per share, shall be adjusted to reflect stock dividends, stock splits, reverse stock splits, etc. involving the Series C Preferred Stock. 5.2.4 Rights and Preferences of Series C Preferred Stock -------------------------------------------------- . The rights, preferences and privileges of the Series C Preferred Stock issuable upon exercise of the warrant will be the same as the rights, preferences and privileges of the Series C Preferred Stock that is currently outstanding, including, without limitation, antidilution rights and rights upon registration, liquidation, conversion, redemption and preemption. 5.2.5 Automatic Conversion -------------------- . The warrant to purchase Series C Preferred Stock, if unexercised at the time of the IPO, will convert into a warrant to purchase Common Stock upon the conversion of the Series C Preferred Stock into Common Stock at the IPO. 5.2.6 Net Exercise Right ------------------ . The warrant will contain a "net exercise" provision pursuant to which NIKE USA can pay the exercise price with underlying shares and tack its holding period for Rule 144 purposes. 6. Agreements between NIKE USA, Fogdog and Fogdog's Principal Investors -------------------------------------------------------------------- Regarding Rights and Restrictions Applicable to NIKE USA's Equity Investment in - ------------------------------------------------------------------------------- Fogdog. - ------ 6.1 Registration Rights Agreement. NIKE USA and Fogdog agree that the ----------------------------- shares of Common Stock underlying the warrant are "Registrable Securities" under the provisions of Fogdog's existing Registration Rights Agreement . In addition, NIKE USA shall have the right, pursuant to an amendment to the Registration Rights Agreement, to have one separate demand registration right for its Fogdog securities which, if such right were to be exercised, would allow NIKE USA to register and sell its Fogdog securities within the time frames of its standoff agreement referred to above (i.e., [*], [*] and [*] at the end of years one, two and three, respectively). NIKE USA will waive its right to such demand registration right upon receipt of an opinion of counsel, in a form reasonably acceptable to NIKE USA, concluding that NIKE USA would be able to sell within the time frames of its standoff agreement in compliance with Rule 144 under the Securities Act of 1933, as amended. 6.2 Shareholders Agreement. Fogdog and its investors agree to enter into a ---------------------- Shareholders Agreement with NIKE USA containing at least the following terms and conditions: 6.2.1 Co-Sale Obligation. If more than [*] ------------------ of Fogdog (excluding NIKE USA) agree to sell Fogdog or at least a majority of its stock or assets to a third party, NIKE USA or any transferee of NIKE USA's stock will agree to sell its shares in such sale. 6.2.2 Voting Agreement. As long as NIKE USA holds its warrant to ---------------- purchase shares of Series C Preferred Stock, the Series C Preferred Stock, or all of the underlying shares of Fogdog Common Stock, NIKE USA will be entitled to a seat on the Board of Directors of Fogdog or, at NIKE's election, to have an observation right for one individual to have all of the rights and privileges of a board member, except the right to vote. The identity of such board or observer designee shall be at NIKE USA's discretion. This right will expire upon Fogdog's IPO. 7. Miscellaneous Provisions. ------------------------- 7.1 Definition of "affiliate." The term "affiliate, " as used in this ------------------------ letter, means any entity controlling, controlled by, or under common control with a named entity, where "control" means the power to vote, or direct the voting of, more than 50 percent of [*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTIONS. the voting interests in the entity. Fogdog acknowledges and agrees that nothing in this Term Sheet or the definitive agreements will give Fogdog a right to sell products manufactured by NIKE USA's affiliates Cole Haan and NIKE IHM, Inc. 7.2 Choice of Law. This Term Sheet and the definitive agreements ------------- reflecting the agreements in Sections 1-4 shall be governed by and construed in accordance with the laws of the state of Oregon, without regard to the choice of law principles applied in the courts of such state. The agreements reflected in Sections 5 and 6 shall be governed by and construed in accordance with the laws of the state of California, without regard to the choice of law principles applied in the courts of such state. 7.3 Rules of Construction. The parties agree that this Term Sheet is the --------------------- product of negotiation and that no party will be deemed to be the drafter thereof. In this Term Sheet, unless the context otherwise requires: headings are inserted for convenience only and will be ignored in construing any matter; references to the singular include the plural and vice versa; references to "persons" include corporations, firms and any other entity; reference to a section, clause or schedule is a reference to such in this Term Sheet unless otherwise stated; 7.4 Amendment; Waiver. No term of this Term Sheet shall be amended, ------------------ supplemented, waived or modified except in a written document signed by each of the parties. No delay or omission in the exercise of any right or remedy shall be deemed a waiver of any right or remedy. No waiver shall constitute a waiver of any other provision, breach, right or remedy, nor shall any waiver constitute a continuing waiver. 7.5 Severability. Should any part of this Term Sheet for any reason be ------------- declared by any court of competent jurisdiction to be invalid, such decision shall not effect the validity of any remaining portion, which remaining portion shall continue in full force and effect as if this Term Sheet had been executed with the invalid portion hereof eliminated, it being the intention of the parties that they would have executed the remaining portion of this Term Sheet without including any such part, parts or portions which may for any reason be hereafter declared invalid. 7.6 Successors and Assigns. This Term Sheet shall be binding upon and ----------------------- inure to the benefit of the parties and their respective permitted successors and assigns. 7.7 Entire Agreement. This Term Sheet constitutes the entire agreement ---------------- between the parties with respect to the subject matter of this Term Sheet and supersedes all prior or contemporaneous agreements, promises or representations, written or oral. No party is relying upon any representations or promises other than those set forth herein. 7.8 Execution by Counterpart. This Term Sheet may be executed by ------------------------ facsimile and in one or more counterparts, each of which shall be deemed an original and all of which shall constitute one and the same instrument. EX-21.1 17 SUBSIDIARIES OF THE COMPANY EXHIBIT 21.1 SUBSIDIARIES OF THE REGISTRANT Sports Universe, Inc., a Delaware corporation. EX-23.1 18 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated April 28, 1999 relating to the financial statements of Fogdog, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP San Jose, California September 24, 1999 EX-23.2 19 CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in this Registration Statement on Form S-1 of our report dated September 8, 1999 relating to the financial statements of Sports Universe, Inc., which appears in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement. PricewaterhouseCoopers LLP San Jose, California September 24, 1999 EX-27.1 20 FINANCIAL DATA SCHEDULE FOR SPORTS UNIVERSE, INC. WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 YEAR 6-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 JUN-30-1999 10,000 21,000 0 0 9,000 44,000 0 0 0 20,000 1,000 1,000 120,000 85,000 37,000 38,000 103,000 133,000 586,000 657,000 0 0 0 0 0 0 1,000 6,000 (484,000) (530,000) (103,000) (133,000) 179,000 262,000 126,000 155,000 665,000 325,000 0 0 0 0 0 0 (486,000) (63,000) 0 0 0 0 0 0 0 0 0 0 0 0 (486,000) (63,000) 0 0 0 0
EX-27.2 21 FINANCIAL DATA SCHEDULE FOR FOGDOG, INC.
5 1,000 YEAR 6-MOS DEC-31-1998 DEC-31-1999 JAN-01-1998 JAN-01-1999 DEC-31-1998 JUN-30-1999 1,694 14,177 423 423 110 144 35 64 0 273 178 1,354 761 1,190 291 425 2,840 17,072 1,734 3,504 0 0 0 0 13 30 7 7 897 13,033 917 13,070 765 1,084 765 1,084 275 821 4,940 7,890 0 0 0 0 55 158 (4120) (6648) 0 0 0 0 0 0 0 0 0 0 (4,120) (6,648) (0.64) (1.00) (0.29) (0.23)
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