-----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, A1ZQHOuugrAYhkVZ88ebFR2Ree4WqsKztec0bOIa5TxVn7UKMANS1xfjo327UaTl UVyrOzhzDGL/q0vpl+fcug== 0000950123-99-011078.txt : 19991222 0000950123-99-011078.hdr.sgml : 19991222 ACCESSION NUMBER: 0000950123-99-011078 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19991221 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOLT INC CENTRAL INDEX KEY: 0001099589 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133905544 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-93235 FILM NUMBER: 99778340 BUSINESS ADDRESS: STREET 1: 304 HUDSON STREET STREET 2: 7TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10013 BUSINESS PHONE: 2126205900 MAIL ADDRESS: STREET 1: 304 HUDSON STREET STREET 2: 7TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10013 S-1 1 FORM S-1 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 1999 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BOLT, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 7373 13-3905544 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
304 HUDSON STREET -- 7TH FLOOR NEW YORK, NY 10013 (212) 620-5900 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ DANIEL A. PELSON PRESIDENT & CHIEF EXECUTIVE OFFICER BOLT, INC. 304 HUDSON STREET -- 7TH FLOOR NEW YORK, NY 10013 (212) 620-5900 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH COPIES TO: JOHN R. POMERANCE, ESQ. WINTHROP B. CONRAD, JR., ESQ. PETER S. LAWRENCE, ESQ. DAVIS POLK & WARDWELL MINTZ, LEVIN, COHN, FERRIS, 450 LEXINGTON AVENUE GLOVSKY AND POPEO, P.C. NEW YORK, NY 10017 ONE FINANCIAL CENTER (212) 450-4000 BOSTON, MA 02111 (617) 542-6000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] - --------------- If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier 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 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 PROPOSED MAXIMUM AGGREGATE AMOUNT OF OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE(2) - --------------------------------------------------------------------------------------------------------------------- Common Stock, $.001 par value per share.............. $46,000,000 $12,144 - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the amount of registration fee pursuant to Rule 457(o) under the Securities Act, as amended. (2) Calculated pursuant to Rule 457(a) based on an estimate of the proposed maximum aggregate offering price. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 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 SECURITIES, AND WE ARE NOT SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. PROSPECTUS (Subject to Completion) Issued December 21, 1999 Shares BOLT.COM LOGO COMMON STOCK ------------------------ Bolt, Inc. is offering shares of its common stock. This is our initial public offering and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $ and $ per share. ------------------------ We have applied to list our common stock on the Nasdaq National Market under the symbol "BOLT." ------------------------ INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 6. ------------------------ PRICE $ A SHARE ------------------------
UNDERWRITING PRICE TO DISCOUNTS AND PROCEEDS PUBLIC COMMISSIONS TO BOLT -------- ------------- -------- Per Share................................................... $ $ $ Total....................................................... $ $ $
Bolt has granted the underwriters the right to purchase up to an additional shares of common stock to cover over-allotments. The Securities and Exchange Commission and state securities regulators have not approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on , 2000. ------------------------ MORGAN STANLEY DEAN WITTER THOMAS WEISEL PARTNERS LLC J. P. MORGAN & CO. , 2000 3 [DESCRIPTION OF GRAPHICS] The inside front cover displays a large text box in the lower right-hand corner with the language "2000:" followed by the Bolt logo. Above the logo appears a series of text boxes, which read from top to bottom: "1969: Woodstock", "1978: the roller rink", "1983: MTV", and "1991: the mall". The graphics consist of a two-page fold-out containing a sample of our website homepage, quotes from several registered users, or members, samples of click-through pages and applications available on our website and other statistics concerning our website. The left column of the fold-out has three quotes from members of our site which state: "I have met a lotta people here. It's da bomb diggity shish boom snap"; "On Bolt, we can be open and honest with each other, give advice, and learn more about people all over" and "I would much rather come to Bolt than watch TV". The left column also contains a sample of a user profile page which is accessed from our homepage containing certain information regarding a member. Additionally, the left column contains a sample of the homepage for our e-commerce store, which can be accessed from our homepage. The graphic to the right of the left column at the top of the fold-out contains our logo as well as the phrase "Bolt empowers teens to express their opinions, meet new friends, and find the products and services they're interested in." It also contains the following phrases: "Metrics: 1.5 million registered members, 141 million page views per month", 6.1 million users sessions per month". The lower left corner of the fold-out contains a sample view of the Bolt homepage, which features links to the various components of the site ("members", "notes", "email", and "homepages" among others), as well as the "Quote of the Day", "Hot Stuff from the Store!", "Daily Poll", "About Face", and "New Features" from the sample view displayed homepage. To the right of the view of the homepage is a sample of our "About Face" page, which is accessed from our homepage containing question and answer series presented by Neutrogena, a sample of the "integrated sponsorships" section of the site. Above the graphic of the "About Face" page an example of "member- created content" appears, featuring a link from the "Style & Looks" page. Above the "Style & Looks" page appears a quote from a member; "The first day I was on Bolt I made three friends in about an hour. That normally doesn't happen for me because I'm a shy person." 4 TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 1 Risk Factors.......................... 6 Special Note Regarding Forward-Looking Statements.......................... 16 Use of Proceeds....................... 17 Dividend Policy....................... 17 Capitalization........................ 18 Dilution.............................. 19 Pro Forma Statement of Operations Data................................ 20 Selected Financial Data............... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 22
PAGE ---- Business.............................. 32 Management............................ 46 Certain Transactions.................. 52 Principal Stockholders................ 54 Description of Capital Stock.......... 56 Shares Eligible for Future Sale....... 59 Underwriters.......................... 61 Legal Matters......................... 63 Experts............................... 63 Where You Can Find Additional Information......................... 63 Index to Financial Statements......... F-1
------------------------ You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of common stock. UNTIL , 2000 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS THAT BUY, SELL OR TRADE BOLT'S COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. "Bolt," our logo, "Bolt Notes" and other trademarks of Bolt, Inc. mentioned in this prospectus are the property of Bolt, Inc. All other trademarks or trade names referred to in this prospectus are the property of their respective owners. i 5 (This page has been left blank intentionally.) 6 PROSPECTUS SUMMARY This summary highlights the most important features of this offering and the information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, especially the risks of investing in our common stock discussed under "Risk Factors." BOLT, INC. Our Web site, Bolt.com, is a leading online destination that targets 15-20 year old teens. We feature teen-focused content generated primarily by our members, a platform for teens to interact with other teens and tools that allow our members to personalize their user experience. Our site enables members to create and actively participate in what we believe is one of the most teen-relevant environments found anywhere. We have designed Bolt.com to facilitate communication among teens, to empower them to express their opinions and ideas as a community and to shop in an online store that our members help create. While the growth of our site to date has been driven largely by word-of-mouth, we are also building brand awareness through relationships with America Online, MSN Hotmail, Yahoo! and Lycos. As a result, our member base has grown to more than 1.5 million as of December 1, 1999 from about 340,000 as of December 1, 1998. According to Media Metrix, in October 1999, Bolt.com was the seventh "stickiest" site of all the sites on the Internet, as measured by minutes per user per month. According to Nielsen I/PRO, we had over 141 million page views and over 6 million user sessions in October 1999 as compared to 28 million page views and 1.4 million user sessions in December 1998. Bolt.com generates revenues through advertising and sponsorship fees, product sales and transactional fees and we expect to generate revenues from market research fees in the future. Advertisers and retailers have increasingly sought access to a rapidly growing teen audience. The growth in the number of 10 to 24 year olds is expected to outpace the growth in the general population by nearly 10% over the next ten years. Advertisers have turned to the Internet to reach teens because teens have adopted this medium as a primary form of entertainment, communication and information gathering. We believe there is a significant opportunity to advertise and sell products and services to teens online because teens possess substantial disposable income. eMarketer, a market research firm, estimates that online commerce sales to 13 to 17 year olds will increase to $1.4 billion in 2002 from $161 million in 1999. Bolt.com is a site that empowers our teen audience to express opinions and ideas regarding the ever-changing issues and trends that impact their lives. Our members communicate on our site and provide content for our site using their chosen Bolt Member IDs. This ensures anonymity and encourages frank and open discussion. Our members provide most of the content of Bolt.com, unlike other sites where the non-teen staff or third parties generate most of the content. Because our teen audience determines significant portions of Bolt.com's content, we believe we deliver a continually relevant experience. Our more than 1.5 million members can also use our personalized tools, such as email, instant messaging, personal diaries and personal calendars, to help them manage their lives, making the site more valuable to them the more they use it. In addition, in September 1999, we launched the online Bolt Store, which offers more than 1,000 products based on what our members have told us they want to buy. We expect this to be an increasingly important aspect of our business. We have developed a site that we believe is highly desirable to advertisers for the following reasons: - Audience. We provide a highly-targeted, growing, and demographically-focused audience. - Size. We have a large and active user base, as demonstrated by the over 141 million page views and over 6 million user sessions in October 1999. - Contextual Relevance and Targeting. Marketers can target their messages in a way that is particularly relevant to the interests of our members. 1 7 - Member Loyalty. According to Media Metrix, in October 1999, Bolt.com was the seventh stickiest site of all the sites on the Internet, as measured by minutes per user per month. Our goal is to be the leading media company focusing on teens. We intend to achieve this goal by continuing to build brand awareness, continuing to develop and extend our relationships with strategic partners and advertisers, enhancing our online features, expanding our e-commerce offerings and expanding our international presence. We currently have strategic relationships that are designed to increase our brand awareness and drive significant new teen traffic to our site. Our partners include: - America Online. We are the only teen community partner for the AOL branded service's teen message boards and teen chat rooms. We will provide management of AOL's teen community tools, including its teen message boards and teen chat rooms. In return, we will receive brand exposure because we are entitled to establish and maintain a linked, customized, user-generated content environment at aol.bolt.com, and all teen-focused message boards, chat rooms, and teen community areas within the AOL service, including aol.bolt.com, will be Bolt branded. - MSN Hotmail. We provide teen content for the MSN Hotmail WebCourier Newsletter Program. The Bolt newsletter is delivered twice per week to over 1.9 million Hotmail users who elected to receive our content when they registered with Hotmail. We also advertise on the MSN Shopping Channel, MSN Hotmail and the MSN service targeted to teens. - Ford Motor Company. On November 17, 1999, we entered into a partnership with Ford Motor Company to develop Cars.bolt.com, a co-branded destination on our site, which will feature auto-related content geared towards teens. Cars.bolt.com will provide features like personalized classified ads, an automotive dictionary, teen-focused buyer guides, information on how to buy or lease a car and an interactive driver's education seminar. ------------------------ We were incorporated in Delaware on August 15, 1996 as Concrete Media, Inc. On February 16, 1999, we changed our name to Bolt Media, Inc., and on November 17, 1999, we changed our name to Bolt, Inc. Our principal executive offices are located at 304 Hudson Street, 7th Floor, New York, New York 10013 and our telephone number at that address is (212) 620-5900. Our World Wide Web site address is www.bolt.com. The information on our Web site is not incorporated by reference into this prospectus. 2 8 THE OFFERING Common stock offered in this offering.................... shares Common stock to be outstanding after this offering........... shares Use of proceeds............... To expand our marketing and promotion activities, to launch international operations, to expand and upgrade our technology infrastructure, to expand our staff and for working capital and other general corporate purposes, including possible acquisitions of or investments in complementary businesses, products or technologies. See "Use of Proceeds." Proposed Nasdaq National Market symbol................. BOLT The information above does not include: - 2,593,600 shares of common stock issuable upon the exercise of stock options outstanding as of December 6, 1999 at a weighted average exercise price of $.82 per share; and - 47,900 shares of common stock issuable upon the exercise of warrants outstanding as of December 6, 1999 at a weighted average exercise price of $1.27 per share. ------------------------ Unless otherwise indicated, all information contained in this prospectus: - Assumes that the underwriters do not exercise their over-allotment option; - Reflects a 4-for-1 split of our common stock on November 17, 1999; and - Reflects the automatic conversion of all of our outstanding shares of preferred stock into a total of 11,956,621 shares of common stock upon completion of this offering. 3 9 SUMMARY FINANCIAL DATA The following table summarizes our financial data for the period from August 15, 1996 (date of inception) through December 31, 1996, for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998 and 1999, which have been derived from our financial statements and the notes to those financial statements. The summary balance sheet data as of September 30, 1999 are presented (1) on an actual basis, (2) on a pro forma basis to give effect to: - our sale of a total of 3,787,801 shares of our Series C Convertible Preferred Stock for $10.25 per share on November 17, 1999, November 23, 1999 and December 6, 1999, and - the conversion of all of our outstanding preferred stock into a total of 11,956,621 shares of common stock upon the completion of this offering and (3) on a pro forma basis as adjusted to give effect to the receipt of the estimated proceeds from our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We were originally incorporated as Concrete Media, Inc. in August 1996. Our original business consisted of three divisions: - our Bolt subsidiary, which provided online content and community created by and focused toward teens; - our "Girls On" division, which provided online entertainment and related content written by and focused toward young women; and - our custom publishing division, which provided Web site development services to third party non-advertising customers. We also provided, and continue to provide, custom publishing and production services to our advertising customers in connection with advertising and product presentation on Bolt.com. In late 1998 and early 1999, Concrete Media was reorganized. On December 30, 1998, we sold our custom publishing division and on January 29, 1999, we sold our Girls On division. Accordingly, the statement of operations data for the periods presented reflect the business of Bolt together with the business of the custom publishing division and the Girls On division until they were sold. The pro forma statement of operations data for the year ended December 31, 1998 and for the nine months ended September 30, 1998 have been prepared as though the sales of the custom publishing division and Girls On division occurred on January 1, 1998. Our results of operations for the nine months ended September 30, 1999 include the results of operations of Girls On for the month of January 1999, which include revenues of $38,000 and direct expenses of $25,000. For a more detailed explanation of these financial data, see "Selected Financial Data," our financial statements and the notes to those financial statements located elsewhere in this prospectus. 4 10
PERIOD FROM AUGUST 15, 1996 (DATE OF INCEPTION) YEAR ENDED PRO FORMA THROUGH DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------------ DECEMBER 31, 1996 1997 1998 1998 ------------ ----------- ---------- ------------ (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Bolt revenues................ $ -- $ 32 $ 404 $ 404 Revenues related to the Girls On and custom publishing divisions.................. 19 446 2,281 -- ---------- ----------- ---------- ---------- Total revenues....... 19 478 2,685 404 ---------- ----------- ---------- ---------- Costs and expenses: Production and technology............... 15 810 1,138 336 E-commerce................. -- -- -- -- Sales and marketing........ 1 287 630 332 General and administrative........... 51 549 1,327 289 Depreciation and amortization............. 4 25 75 15 Stock-based compensation... -- -- -- -- ---------- ----------- ---------- ---------- Total costs and expenses........... 71 1,671 3,170 972 ---------- ----------- ---------- ---------- Loss from operations......... (52) (1,193) (485) (568) Other income (expense): Interest income (expense), net...................... -- 42 (53) -- Gain on sale of Girls On... -- -- -- -- ---------- ----------- ---------- ---------- Net loss..................... $ (52) $ (1,151) $ (538) $ (568) ========== =========== ========== ========== Basic loss per share......... $ (.01) $ (.26) $ (.12) $ (.13) ========== =========== ========== ========== Weighted average number of shares of common stock outstanding................ 4,400,000 4,400,000 4,368,850 4,368,850 ========== =========== ========== ========== PRO FORMA NINE MONTHS NINE MONTHS NINE MONTHS ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1998 1998 1999 ------------- ------------- ------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Bolt revenues................ $ 184 $ 184 $ 1,885 Revenues related to the Girls On and custom publishing divisions.................. 1,606 -- 38 ---------- ---------- ----------- Total revenues....... 1,790 184 1,923 ---------- ---------- ----------- Costs and expenses: Production and technology............... 813 223 2,389 E-commerce................. -- -- 235 Sales and marketing........ 393 161 2,782 General and administrative........... 967 221 999 Depreciation and amortization............. 50 8 211 Stock-based compensation... -- -- 1,256 ---------- ---------- ----------- Total costs and expenses........... 2,223 613 7,872 ---------- ---------- ----------- Loss from operations......... (433) (429) (5,949) Other income (expense): Interest income (expense), net...................... (30) -- 115 Gain on sale of Girls On... -- -- 1,436 ---------- ---------- ----------- Net loss..................... $ (463) $ (429) $ (4,398) ========== ========== =========== Basic loss per share......... $ (.11) $ (.10) $ (1.46) ========== ========== =========== Weighted average number of shares of common stock outstanding................ 4,400,000 4,400,000 3,009,720 ========== ========== ===========
AS OF SEPTEMBER 30, 1999 --------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED ------ -------------- ----------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................... $3,637 $42,335 Working capital............................................. 2,131 40,829 Total assets................................................ 8,752 47,450 Capital lease obligations, less current portion............. 578 578 Redeemable convertible preferred stock...................... 8,019 -- Stockholders' equity (deficiency)........................... (3,117) 43,600
We calculate loss per common share by dividing the loss attributable to common shares by the weighted average number of shares outstanding. We do not include outstanding common stock options, outstanding warrants or the conversion of our outstanding convertible preferred stock in the loss per common share calculation as their effect is anti-dilutive. The Series B preferred stock has been recorded at its redemption value and classified as redeemable convertible preferred stock on our balance sheet as of September 30, 1999. 5 11 RISK FACTORS This offering and an investment in our common stock involve a high degree of risk. You should carefully consider the following risk factors and the other information in this prospectus before investing in our common stock. Our business and results of operations could be seriously harmed by any of the following risks. This could cause the trading price of our common stock to decline, and you may lose all or part of your investment. RISKS RELATED TO OUR BUSINESS WE HAVE A LIMITED HISTORY OPERATING OUR TEEN-FOCUSED WEB SITE, AND WE MAY FACE DIFFICULTIES ENCOUNTERED BY NEW COMPANIES IN NEW AND RAPIDLY EVOLVING INDUSTRIES We were founded in August 1996. Accordingly, you should consider the risks and uncertainties frequently encountered by companies with limited operating histories in new and rapidly evolving industries, such as the Internet and e-commerce. Some of these risks and uncertainties relate to our ability to: - implement and successfully execute our business strategy and sales and marketing initiatives; - increase traffic to our Web site; - increase our brand recognition among our targeted teen audience and advertisers; - increase sales in the Bolt Store; - anticipate and adapt to our evolving market; - enhance and expand our products and services; - respond effectively to competitive developments; - attract, retain and motivate qualified personnel; and - effectively manage our anticipated growth. Please see "Management's Discussion and Analysis of Financial Condition and Results of Operations" for detailed information on our limited operating history. YOU SHOULD NOT RELY ON OUR HISTORICAL AND PRO FORMA FINANCIAL INFORMATION IN DECIDING WHETHER TO INVEST IN OUR COMMON STOCK, BECAUSE THIS INFORMATION WILL LIKELY NOT BE REPRESENTATIVE OF OUR RESULTS IN THE FUTURE The financial information included in this prospectus through December 1998 combines the operating results of our then-existing custom publishing division and "Girls On" division, which were sold in December 1998 and January 1999, respectively. This information does not reflect what our results of operations, financial position and cash flows would have been if we were only operating our teen-focused Web site during the periods presented, or what our results of operations, financial position and cash flows will be in the future. In addition, while we have also presented our financial information on a pro forma basis in an effort to reflect our results as if we were only operating our teen-focused Web site, this pro forma information does not reflect many significant changes that have occurred or may occur in our operations. Accordingly, you should not rely on our historical and pro forma information as an indication of our future operating results or financial performance. WE HAD AN ACCUMULATED DEFICIT OF $6.1 MILLION AS OF SEPTEMBER 30, 1999; WE EXPECT OUR LOSSES TO CONTINUE AND WE MAY NEVER BECOME PROFITABLE We have had substantial losses since our inception and our operating and net losses may increase in the future. Accordingly, we may never become or remain profitable. If our revenues fail to grow at anticipated rates, our operating expenses increase without an equal increase in our revenues or we fail to adjust operating expense levels accordingly, our business, results of operations and financial condition will suffer. As of September 30, 1999, we had an accumulated deficit of $6.1 million. Although we have experienced growth in 6 12 revenues, members and customers in recent periods, our growth in revenues may not continue at its current rate or increase in the future. We have not yet become profitable on a quarterly or annual basis, and we anticipate that we will continue to incur operating and net losses. The extent of these losses will depend, in part, on the amount of growth in our advertising revenues, e-commerce revenues and market research revenues. We expect that our operating expenses will increase significantly, especially in the areas of Web site development, sales and marketing and brand promotion, and, as a result, we will need to substantially increase our revenues to become profitable. WE EXPECT OUR RESULTS OF OPERATIONS TO FLUCTUATE AND THE PRICE OF OUR COMMON STOCK COULD FALL IF QUARTERLY RESULTS ARE LOWER THAN THE EXPECTATIONS OF SECURITIES ANALYSTS Our revenues and results of operations have fluctuated in the past and may vary from quarter to quarter in the future. If our quarterly results fall below the expectations of securities analysts, the price of our common stock could fall. A number of factors, many of which are outside our control, may cause variations in our results of operations, including: - fluctuations in the demand for Internet advertising or e-commerce; - changes in the level of traffic on our site; and - fluctuations in sales and marketing expenses and technology infrastructure costs. A substantial portion of our operating expenses is related to sales and marketing, product development, technology and infrastructure, which expenses cannot be adjusted quickly and are therefore relatively fixed in the short term. Our operating expense levels are based, in significant part, on our expectations of future revenues on a quarterly basis. As a result, if revenues for a particular quarter are below our expectations, we may not be able to reduce operating expenses proportionately for that quarter; this revenue shortfall would have a negative effect on our operating results and cash flow for that quarter, which would likely have a negative impact on the price of our common stock. WE MAY BE UNABLE TO SELL ADDITIONAL ADVERTISING OR MAINTAIN OUR CURRENT LEVEL OF ADVERTISING SALES, IN WHICH CASE OUR REVENUES WOULD BE ADVERSELY AFFECTED We currently derive substantially all of our revenues from the sale of advertisements on our Web site. We may be unable to sell additional advertising on our site or maintain our current level of advertising sales. Most of our advertisers have limited experience with the Internet as an advertising medium. Our ability to generate significant advertising revenues depends upon several factors, including: - the acceptance and effectiveness of the Internet as an advertising medium; - the development of a large base of teen members on our Web site; - the desirability of our member base to potential advertisers; - our ability to continue to develop and update effective advertising delivery and measurement systems; and - our ability to maintain and increase our advertising rates given the growing number of outlets for advertisers on the Internet. OUR SUCCESS DEPENDS UPON OUR ABILITY TO ATTRACT A SUFFICIENT NUMBER OF TEEN INTERNET USERS TO OUR WEB SITE; WE MAY NOT BE ABLE TO DO SO We must deliver original and compelling Internet content, community, shopping and personalized tools that attract a sufficient number of teen Internet users to our Web site. We may be unable, however, to anticipate, monitor or successfully respond to the rapidly changing consumer tastes and preferences of our targeted teen audience so as to attract enough users to our site. If we are unable to deliver content, community and services that attract, retain and expand a loyal member base, we will be unable to generate substantial advertising revenues or commerce revenues. 7 13 WE HAVE ONLY RECENTLY LAUNCHED THE BOLT STORE; WE HAVE NO PRIOR EXPERIENCE IN CONDUCTING A DIRECT E-COMMERCE OPERATION AND OUR BUSINESS COULD BE HARMED IF THE BOLT STORE IS NOT SUCCESSFUL Prior to our launch of the Bolt Store in September 1999, we had no experience in conducting a direct e-commerce business. We may be unable to achieve or maintain any or all of the necessary components of a successful e-commerce operation, such as timely and efficient order processing and fulfillment and efficient customer support services. Our failure to successfully operate the Bolt Store could seriously harm our brand and our business. BECAUSE WE DEPEND ON THIRD PARTIES TO SUPPLY PRODUCTS AND SHIP ORDERS TO CUSTOMERS OF THE BOLT STORE AND FOR CUSTOMER SUPPORT, ANY FAILURE OF THESE PARTIES TO PROVIDE QUALITY SERVICES MAY SERIOUSLY HARM OUR BRAND AND BUSINESS We depend on third parties to provide services to customers of the Bolt Store, and the failure of these third parties to provide quality services could seriously harm our brand and business. Although we choose which products to offer in the Bolt Store based on input from our members, we have selected a number of third-party sources to supply the products from their warehouses and drop-ship orders to our customers after receiving order confirmation from us. In addition, we have outsourced the customer support function of the Bolt Store to a third party. Accordingly, we are dependent on these third-party warehouses for timely and accurate order fulfillment and upon our third-party customer support service for efficient and informative customer support services. Because these services are provided by third parties, we have limited control over the quality of these services. WE DEPEND ON THE SERVICES OF A NUMBER OF KEY PERSONNEL, AND A LOSS OF ANY OF THOSE PERSONNEL COULD DISRUPT OUR OPERATIONS AND RESULT IN REDUCED REVENUES Our success depends on the continued services and on the performance of our senior management and other key employees, in particular the services of Daniel A. Pelson, our President and Chief Executive Officer. The loss of the services of Mr. Pelson or any of our other senior management or key employees could seriously impair our ability to operate and improve our products and services, which could reduce our revenues. In order to achieve our business objectives, we must hire additional personnel to fill certain key managerial positions. Our future success will depend upon the ability of our current executive officers to establish clear lines of responsibility and authority, to work effectively as a team, and to gain the trust and confidence of our other employees. We must also identify, attract, train, motivate and retain other highly skilled technical, managerial, marketing and sales personnel. We compete intensely for these personnel and we may be unable to achieve our personnel goals. Our failure to achieve any of these goals could seriously limit our ability to improve our operations and financial results. WE PLAN TO EXPAND OUR ADVERTISING SALES FORCE TO INCREASE THE EFFECTIVENESS OF OUR INTERNAL SALES ORGANIZATION, AND IF WE FAIL TO DO SO WE MAY FAIL TO ATTRACT SPONSORSHIP AND ADVERTISING REVENUES We believe we will need to substantially increase our sales force in the coming year in order to execute our business plan, but we may not be able to do so. We hired our Vice President of Ad Sales in May 1999, and our internal sales team currently has only nine members. We believe that the growth of our sponsorship and advertising revenues will depend on our ability to expand our sales force in order to establish an aggressive and effective internal sales organization. Our ability to increase our sales force involves a number of risks and uncertainties, including competition for these personnel and the length of time for new sales employees to become productive. If we do not develop an effective internal sales force, we may be unable to attract sponsorship and advertising revenues. GROWTH IN OUR OPERATION HAS AND WILL CONTINUE TO STRAIN OUR RESOURCES; OUR FAILURE TO MANAGE GROWTH EFFECTIVELY COULD HARM OUR BUSINESS If we are unable to successfully manage our growth, our business could be seriously harmed. We have recently experienced significant growth and are planning to further expand our business and operations. As of 8 14 December 6, 1999, we had 88 employees, compared to 16 employees as of January 1, 1999. This growth has placed, and our planned future growth is expected to place, a significant strain on our management and other resources. As part of this growth, we expect to implement new operational and financial systems, procedures and controls. Any problems in implementing these systems or controls could harm our operations. In addition, several members of our senior management joined us during the last year, including our: - Chief Financial Officer; - Vice President of Commerce; - Chief Technology Officer; - Vice President of Business Development; - Vice President of Ad Sales; and - Director of Business Intelligence. As a result, our management team may have difficulty working together to successfully manage our anticipated growth. WE INTEND TO EXPAND OUR BUSINESS; IF WE ARE NOT SUCCESSFUL, OUR BUSINESS COULD BE SERIOUSLY HARMED If we are not successful in expanding our business, our brand and business could be seriously harmed. We may choose to expand our operations by promoting new or complementary products and services, increasing the breadth and depth of products and services offered or expanding our market presence through relationships with third parties or developing new Web sites. In addition, we may pursue the acquisition of new or complementary businesses or technologies, although we have no present understandings, commitments or agreements with respect to any material acquisitions or investments. However, we may not be able to successfully expand our business and operations in a cost-effective or timely manner, and we cannot be certain that any of these efforts would increase overall market acceptance. Furthermore, any new product, service or Web site that we launch that is not favorably received could damage our reputation or our brand recognition. Expansion of our operations in this manner could also require significant additional expenditures and would strain our management, financial and operating resources. WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY We may not be able to compete successfully in our targeted market. We expect to encounter intense competition primarily from: - other companies or Web sites that are primarily focused, or that have areas primarily focused, on targeting teens online; - e-commerce companies and traditional retailers of the products we sell through our Bolt Store; - traditional media companies that have made or may in the future make significant acquisitions of or investments in Internet companies; and - traditional forms of media, like newspapers, magazines, radio and television. The market for Internet traffic, registered users and Internet advertising is new and rapidly evolving, and competition is intense. With no substantial barriers to entry, we expect that competition will continue to intensify as new companies and traditional media companies enter this market. In addition, because the Internet and e-commerce are new and evolving, we also face intense competition for advertising revenues from traditional sources of advertising like print, radio, television and other more established media and competition for direct sales revenues from traditional retailers of products geared towards teens. Many of our existing and potential competitors have longer operating histories, greater name recognition, larger user and customer bases and significantly greater financial, technical and marketing resources than we do. This may enable them to respond more quickly to competitive developments, or to devote greater resources 9 15 than we can to the development, promotion and sale of their products and services. Our competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential employees, members, customers and partners. Our competitors may develop products and services that are equal or superior to the products and services offered by us or that achieve greater market acceptance than our products and services. In addition, current and potential competitors may establish cooperative relationships among themselves or with third parties to improve their ability to address the needs of our customers and members. As a result, it is possible that new competitors may emerge and rapidly acquire significant market share. Increased competition may result in price reductions, reduced revenues, loss of customers and reduced traffic to our Web site. WE MUST CONTINUE TO ESTABLISH AND MAINTAIN STRATEGIC ALLIANCES TO GENERATE TRAFFIC TO OUR SITE, WHICH WE MAY NOT BE ABLE TO DO If we do not continue to establish and maintain strategic alliances that drive traffic to our site, our business could be seriously harmed. We believe that strategic alliances with high-traffic Internet sites and leading Internet portals to ensure the visibility of our Web site and to generate additional traffic to our site are important to our future growth. We currently have relationships with America Online, Yahoo!, MSN Hotmail and Lycos. Our business could be seriously harmed if we do not establish and maintain additional relationships on commercially reasonable terms or if any of our relationships do not result in increased traffic and visibility. Many of our current alliances are based on short-term agreements. There is intense competition among Internet sites for online strategic relationships. We may not be able to enter into new or renewed relationships on commercially reasonable terms or at all. In addition, our existing online strategic relationships or any relationships that we enter into in the future may not generate enough additional traffic from teen users to our Web site or create sufficient brand visibility to justify the costs we incur for these relationships. OUR SYSTEMS ARE MANAGED BY A THIRD PARTY AND ANY SYSTEMS FAILURE MAY CAUSE INTERRUPTIONS OF OUR SERVICES, WHICH COULD IMPAIR OUR ADVERTISING REVENUES, OUR REPUTATION AND THE ATTRACTIVENESS OF OUR BRAND The performance of our server and networking hardware and software infrastructure is critical to our business and reputation and our ability to attract Internet users and advertisers to our site. Substantially all of our computer and communications hardware and software required for Internet access is currently housed at Exodus Communications, Inc. in New Jersey. We are dependent on the services of this provider, and its systems and operations are vulnerable to damage or interruption from computer viruses, fire, power loss, telecommunications failures, vandalism and other malicious acts, and similar unexpected adverse events. We do not presently have a formal disaster recovery plan and may not carry sufficient business interruption insurance to compensate us for losses that may occur. If systems failures were sustained or repeated, our revenues, our reputation and the attractiveness of our brand could be impaired. In addition, because we have incorporated third-party software into our systems and we depend upon a third party provider to afford members access to our products and services, we are limited in our ability to prevent systems failures. WE MAY NOT BE ABLE TO SUCCESSFULLY EXPAND INTO INTERNATIONAL MARKETS If our revenues associated with our planned expansion into international markets are not adequate to offset investments in international activities, our business could be seriously harmed. Although we currently operate primarily in the United States, we plan to expand globally. However, we may experience difficulty in managing international operations because of distance, as well as language and cultural differences, and we may not be able to successfully market and operate our site in foreign markets. There are also risks that are inherent in transacting business internationally, including: - unexpected changes in regulatory requirements; - export restrictions; - trade barriers; - difficulties in staffing and managing foreign operations; 10 16 - political instability; - fluctuations in currency exchange; and - potential adverse tax consequences. WE MAY BE LIABLE FOR LEGAL CLAIMS BASED ON THE NATURE AND CONTENT OF OUR SERVICES AND MEMBER-GENERATED INFORMATION The features that we offer on Bolt.com that enable our teen members to exchange information, buy products and services, and engage in various online activities may expose us to liability. Claims could be made against us for negligence, defamation, libel, copyright or trademark infringement, personal injury or other legal claims based on the nature and content of information that may be posted online by our members. The laws relating to the liability of providers of online services for the activities of their users are currently unsettled. In addition, we could be exposed to liability with respect to the selection of listings that may be accessible through our Web site, or through content and materials that may be posted by members on message boards or in clubs, chat rooms or other interactive community-building services. It is also possible that if any information provided through our services, including financial information, contains errors, third parties could make claims against us for losses incurred in reliance on this information. We offer Internet-based email services, which expose us to potential risks, including liabilities or claims resulting from unsolicited email, lost or misdirected messages, illegal or fraudulent use of email, or interruptions or delays in email service. Investigating and defending these claims is expensive, even to the extent these claims do not result in liability. Our insurance may not cover certain claims or, if coverage is available, it may be insufficient. In addition, we could be exposed to liability arising from the activities of users of our content or services or with respect to the unauthorized duplication or insertion of illegal or inappropriate material accessed directly or indirectly through our services. Several private lawsuits seeking to impose such liability upon content providers, online services companies and Internet access providers are currently pending. In addition, laws currently impose liability for, and in some cases prohibit, the transmission over the Internet of some types of information. These laws or similar laws enacted in the future could expose us to significant liabilities associated with our content or services. The imposition of potential liability for our content or services could require us to implement measures to reduce our exposure to this liability, which may require us to expend substantial resources, or to discontinue some content or service offerings. In addition, the increased attention focused upon liability issues as a result of these lawsuits and legislative proposals could affect the growth of Internet use. We may not have adequate insurance to compensate us in the event we become liable for our content or services. Any liability in excess of our insurance could seriously harm our business and results of operations. PRIVACY CONCERNS AND GOVERNMENT REGULATIONS COULD IMPAIR OUR ABILITY TO OBTAIN INFORMATION ABOUT OUR MEMBERS, WHICH WOULD AFFECT OUR ABILITY TO TAILOR OUR ONLINE OFFERINGS TO OUR MEMBERS AND THE ABILITY OF ADVERTISERS TO CREATE TARGETED ADVERTISING CAMPAIGNS Our Web site captures information regarding our members in order to allow us to tailor our online offerings to them and assist advertisers in targeting their advertising campaigns. However, privacy concerns may cause members to resist providing the personal data necessary to support this tailoring capability. Even the perception of security and privacy issues, whether or not valid, may indirectly inhibit our ability to collect information regarding our members. In addition, the Federal Trade Commission has recently issued its final regulations under the Children's Online Privacy Protection Act of 1998, which will become effective on April 21, 2000. This Act contains provisions limiting and regulating the collection, use and/or disclosure of personal information obtained from children under the age of 13. Although we do not collect and use information from children under the age of 13, if we discover that members from whom we have collected information have misrepresented their age or that a child under 13 has posted personal information on our bulletin board or in any other public forum on our site, we will have to comply with the provisions of this Act. Further legislation or regulations regarding Internet privacy that affect the way we conduct our business may be adopted in the U.S. Other countries and political entities, like the European Union, have also adopted 11 17 legislation or regulatory requirements regarding the collection and use of personal data. If consumer privacy concerns are not adequately addressed or if we fail to comply with current or future regulatory requirements regarding privacy, our business and results of operations could be seriously harmed. WE MAY EXPEND SIGNIFICANT RESOURCES TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS OR TO DEFEND CLAIMS OF INFRINGEMENT BY THIRD PARTIES, AND IF WE ARE NOT SUCCESSFUL WE MAY LOSE RIGHTS TO USE SIGNIFICANT MATERIAL OR BE REQUIRED TO PAY SIGNIFICANT FEES Our success depends on the protection of our original interactive content and on the goodwill associated with our trademarks and other proprietary intellectual property rights. A substantial amount of uncertainty exists concerning the application of copyright and trademark laws to the Internet and other digital media, and existing laws may not provide adequate protection of our content or our Internet addresses, commonly referred to as domain names. We have filed applications in the United States and other countries to register a number of our trademarks; however, we do not know whether or not registration will be granted. We have also invested resources in acquiring domain names in the United States and other countries for existing and potential future use. We may not, however, be entitled to use these names under applicable trademarks and similar laws and other desired domain names may not be available. Furthermore, enforcing our intellectual property rights could entail significant expense and could prove difficult or impossible. In addition, in the future third parties might bring claims of copyright or trademark infringement, patent violation or misappropriation of creative ideas or formats against us with respect to our content or any third-party content carried by us. Any such claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management attention, require us to enter into costly royalty or licensing arrangements or prevent us from using important technologies, ideas or formats. WE MAY NOT BE ABLE TO ADAPT AS INTERNET TECHNOLOGIES AND CLIENT DEMANDS CONTINUE TO EVOLVE To be successful, we must adapt to rapidly changing Internet technologies and continually enhance the features and services provided on our Web site, which we may not be able to do. We could incur substantial and unanticipated costs if we need to modify our Web site, software and infrastructure to incorporate new technologies demanded by our teen members and customers. We may use new technologies ineffectively or we may fail to adapt our Web site and network infrastructure to user requirements or emerging industry standards. If we fail to keep pace with the technological demands of our members and customers for new teen-focused services, products and enhancements, our business may be seriously harmed. WE MAY NEED ADDITIONAL FINANCING FOR OUR FUTURE CAPITAL NEEDS, WHICH WE MAY NOT BE ABLE TO OBTAIN Because of our expected negative cash flow, we may need to raise additional funds in the future, which we may not be able to do. Based on our current operating plans, we anticipate that the net proceeds from this offering, together with available funds, will be sufficient to meet our anticipated needs for at least the next 12 months. We may need additional financing sooner if we: - decide to expand faster than planned; - develop new or enhanced services or products ahead of schedule; - need to respond more quickly than anticipated to competitive pressures; or - decide to acquire complementary products, businesses or technologies. We may not be able to raise additional funds on terms favorable to us, or at all. If future financing is not available or is not available on acceptable terms, we may not be able to fund our future needs, which would seriously harm our business and results of operations. In addition, if we raise additional funds through the sale of equity or convertible debt securities, your percentage ownership will be reduced. These transactions may dilute the value of the stock outstanding. We may also have to issue securities that have rights, preferences and privileges senior to our common stock. 12 18 PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD CAUSE SYSTEMS FAILURES THAT IMPAIR OUR OPERATIONS OR COULD BE EXPENSIVE TO CORRECT Systems failures related to the problem of computer systems and software products only accepting two digits to identify the year in any date may impair our operations. Systems or products with this problem may, for example, interpret the year 2000 as 1900. This could result in system failures, delays or miscalculations. Computer systems and software that have not been developed or enhanced recently may need to be upgraded or replaced to comply with Year 2000 requirements. Based on our Year 2000 assessment program, we believe that the portions of our computer systems that we developed are Year 2000 compliant. However, our computer system also uses licensed third-party equipment and software that may not be Year 2000 compliant. We are currently assessing the third-party equipment and software for Year 2000 compliance. The failure of our computer system or the computer systems of Internet service providers could cause us to incur significant expenses to remedy problems and could reduce our revenues. We have not incurred material costs to date complying with Year 2000 requirements. However, if we discover significant Year 2000 errors or defects, we could incur substantial costs and our operations could be seriously disrupted. RISKS RELATED TO THE INTERNET INDUSTRY WE ARE DEPENDENT ON THE CONTINUED GROWTH AND DEVELOPMENT OF THE INTERNET AND ITS INFRASTRUCTURE, WHICH IS NOT CERTAIN We cannot be certain that growth in the Internet will continue or that a sufficient number of consumers will adopt and continue to use the Internet and other online services. Our future success depends on the continued growth in, and increased use of, the Internet. Internet usage may be inhibited for a number of reasons, including: - inadequate Internet infrastructure; - security concerns; - inconsistent quality of service; or - unavailability of cost-effective, high-speed service. We cannot be certain that the Internet infrastructure will be able to support the expected growth or that the performance and reliability of the Internet will not decline as result of this growth. In addition, Web sites, including ours, have experienced a variety of interruptions in their service as a result of outages and other delays occurring throughout the Internet network infrastructure. If these outages or delays occur frequently in the future, Web usage, including usage of our Web site, could grow more slowly than anticipated or decline. OUR FUTURE SUCCESS DEPENDS SIGNIFICANTLY ON THE ACCEPTANCE AND EFFECTIVENESS OF THE INTERNET AS AN ADVERTISING MEDIUM, WHICH IS UNCERTAIN Our future success depends significantly on increasing our online advertising revenues. We cannot be certain that the Internet advertising market will continue to emerge or will ever become sustainable, and if it does not, our advertising revenues may decline. Online advertising is new and rapidly evolving. It cannot yet be compared with traditional advertising media, like television and print, to gauge its effectiveness. As a result, there is significant uncertainty about the demand and market acceptance for online advertising. Many of our current or prospective clients have little experience using the Internet for advertising purposes. The adoption of online advertising, particularly by entities that have historically relied on traditional media for advertising, requires the acceptance of a new way of conducting business. These businesses may find online advertising to be less effective for promoting their products and services as compared to traditional advertising. THE SUCCESS OF THE BOLT STORE DEPENDS ON THE DEVELOPMENT OF THE E-COMMERCE MARKET, WHICH IS UNCERTAIN The success of the Bolt Store depends upon the widespread acceptance and use of the Internet as an effective medium of commerce by consumers, which cannot be assured. Rapid growth in the use of the Internet and commercial online services is a recent phenomenon. Demand for recently introduced services and 13 19 products over the Internet and online services is subject to a high level of uncertainty. The development of the Internet and e-commerce as a viable commercial marketplace is subject to a number of factors, including the following: - e-commerce is at an early stage and buyers may be unwilling to shift their purchasing habits from traditional retailers to e-commerce retailers; - insufficient availability of telecommunications services or changes in telecommunications services could result in slower response times; and - adverse publicity and consumer concern about the security of e-commerce transactions could discourage its acceptance and growth. BREACHES OF SECURITY ON THE INTERNET MAY ADVERSELY AFFECT OUR BUSINESS BY SLOWING THE GROWTH OF SALES IN THE BOLT STORE AND ONLINE ADVERTISING AND EXPOSE US TO LIABILITY The need to securely transmit confidential information, including credit card and other personal information, over the Internet has been a significant barrier to e-commerce and communications over the Internet. Any well-publicized compromise of security could deter more people from using the Internet or from using it to conduct transactions that involve transmitting confidential information, like purchasing goods or services. Furthermore, decreased traffic and e-commerce sales as a result of general security concerns could cause advertisers to reduce their amount of online spending. To the extent that our activities involve the storage and transmission of proprietary information, like credit card information, security breaches could disrupt our business, damage our reputation and expose us to a risk of loss or litigation and possible liability. We could also be liable for claims based on the misuse of personal information, such as for unauthorized marketing purposes. We may need to spend a great deal of money and use other resources to protect against the threat of security breaches or to alleviate problems caused by these breaches. WE FACE RISKS ASSOCIATED WITH GOVERNMENT REGULATION OF AND LEGAL UNCERTAINTIES SURROUNDING THE INTERNET Any new law or regulation pertaining to the Internet, or the application or interpretation of existing laws, could increase our cost of doing business or otherwise adversely affect our business. Laws and regulations directly applicable to Internet communications, commerce and advertising are becoming more prevalent. The law governing the Internet, however, remains largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws governing intellectual property, copyright, privacy, obscenity, libel and taxation apply to the Internet. In addition, the growth and development of e-commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad. See "Business--Government Regulation" for a more detailed discussion on government regulation of the Internet. RISKS ASSOCIATED WITH THIS OFFERING SUBSTANTIAL SALES OF OUR COMMON STOCK COULD CAUSE OUR STOCK PRICE TO FALL Sales of a substantial number of shares of our common stock after this offering could cause our stock price to fall. Our current stockholders hold a substantial number of shares, which they will be able to sell in the public market in the near future. All of the shares sold in this offering will be freely tradable. The remaining 14,973,965 shares outstanding are restricted securities as defined in Rule 144 of the Securities Act of 1933. Of these shares about shares will become freely tradable at various times within 180 days of the date of this prospectus, shares will become freely tradable on the date that is 180 days after the date of this prospectus and shares will become freely tradable at various times thereafter. For a more detailed description of the eligibility of shares for sale into the public market following this offering, see "Shares Eligible for Future Sale." 14 20 FUTURE ISSUANCES OF PREFERRED STOCK MAY DILUTE THE RIGHTS OF OUR COMMON STOCKHOLDERS Our board of directors will have the authority to issue up to 5,000,000 shares of preferred stock and to determine the price, rights, privileges and other terms of these shares. The board of directors may exercise this authority without the approval of the stockholders. The rights of the holders of common stock may be adversely affected by the rights of the holders of any preferred stock that may be issued in the future. ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND OUR CHARTER COULD MAKE A THIRD-PARTY ACQUISITION OF US DIFFICULT Because we are a Delaware corporation, the anti-takeover provisions of Delaware law could make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial to stockholders. We are subject to the provisions of Section 203 of the General Corporation Law of Delaware. Section 203 will prohibit us from engaging in certain business combinations, unless the business combination is approved in a prescribed manner. Accordingly, Section 203 may discourage, delay or prevent someone from acquiring or merging with us. In addition, upon completion of this offering, our certificate of incorporation and bylaws will contain certain provisions that may make a third party acquisition of us difficult, including: - a classified board of directors, with three classes of directors each serving a staggered three-year term; - the ability of the board of directors to issue preferred stock; and - the inability of our stockholders to call a special meeting or act by written consent. OUR STOCK PRICE MAY BE VOLATILE An active public market for our common stock may not develop or be sustained after this offering, and the market price might fall below the initial public offering price. Prior to this offering, you could not buy or sell our common stock publicly. The initial public offering price may bear no relationship to the price at which the common stock will trade upon completion of this offering. The initial public offering price will be determined based on negotiations between us and the representatives of the underwriters, based on factors that may not be indicative of future market performance. The market price of the common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control, including: - quarterly variations in results; - changes in financial estimates by securities analysts; - changes in market valuation of Internet companies; - announcements by us of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments; - additions or departures of key personnel; - any shortfall in revenues or net income or any increase in losses from levels expected by securities analysts; - future sales of common stock; and - stock market price and volume fluctuations, which are particularly common among securities of Internet companies. OUR MANAGEMENT WILL HAVE BROAD DISCRETION AS TO THE USE OF PROCEEDS FROM THIS OFFERING Our management will have broad discretion as to the use of proceeds from this offering. While we currently intend to use the net proceeds of this offering as described in "Use of Proceeds," management may allocate the net proceeds among these purposes as it determines is necessary. In addition, market factors may require management to allocate all or portions of the net proceeds for other purposes. Accordingly, you will be 15 21 relying on the judgment of our management with regard to the use of proceeds from this offering. See "Use of Proceeds" for a more detailed discussion of the use of proceeds from this offering. YOU WILL EXPERIENCE IMMEDIATE DILUTION IN THE BOOK VALUE PER SHARE OF THE COMMON STOCK YOU PURCHASE Because the price per share of our common stock being offered is substantially higher than the book value per share of our common stock, you will suffer substantial dilution in the net tangible book value of the common stock you purchase in this offering. Based on an assumed initial public offering price of $ per share, if you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of $ per share in the net tangible book value of the common stock. See "Dilution" for a more detailed discussion of the dilution you will incur in this offering. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Some of the statements under "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," and elsewhere in this prospectus constitute forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology like "may," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue" or the negative of these terms or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this prospectus to conform these statements to actual results. 16 22 USE OF PROCEEDS The net proceeds that we will receive from our sale of shares of common stock in this offering are estimated to be $ million, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us and assuming an initial public offering price of $ per share. If the underwriters exercise their over-allotment option in full, we estimate the net proceeds from this offering will be $ million. Our management will have broad discretion as to the use of proceeds from this offering. We currently intend to use the net proceeds of this offering as follows: - to expand our marketing and promotion activities to increase our brand awareness; - to launch international operations; - to expand and upgrade our technology infrastructure; - to expand our staff, particularly our sales and business development force; and - for working capital and general corporate purposes, including possible acquisitions of or investments in complementary businesses, products or technologies. At the present time, we have no understandings, commitments or agreements with respect to any material acquisition. Our management may allocate the net proceeds among these purposes as they determine is necessary. Pending the use of the net proceeds of this offering for the purposes described above, we intend to invest these proceeds in short-term, interest-bearing, investment-grade securities. The foregoing discussion is based on our current business plans and we may allocate the net proceeds among these purposes as we determine is necessary. This determination will be based upon factors not yet known, including the time actually required to reach profitability, the availability of qualified personnel and the increase, if any, of the traffic to our Web site. In addition, these and other market factors may require us to allocate portions of the net proceeds for purposes other than those described above. See "Risk Factors--Risks Associated with This Offering -- Our management will have broad discretion as to the use of proceeds from this offering." DIVIDEND POLICY We have never declared or paid any cash dividends on our common stock. We intend to retain any earnings to fund our future growth and the operation of our business. Therefore, we do not anticipate paying any cash dividends in the foreseeable future. 17 23 CAPITALIZATION The following table shows our cash and cash equivalents, debt, capital lease obligations, stockholders' equity and capitalization as of September 30, 1999 (1) on an actual basis, (2) on a pro forma basis to give effect to: - our sale of a total of 3,787,801 shares of our Series C Convertible Preferred Stock for $10.25 per share on November 17, 1999, November 23, 1999 and December 6, 1999, and - the conversion of all of our outstanding preferred stock into a total of 11,956,621 shares of common stock upon the completion of this offering and (3) on a pro forma basis as adjusted to give effect to the receipt of the estimated proceeds from our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. This information should be read in conjunction with our financial statements and the notes to those financial statements appearing elsewhere in this prospectus.
AS OF SEPTEMBER 30, 1999 --------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED --------- ----------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Cash and cash equivalents................................... $ 3,637 $42,335 $ ======= ======= ======= Long-term debt: Note payable.............................................. $ 297 $ 297 $ Capital lease obligations................................. 578 578 ------- ------- ------- Total long-term debt.................................... 875 875 ------- ------- ------- Redeemable convertible preferred stock: Series B-1, $.001 par value; 1,048,387 shares authorized, issued and outstanding actual; 1,048,347 shares authorized, no shares issued and outstanding pro forma; no shares authorized, issued and outstanding pro forma as adjusted............................................. 6,132 -- Series B-2, $.001 par value; 268,818 shares authorized, issued and outstanding actual; 268,818 shares authorized, no shares issued and outstanding pro forma; no shares authorized, issued and outstanding pro forma as adjusted............................................. 1,887 -- Series B-3, $.001 par value; no shares authorized, issued and outstanding actual; 1,975 shares authorized, no shares issued and outstanding pro forma; no shares authorized, issued and outstanding pro forma as adjusted................................................ -- -- Series C, $.001 par value; no shares authorized, issued and outstanding actual; 4,400,000 shares authorized, no shares issued and outstanding pro forma; no shares authorized, issued and outstanding pro forma as adjusted................................................ -- -- ------- ------- ------- Total redeemable convertible preferred stock............ 8,019 ------- ------- ------- Stockholders' equity (deficiency): Common Stock, $.001 par value; 16,000,000 shares authorized, 4,438,544 shares issued and 3,017,344 shares outstanding, actual; 30,000,000 shares authorized, 16,395,165 shares issued and 14,973,965 shares outstanding, pro forma; 50,000,000 shares authorized, shares issued and shares outstanding pro forma as adjusted....................................... 4 16 Series A-1 Convertible Preferred Stock, $.001 par value; 600,000 shares authorized, issued and outstanding actual; 600,000 shares authorized, no shares issued and outstanding pro forma; no shares authorized, issued and outstanding pro forma as adjusted....................... 1 -- Series A-2 Convertible Preferred Stock, $.001 par value; 125,000 shares authorized, issued and outstanding actual; 125,000 shares authorized, no shares issued and outstanding pro forma; no shares authorized, issued and outstanding pro forma as adjusted....................... -- -- Additional paid-in capital.................................. 7,781 54,487 Warrants.................................................... 1,521 1,521 Deferred financing costs.................................... (633) (633) Accumulated deficit......................................... (6,139) (6,139) Deferred compensation....................................... (4,876) (4,876) Note receivable from related party.......................... (315) (315) Treasury stock.............................................. (461) (461) ------- ------- ------- Total stockholders' equity (deficiency)................. (3,117) 43,600 ------- ------- ------- Total capitalization............................... $ 5,777 $44,475 $ ======= ======= =======
The outstanding share information is based on our shares outstanding as of September 30, 1999. This information excludes: - 2,593,600 shares of common stock issuable upon the exercise of stock options outstanding as of December 6, 1999 at a weighted average exercise price of $.82 per share; and - 47,900 shares of common stock issuable upon the exercise of warrants outstanding as of December 6, 1999 at a weighted average exercise price of $1.27 per share. 18 24 DILUTION The pro forma net tangible book value of Bolt as of September 30, 1999, after giving effect to: - the sale of a total of 3,787,801 shares of our Series C Convertible Preferred Stock for $10.25 per share on November 17, 1999, November 23, 1999 and December 6, 1999, and - the conversion of all of our outstanding preferred stock into a total of 11,956,621 shares of common stock was $43.6 million or $2.91 per share of common stock. Pro forma net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. Assuming the sale by us of shares of common stock in this offering at an assumed initial public offering price of $ per share, our pro forma net tangible book value as of September 30, 1999 would have been $ million, or $ per share of common stock. This represents an immediate increase in pro forma net tangible book value of $ per share to our existing stockholders and an immediate dilution in pro forma net tangible book value of $ per share to new investors purchasing shares in this offering. The following table illustrates this dilution on a per share basis: Assumed initial public offering price per share............. $ Pro forma net tangible book value per share as of September 30, 1999.................................................... $2.91 Increase per share attributable to new investors.......... ----- Pro forma net tangible book value per share after this offering.................................................. ----- Dilution per share to new investors......................... $ =====
The following table summarizes, as of September 30, 1999 on a pro forma basis, the number of shares of stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors, based upon an assumed initial public offering price of $ per share for shares purchased in this offering, 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......... % $ % $ New investors................. ------ --- ------ --- Total............... 100% $ 100% ====== === ====== ===
These tables assume no exercise of any outstanding stock options or warrants to purchase common stock. As of December 6, 1999, there were: - 2,593,600 shares of common stock issuable upon the exercise of stock options outstanding at a weighted average exercise price of $.82 per share; and - 47,900 shares of common stock issuable upon the exercise of warrants outstanding at a weighted average exercise price of $1.27 per share. To the extent these options or warrants are exercised, there will be further dilution to the new investors. 19 25 PRO FORMA STATEMENT OF OPERATIONS DATA The statement of operations data for the nine months ended September 30, 1998 and the year ended December 31, 1998 reflect the business of Bolt, together with the business of the custom publishing division, which provided Web site development services to third party non-advertising customers, and the Girls On division, which provided online entertainment and related content written by and focused toward young women. The custom publishing division was sold in December 1998 and the Girls On division was sold in January 1999. The pro forma statement of operations data for the nine months ended September 30, 1998 and the year ended December 31, 1998 reflect our results of operations as if the sales of the custom publishing division and the Girls On division occurred on January 1, 1998. The pro forma adjustments represent the operating results of the custom publishing division and the Girls On division for the year ended December 31, 1998. The pro forma statement of operations data are presented for informational purposes only and may not be indicative of the operating results that would have been achieved had the transactions been in effect as of the beginning of the periods presented and should not be construed as being representative of future operating results.
PRO FORMA NINE MONTHS NINE MONTHS ENDED ENDED SEPTEMBER 30, PRO FORMA SEPTEMBER 30, 1998 ADJUSTMENTS 1998 -------------- ------------ -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Total revenues................................. $ 1,790 $1,606 $ 184 ---------- ------ ---------- Costs and expenses: Production and technology.................... 813 590 223 Sales and marketing.......................... 393 232 161 General and administrative................... 967 746 221 Depreciation and amortization................ 50 42 8 ---------- ------ ---------- Total costs and expenses............. 2,223 1,610 613 ---------- ------ ---------- Loss from operations........................... (433) (4) (429) Interest expense, net.......................... (30) (30) -- ---------- ------ ---------- Net loss....................................... $ (463) $ (34) $ (429) ========== ====== ========== Basic loss per share........................... $ (.11) $ (.10) ========== ========== Weighted average number of shares of common stock outstanding............................ 4,400,000 4,400,000 ========== ==========
PRO FORMA YEAR ENDED YEAR ENDED DECEMBER 31, PRO FORMA DECEMBER 31, 1998 ADJUSTMENTS 1998 -------------- ------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Total revenues.................................. $ 2,685 $2,281 $ 404 ---------- ------ ---------- Costs and expenses: Production and technology..................... 1,138 802 336 Sales and marketing........................... 630 298 332 General and administrative.................... 1,327 1,038 289 Depreciation and amortization................. 75 60 15 ---------- ------ ---------- Total costs and expenses.............. 3,170 2,198 972 ---------- ------ ---------- Income (loss) from operations................... (485) 83 (568) Interest expense, net........................... (53) (53) -- ---------- ------ ---------- Net income (loss)............................... $ (538) $ 30 $ (568) ========== ====== ========== Basic loss per share............................ $ (.12) $ (.13) ========== ========== Weighted average number of shares of common stock outstanding............................. 4,368,850 4,368,850 ========== ==========
We calculate loss per common share by dividing the loss attributable to common shares by the weighted average number of shares outstanding. We do not include outstanding common stock options, outstanding warrants or the conversion of our outstanding convertible preferred stock in the loss per common share calculation as their effect is anti-dilutive. 20 26 SELECTED FINANCIAL DATA The statement of operations data for the period from August 15, 1996 (date of inception) through December 31, 1996, for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1999 and the balance sheet data as of December 31, 1997 and 1998 and September 30, 1999 have been derived from, and qualified by reference to, our audited financial statements included elsewhere in this prospectus which have been audited by Deloitte & Touche LLP. The statement of operations data for the nine months ended September 30, 1998 is derived from unaudited financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited financial statements have been prepared on a basis consistent with the audited financial statements which appear elsewhere in this prospectus and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and results of operations for the unaudited period. The historical results are not necessarily indicative of the operating results to be expected in the future. The selected financial data shown below should be read in conjunction with our financial statements and the notes to those financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere in this prospectus.
PERIOD FROM AUGUST 15, 1996 (DATE OF INCEPTION) YEAR ENDED NINE MONTHS ENDED THROUGH DECEMBER 31, SEPTEMBER 30, DECEMBER 31, ----------------------- ----------------------- 1996 1997 1998 1998 1999 ------------------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Bolt revenues....................................... $ -- $ 32 $ 404 $ 184 $ 1,885 Revenues related to the Girls On and custom publishing divisions.............................. 19 446 2,281 1,606 38 ---------- ---------- ---------- ---------- ---------- Total revenues............................. 19 478 2,685 1,790 1,923 ---------- ---------- ---------- ---------- ---------- Costs and expenses: Production and technology......................... 15 810 1,138 813 2,389 E-commerce........................................ -- -- -- -- 235 Sales and marketing............................... 1 287 630 393 2,782 General and administrative........................ 51 549 1,327 967 999 Depreciation and amortization..................... 4 25 75 50 211 Stock-based compensation.......................... -- -- -- -- 1,256 ---------- ---------- ---------- ---------- ---------- Total costs and expenses................... 71 1,671 3,170 2,223 7,872 ---------- ---------- ---------- ---------- ---------- Loss from operations................................ (52) (1,193) (485) (433) (5,949) Other income (expense): Interest income (expense), net.................... -- 42 (53) (30) 115 Gain on sale of Girls On.......................... -- -- -- -- 1,436 ---------- ---------- ---------- ---------- ---------- Net loss............................................ $ (52) $ (1,151) $ (538) $ (463) $ (4,398) ========== ========== ========== ========== ========== Basic loss per share................................ $ (.01) $ (.26) $ (.12) $ (.11) $ (1.46) ========== ========== ========== ========== ========== Weighted average number of shares of common stock outstanding....................................... 4,400,000 4,400,000 4,368,850 4,400,000 3,009,720 ========== ========== ========== ========== ==========
AS OF DECEMBER 31, -------------- AS OF SEPTEMBER 30, 1997 1998 1999 ---- ------ ------------------- (IN THOUSANDS) BALANCE SHEET DATA: Cash and cash equivalents................................... $184 $ 194 $ 3,637 Working capital (deficiency)................................ 128 (130) 2,131 Total assets................................................ 662 1,033 8,752 Capital lease obligations, less current portion............. -- 178 578 Redeemable convertible preferred stock...................... -- -- 8,019 Stockholders' equity (deficiency)........................... 395 (630) (3,117)
We calculate loss per common share by dividing the loss attributable to common shares by the weighted average number of shares outstanding. We do not include outstanding common stock options, outstanding warrants or the conversion of our outstanding convertible preferred stock in the loss per common share calculation as their effect is anti-dilutive. The Series B preferred stock has been recorded at its redemption value and classified as redeemable convertible preferred stock on our balance sheet as of September 30, 1999. 21 27 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial condition and results of operations of Bolt should be read in conjunction with "Selected Financial Data" and our financial statements and related notes appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those set forth under "Risk Factors" and elsewhere in this prospectus. OVERVIEW Our Web site, Bolt.com, is a leading online destination that targets 15-20 year old teens. We feature teen-focused content generated primarily by our members, a platform for teens to interact with other teens and tools that allow our members to personalize their user experience. Our site enables members to create and actively participate in what we believe is one of the most teen-relevant environments found anywhere. We have designed Bolt.com to facilitate communication among teens, to empower them to express their opinions and ideas as a community and to shop in an online store our members help create. We were originally incorporated as Concrete Media, Inc. in August 1996. Our original business consisted of three divisions: - our Bolt subsidiary, which provided online content and community created by and focused toward teens; - our "Girls On" division, which provided online entertainment and related content written by and focused toward young women; and - our custom publishing division, which provided Web site development services to third party non-advertising customers. We also provided, and continue to provide, custom publishing and production services to our advertising customers in connection with advertising and product presentation on Bolt.com. In late 1998 and early 1999, Concrete Media was reorganized. On December 30, 1998, we sold our custom publishing division and on January 29, 1999, we sold our Girls On division. Our results of operations set forth below have been presented to reflect both the combined business of Bolt and the custom publishing and Girls On divisions and the business of Bolt excluding our former custom publishing and Girls On divisions. Included in our results of operations for the nine months ended September 30, 1999 were Girls On revenues and direct expenses of $38,000 and $25,000, respectively, representing its results for the month of January just prior to its sale. As a result of the reorganization, we believe that our historical results of operations are not indicative of our business and prospects in the future. In addition, the results of operations of the business of Bolt excluding our former custom publishing and Girls On divisions is not indicative of our business and prospects going forward. We have a limited operating history and our prospects are subject to the risks, expenses and uncertainties frequently encountered by companies in the new and rapidly evolving markets for Internet products and services. These risks include the failure to further develop brand awareness, the rejection of services provided to advertisers, strategic partners and vendors, as well as the inability to increase the levels of traffic to our Web site. We have continued to incur losses and negative cash flows from operations since our inception. These losses have been funded primarily through the issuance and sale of preferred equity securities. As of September 30, 1999, we had an accumulated deficit of $6.1 million. We plan to continue to make significant investments in marketing and technology to continue to build brand awareness, drive traffic to our site and build our member base. In addition, we plan to continue to incur costs in building new strategic alliances in an effort to increase our brand recognition. As a result, we expect to incur significant operating losses and negative cash flows from operations for the foreseeable future. 22 28 REVENUES We currently derive revenues from two sources: (1) advertising and sponsorships and (2) e-commerce. We also intend to derive revenues in the near future from the sale of market research data. Advertising and sponsorships. Advertising revenues consist primarily of sales of banner advertisements and sponsorships. Advertising agreements are generally short-term and provide that we will guarantee a minimum number of impressions or page views to be delivered over a specified period of time for a fixed fee. Advertising revenues are generally recognized ratably based on impressions delivered over the period in which the advertisement is displayed. To the extent that the minimum number of impressions or page views is not met within the specified period of time, we defer recognition of revenue until the impressions or page views are achieved. Through September 30, 1999, we had not entered into any barter agreements that provided for an exchange of advertising space between our Web site and advertising space on a third party's Web site. In November 1999, however, we entered into an agreement with AOL that provides for our receipt of non-cash revenues for maintenance of the AOL branded teen channel. Sponsorship revenues are derived from contracts that generally range from three-to-12 months in length. Sponsorship agreements typically provide for the delivery of impressions and market research, as well as strategic placement of advertisements in contextually relevant areas of our site and the design and development of sites branded by both Bolt and the sponsor intended to enhance the promotional objective of the advertiser. Sponsorship revenues are recognized by us in the same manner that advertising revenues are recognized. Revenues from production services provided to customers that advertise on our site are recognized as earned over the life of the advertisement period. E-commerce. E-commerce revenues are derived from three sources: the sale of products directly to consumers from the Bolt Store, flat fees from companies who sell their products through our site and transaction fees received from companies who pay us based on products they sell from promotions and advertising on our site. Our members tell us what items they would like to see offered in the Bolt Store, in effect shifting the model of traditional retailing from promotion-based sales (a "push" model) to one where our members choose the products they want to buy (a "pull" model). Currently, the Bolt Store offers over 1,000 products, including apparel, games, technology, sporting gear and other items, and we expect to significantly increase the number of products we offer over the next year. Our users purchase products online and third-party fulfillment sources drop-ship the product directly to the consumer. We take title to inventory from the shipper; however, products generally are shipped the same day the order is fulfilled resulting in our having little, if any, inventory. We are responsible for the risk of cash collection and product returns from our customers. As of September 30, 1999, we had no inventory. To date, e-commerce product returns have been insignificant. E-commerce revenues represent the gross sales price of the product sold from the Bolt Store and is recognized at the time product is shipped. We expect that future e-commerce revenues will fluctuate from quarter to quarter due to seasonal fluctuations in consumer purchasing patterns. We expect that our e-commerce revenues, especially relating to the sale of products, in the third and fourth quarter of a given year will generally be higher than the first two quarters of the year due to the key back-to-school and holiday selling seasons. We also generate e-commerce revenues by charging transaction fees to retailers and e-commerce companies that wish to use our site to promote their products and services as well as to purchase premium positioning on our site. We facilitate contact between our members and many of these companies by providing a link from Bolt.com to their Web sites. Generally, these companies pay us either a flat fee, a fee based on retail sales to our members or a combination of the two. We recognize transaction fee revenues from these companies upon achievement of specified milestones or, in cases where we receive a flat fee, over the life of the contract. Market research. We have collected a tremendous amount of data about our members' preferences both directly, through member-generated profiles, poll responses and survey results, as well as implicitly, through click-stream analysis, purchasing history, and other site activity. We believe our ability to collect data and extract insights about teens' preferences, in the form of market research reports, will be an increasingly important source of revenues in the future. We are able to collect this valuable information relating to the teen 23 29 demographic group and provide it to companies without compromising the actual identities of our members. Our members know and appreciate this fact, and because of it they tend to be very forthcoming about their likes, dislikes and opinions. To date, we have not recorded any market research revenues; however, reports have been prepared and provided to advertisers as a value-added service in connection with larger advertising contracts. Significant customers. Lids Corporation accounted for 25% of our total revenues for the nine months ended September 30, 1999. Our custom publishing division, which provided Web site development services to third party non-advertising customers, accounted for a large portion of our total revenues prior to the sale of this division in December 1998. Each of the following customers were custom publishing customers. Bertlesmann Buch, AG accounted for 52% of our total revenues in 1998. Overly Publishing Co. accounted for 15% of our total revenues and Tripod, Inc. accounted for 10% of our total revenues in 1997. Time, Inc. accounted for 81% of our total revenues and Winstar Media Company, Inc. accounted for 19% of our total revenues for the period August 15, 1996 (date of inception) through December 31, 1996. COSTS AND EXPENSES Costs and expenses consist of production and technology expenses, e-commerce expenses, sales and marketing expenses, general and administrative expenses, depreciation and amortization expenses and stock-based compensation. Production and technology. Production and technology expenses primarily include personnel costs related to technical operations, design activities, productions of the various channels and member-tools incorporated in our site, and the ongoing development and maintenance of our Web site. E-commerce. E-commerce expenses primarily include merchandising personnel costs and the actual costs of product purchased by us from our vendors. Sales and marketing. Sales and marketing expenses consist primarily of the costs of online distribution agreements, the costs of offline promotions and advertising, personnel-related costs and public relations costs. Online distribution agreements generally require a fixed monthly or quarterly fee paid by us in exchange for a guaranteed minimum number of impressions. The fixed fee is amortized as the guaranteed number of impressions is achieved. We expect to incur significant costs over the next twelve months in an effort to generate user traffic through the Bolt Store, including the issuance of store coupons and other marketing strategies. General and administrative. General and administrative costs primarily relate to personnel related costs, professional fees and facility costs. Depreciation and amortization. Depreciation and amortization expenses relate to computer equipment and fixtures owned by us and the related amortization of assets acquired through capital leases. Stock-based compensation. We have recorded total deferred stock-based compensation of $4.9 million as of September 30, 1999 in connection with stock options granted during that period. The deferred stock-based compensation amount represents the difference between the exercise price of stock option grants and the deemed fair value of our common stock on the date of grant. These amounts are amortized over the vesting periods of the applicable agreements, resulting in amortization of stock-based compensation totaling $1.3 million for the nine months ended September 30, 1999. The amortization expense relates to options awarded to employees in all operating expense categories. Deferred stock-based compensation that will be 24 30 subsequently amortized as expense for the remainder of 1999 and for each of the next four fiscal years is estimated to be as follows:
PERIOD AMOUNT - ------ -------------- (IN THOUSANDS) Three months ending December 31, 1999....................... $1,835 Year ending December 31, 2000............................... 4,066 Year ending December 31, 2001............................... 1,854 Year ending December 31, 2002............................... 824 Year ending December 31, 2003............................... 147 ------ Total............................................. $8,726 ======
RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998 Total revenues. Total revenues increased to $1.9 million for the nine months ended September 30, 1999 from $1.8 million for the nine months ended September 30, 1998. During the nine-month period ended September 30, 1998 we recognized $1.4 million of revenues related to the custom publishing division, which was sold on December 30, 1998, of which 80% came from one customer. Excluding the revenues from the custom publishing and Girls On divisions, our revenues increased to $1.9 million for the nine months ended September 30, 1999 from $184,000 for the same period in 1998. This increase was due to advertising and sponsorship revenues primarily due to a larger customer base. In the nine months ended September 30, 1999, one customer accounted for 25% of our total revenues. Production and technology expenses. Production and technology expenses increased to $2.4 million for the nine months ended September 30, 1999 from $813,000 for the nine months ended September 30, 1998. This increase was primarily due to significant increases in staff and the related personnel costs associated therewith. In addition, we incurred expenses of about $438,000 in external production and technology costs related to consultants. Excluding expenses from the custom publishing and Girls On divisions, our production and technology expenses increased to $2.4 million for the nine months ended September 30, 1999 from $223,000 for the nine months ended September 30, 1998. This increase was the result of the growth of the Bolt business, specifically related to salary and other personnel costs and the external consulting costs noted above. E-commerce expenses. E-commerce expenses of $235,000 related to the launch of the Bolt Store were incurred in the nine months ended September 30, 1999. To date, the expenses have consisted primarily of personnel expenses; however, we expect an increase in e-commerce expenses from the cost of products sold through the Bolt Store. Our custom publishing and Girls On divisions did not operate an e-commerce business. Sales and marketing expenses. Sales and marketing expenses increased to $2.8 million for the nine months ended September 30, 1999 from $393,000 for the nine months ended September 30, 1998. This increase was due in part to an increase in our sales and marketing staff and the related personnel costs. In addition, during 1999, we entered into online distribution agreements with major Internet companies, pursuant to which we pay flat fees, transaction fees or fees for a number of impressions over a period of time. For the nine months ended September 30, 1999, we recognized about $601,000 in expenses related to the costs of these agreements. Excluding expenses from the custom publishing and Girls On divisions, our sales and marketing expenses increased to $2.8 million from $161,000 for the nine months ended September 30, 1998. This increase was primarily the result of the growth in the Bolt advertising and sponsorship business. Approximately $2.0 million of this increase is attributable to the hiring of additional personnel and $601,000 is attributable to costs associated with online distribution agreements with major Internet companies. General and administrative expenses. General and administrative expenses increased to $1.0 million for the nine months ended September 30, 1999 from $967,000 for the nine months ended September 30, 1998. This increase was due to increased administrative staffing to support our growth. Prior to the sale of the 25 31 custom publishing division and Girls On division, salary expenses related to general and administrative departments such as executive, finance and human resources were combined and not captured as direct expenses related to any one division. These costs have been allocated between Bolt and the custom publishing and Girls On divisions based on the overall headcount by department where direct expenses were identifiable by division. Excluding expenses from the custom publishing and Girls On divisions, our general and administrative expenses increased to $1.0 million from $221,000 for the nine months ended September 30, 1998. This increase was directly related to the growth of the Bolt business. Depreciation and amortization expenses. Depreciation and amortization expenses increased to $211,000 for the nine months ended September 30, 1999 from $50,000 for the nine months ended September 30, 1998. This increase was primarily the result of the addition of $2.2 million of equipment and software necessary for the launch of the Bolt Store and the expansion of our infrastructure. Excluding expenses from the custom publishing and Girls On divisions, our depreciation and amortization expenses increased to $211,000 from $8,000 for the nine months ended September 30, 1998. This increase was directly related to the growth of the Bolt business. Stock-based compensation expenses. Stock-based compensation expenses of $1.3 million for the nine months ended September 30, 1999 represent the difference between employee stock option grant prices and the deemed fair market values on the date of grant amortized over the vesting period of the options. At September 30, 1999, we had recorded $4.9 million of deferred stock-based compensation, which will be amortized over the vesting periods of the options, generally four years. Other income and expense. Other income and expense consists of interest income on cash equivalents and notes receivable, offset by interest expense on capital leases, short-term debt and notes payable. For the nine months ended September 30, 1999, we recorded a $1.4 million gain on the sale of Girls On, representing our contractual portion of the net proceeds from the acquirer of the Girls On property. YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 Total revenues. Total revenues increased to $2.7 million for the year ended December 31, 1998 from $478,000 for the year ended December 31, 1997. The increase was primarily related to revenues of $2.0 million from our custom publishing division, which was sold on December 30, 1998. For the year ended December 31, 1998, 52% of our total revenues came from one customer. Excluding the revenues from the custom publishing and Girls On divisions, our revenues increased to $404,000 for the year ended December 31, 1998 from $32,000 for the same period in 1997. This increase was the result of a larger advertising and sponsorship customer base. Production and technology expenses. Production and technology expenses increased to $1.1 million for the year ended December 31, 1998 from $810,000 for the year ended December 31, 1997. The increase was primarily due to the addition of production and technology staff and related personnel costs. Sales and marketing expenses. Sales and marketing expenses increased to $630,000 for the year ended December 31, 1998 from $287,000 for the year ended December 31, 1997. This increase was due to an increase in staff and the related personnel costs as well as an increase in online distribution costs in 1998. General and administrative expenses. General and administrative expenses increased to $1.3 million for the year ended December 31, 1998 from $549,000 for the year ended December 31, 1997. The increase was due to increased administrative staffing to support our growth. Depreciation and amortization expenses. Depreciation and amortization expenses increased to $75,000 for the year ended December 31, 1998 from $25,000 for the year ended December 31, 1997. The increase was primarily due to the expansion of our infrastructure to support increases in personnel and the growth of the business. Other income and expense. For the year ended December 31, 1998, there was an increase in net interest expense of $95,000 as a result of interest paid on a convertible note payable and capital leases. 26 32 YEAR ENDED DECEMBER 1997 COMPARED TO THE PERIOD FROM AUGUST 15, 1996 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996 Total revenues. Total revenues increased to $478,000 for the year ended December 31, 1997 from $19,000 for the period from August 15, 1996 through December 31, 1996. In 1996, we were recently formed and had only two custom publishing clients. In the following year we increased our custom publishing customer base and began generating advertising sponsorship revenues. Excluding the revenues from the custom publishing and Girls On divisions, our revenues were $32,000 for the year ended December 31, 1997, and we did not have any revenues in 1996. Production and technology expenses. Production and technology expenses increased to $810,000 for the year ended December 31, 1997 from $15,000 for the period from August 15, 1996 through December 31, 1996. In 1996, only one employee resided in the production department. The increase in 1997 was due to additions to the production and technology staff. Sales and marketing expenses. Sales and marketing expenses increased to $287,000 for the year ended December 31, 1997 from $1,000 for the period August 15, 1996 through December 31, 1996. This increase was related to new staff and marketing initiatives. General and administrative expenses. General and administrative expenses increased to $549,000 for the year ended December 31, 1997 from $51,000 for the period August 15, 1996 through December 31, 1996. The increase was due to increased administrative staffing to support our growth. Depreciation and amortization expenses. Depreciation and amortization expense increased to $25,000 for the year ended December 31, 1997 from $4,000 for the period August 15, 1996 through December 31, 1996. This increase reflects the growth in capital expenditures. Other income and expense. For the year ended December 31, 1997, there was an increase in net interest income of $42,000 as a result of interest earned on cash balances throughout the year. SELECTED UNAUDITED QUARTERLY REVENUES The following summary sets forth our quarterly revenues for Bolt, which include advertising, sponsorship and e-commerce revenues. The information for each of these quarters has been prepared on substantially the same basis as the audited financial statements included elsewhere in this prospectus, and in the opinion of management, includes all adjustments necessary for a fair presentation of the results of operations for such periods. These results are not necessarily indicative of the results to be expected in the future, and the results of interim periods are not necessarily indicative of results for the entire year.
QUARTERLY REVENUES FOR THE QUARTER ENDED ---------------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1998 1998 1998 1998 1999 1999 1999 -------- -------- --------- -------- -------- -------- --------- (IN THOUSANDS) Bolt revenues (advertising, sponsorships and e-commerce).................. $5 $39 $141 $219 $272 $692 $921
The significant increase in revenues for the three months ended June 30, 1999 and for the three months ended September 30, 1999 was in part due to an increase in revenues from two new advertisers during these periods as well as to a general increase in our advertiser base as we increased our sales force. Our revenues and operating results are likely to vary significantly from quarter to quarter in the future due to a number of factors, many of which are beyond our control. These factors include: - the ability to attract and retain new members, customers and advertisers; - new sites, services or products introduced by us or our competitors; - the timing and uncertainty of sales cycles; 27 33 - the mix of online advertisements sold; - seasonal weakness in advertising sales, which typically occurs in the first and third quarters; - the level of Web and online services usage; - the ability to attract, integrate and retain qualified personnel; - technical difficulties or system downtime affecting the Internet generally or the operation of our business; and - general economic conditions as well as economic conditions specific to Internet companies. Our revenues for the foreseeable future will be substantially dependent on advertising and sponsorships, many of which are short term and subject to cancellation without penalty until shortly before publication. In addition, we derive a significant portion of our revenues from sales of advertising to a limited number of customers. Accordingly, the loss of any advertising relationship, or the cancellation or deferral of advertising orders could harm our results in any one quarter. As a result of these and other factors, quarter-to-quarter comparisons of our operating results should not be relied upon as an indication of future performance. LIQUIDITY AND CAPITAL RESOURCES We have funded our operations to date primarily through private sales of securities, which resulted in aggregate net proceeds of about $10.0 million from our inception through September 30, 1999. We had about $3.6 million of cash and cash equivalents as of September 30, 1999 as compared to $194,326 as of December 31, 1998. The increase in cash is primarily due to the $8.0 million raised through the sale of our Series B preferred stock and an increase in other financing activities of $1.2 million, offset by cash used in operating and investing activities of $3.9 million and $1.8 million, respectively. Net cash used in operating activities for the nine months ended September 30, 1999 increased to $3.9 million from $386,000 for the same period in 1998. This increase was primarily the result of the $4.4 million net loss for the nine months ended September 30, 1999. Included in the net loss for the nine months ended September 30, 1999 was a $1.4 million gain on the sale of Girls On and an increase in non-cash depreciation, amortization and stock-based compensation expenses totaling $1.5 million. In addition, we recorded a net increase in cash resulting from the net changes in operating assets and liabilities of about $411,000 for the nine months ended September 30, 1999 compared to the same period in the prior year. Net cash used in operating activities decreased to $348,000 in 1998 from $1.1 million in 1997, primarily due to the reduction in the net loss from $1.2 million in 1997 to $538,220 in 1998. Net cash used in investing activities increased to $1.8 million for the nine months ended September 30, 1999 from $55,000 for the same period in 1998. This increase was the result of $2.2 million of capital expenditures, primarily equipment and software, partially offset by $386,000 in cash proceeds received from the sale of Girls On. Capital expenditures since inception have been $43,000 for the period August 15, 1996 (date of inception) through December 31, 1996, $229,000 and $65,000 for the years ended 1997 and 1998, respectively, and $2.2 million for the nine months ended September 30, 1999. Net cash provided by financing activities for the nine months ended September 30, 1999 increased to $9.2 million from $500,000 for the same period in 1998. Of this increase, $8.0 million of net proceeds were received through the sale of Series B preferred stock, about $651,000 was received from Lighthouse Capital Partners III, L.P. as proceeds from the sale of equipment previously purchased by us, which is now being leased pursuant to a lease financing and revolving loan security agreement that we entered into with Lighthouse on August 23, 1999, and $500,000 of short-term borrowings was received under a loan and security agreement we entered into with Lighthouse in August 1999. Net cash provided from financing activities decreased to $423,000 in 1998 from $1.5 million in 1997 due to the $1.5 million of proceeds received from the sale of Series A preferred stock in 1997, partially offset by the proceeds received in 1998 from a convertible note of $500,000. 28 34 During November and December 1999, we completed the sale of 3,787,801 shares of Series C preferred stock, resulting in net proceeds of about $38.7 million, after expenses. These proceeds will be used over the next twelve months to help fund our expected investment in strategically targeted online and offline marketing, to build brand awareness and drive additional traffic to our Web site. In addition, we plan to increase capital expenditures, primarily technical equipment and software, to significantly increase our marketing expenses and to increase our staff and infrastructure over the next several months. Our lease financing agreement with Lighthouse provides a lease line not to exceed $1,000,000 to fund eligible equipment purchases with an option to increase the line by $500,000. As of September 30, 1999, we had outstanding borrowings under the line of $651,023, bearing interest at 8%. In addition to the lease line, we entered into a loan and security agreement with Lighthouse. The agreement allows us to borrow up to $500,000 against certain eligible receivables. As of September 30, 1999, we had outstanding borrowings of the entire $500,000 under this agreement bearing interest at prime plus 1%. As additional consideration for these agreements, we have issued to Lighthouse a warrant to purchase 1,975 shares of Series B-3 preferred stock at an exercise price of $30.37 per share. We expect that the net proceeds from this offering and the proceeds received from the sale of Series C preferred stock, together with our available funds, will be sufficient to meet our operating and capital needs for the next 12 months, although there can be no assurance that we will not have additional capital needs prior to that time. If cash generated from our operations is insufficient to satisfy our business requirements, we may seek additional funding through public or private financings or other arrangements. Adequate funds may not be available when needed or may not be available on favorable terms. If additional funds are raised through the issuance of equity securities, dilution to existing stockholders may result. If insufficient funds are available, we may be unable to enhance brand awareness or to make capital expenditures necessary to support our business, either of which could seriously harm our business. 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 software used by many companies and governmental agencies may need to be upgraded to comply with such Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. STATE OF READINESS We have completed an assessment of the Year 2000 readiness of our operating, financial and administrative systems, including the hardware and software that support our systems. Our assessment plan consisted of the following steps: - quality assurance testing of our internally developed proprietary software; - contacting or researching readiness statements of our third-party vendors and licensors of material hardware, software and services that are both directly and indirectly related to the delivery of our services to our users; - contacting or researching readiness statements of our vendors of third-party systems; - contacting or researching readiness statements of our Infrastructure vendors; - assessing repair or replacement requirements; - repair and replacement; - implementation of the plan; and - creation of contingency plans in the event of Year 2000 failures. This plan includes the backup of all mission critical systems immediately prior to the New Year. 29 35 Over the last number of months, we have completed an audit of all of our systems and software. We have replaced systems or modified code where necessary. Our vendors of material hardware and software components, infrastructure, and systems have indicated that the products we use are currently Year 2000 compliant. We can not guarantee the compliance of our vendors and for this reason can not accurately predict costs associated with our vendors not being Year 2000 ready. These costs could be substantial and could have a serious adverse effect on our business and results of operations. COSTS TO DATE 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. To date, our costs have not exceeded $50,000. After the New Year, we do not anticipate that such expenses will be material. Such expenses, if higher than anticipated, could have a serious adverse effect on our business, results of operations and financial condition. RISKS We are not currently aware of any Year 2000 readiness problems related to our internally developed systems that would have a material adverse effect on our business, results of operations and financial condition. We can not guarantee that third-party software, hardware, or services that our systems rely on are Year 2000 ready. If at the turn of the New Year, these systems prove to not be Year 2000 ready, this could have a serious adverse effect on our business and results of operations. Since we are dependent on third party vendors to provide significant network services and equipment, a Year 2000 disruption of these services could cause our customers and users to consider seeking alternative providers or cause an immense burden on our technical support staff. Either of these reactions could have a serious adverse effect on our business, results of operations and financial condition. In addition, governmental agencies, utility companies, Internet access companies, third party service providers and others outside our control may not be Year 2000 ready. The failure by such entities to be Year 2000 ready could result in systemic failure, which could also prevent us from delivering our services to our customers, decrease the use of the Internet, or prevent users from accessing our Web site, which could have a serious adverse effect on our business, results of operations and financial condition. CONTINGENCY PLAN We have developed a Year 2000 contingency plan. This plan includes backups of all mission critical hardware and software, as well as a team that will monitor our hardware, software and third party services during the transition between 1999 and the Year 2000. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components. We have no elements of comprehensive income and the net loss reported in the statements of operations is equivalent to the total comprehensive loss. Effective January 1, 1998, we adopted SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way business enterprises report information about operating segments, as well as enterprise-wide disclosures about products and services, geographic areas and major customers. We operate in one segment in the United States. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. Generally, it requires than an entity recognize all derivatives as either an asset or liability and measure those instruments at fair value, as well as identify the conditions for which a derivative may be 30 36 specifically designed as a hedge. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. We do not currently engage or plan to engage in any derivative or hedging activities. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement requires companies to capitalize qualifying computer software costs which are incurred during the application development stage and amortize them over the software's estimated useful life. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. We adopted the requirements of SOP 98-1 as of January 1, 1999. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We maintain our cash equivalents in a money market fund. As of September 30, 1999, all of our cash equivalent investments will mature in one year or less (see note 2 to the notes to our financial statements). Bolt did not hold any derivative financial instruments as of September 30, 1999, and has never held such investments. Due to the short term nature of our investments, we believe we have no material exposure to interest rate risk arising from our investments. Therefore, no quantitative tabular disclosure is required. Currently, all of our revenues and expenses are denominated in U.S. dollars and as a result, we have not had any exposure to foreign currency rate fluctuations. 31 37 BUSINESS OUR BUSINESS Our Web site, Bolt.com, is a leading online destination that targets 15-20 year old teens. We feature teen-focused content generated primarily by our members, a platform for teens to interact with other teens and tools that allow our members to personalize their user experience. Our site enables members to create and actively participate in what we believe is one of the most teen-relevant environments found anywhere. We have designed Bolt.com to facilitate communication among teens, to empower them to express their opinions and ideas as a community, and to shop in an online store that our members help create. While the growth of our site to date has been driven largely by word-of-mouth, we are also building brand awareness through relationships with America Online, MSN Hotmail, Yahoo! and Lycos. As a result, our member base has grown to more than 1.5 million as of December 1, 1999 from about 340,000 as of December 1, 1998. According to Media Metrix, in October 1999, Bolt.com was the seventh "stickiest" site of all the sites on the Internet, as measured by minutes per user per month. According to Nielsen I/PRO, we had over 141 million page views and over 6 million user sessions in October 1999 as compared to 28 million page views and 1.4 million user sessions in December 1998. By comparison, Seventeen magazine, a leading teen-focused magazine which has been in existence since 1944, has a circulation of about 2.4 million. Based on the following factors, we believe that we will be able to grow our business in a rapid and cost efficient manner: - Global demographic: globally, teens share many interests and needs, which should allow us to readily expand on an international basis. - Member-generated content: substantially all of our content is generated by our members, minimizing the need for us to hire additional staff or pay third parties to generate additional content. - Critical mass: as one of the first entrants in this market, we have developed a large and loyal member base, which we believe is an important asset to continue our growth. We believe we have created a leading online teen destination and generated one of the largest databases of teen opinions and preferences in the world. With Bolt.com, we generate revenues through: - fees from the sale of advertising and sponsorships on our site; - e-commerce sales through our recently opened online Bolt Store; and - transactional fees paid by other retailers and e-commerce companies that promote their products and services on our site. In the future, we expect to generate revenues through market research fees from companies that are interested in learning more about our highly-targeted teen audience. INDUSTRY BACKGROUND GROWTH OF THE INTERNET, E-COMMERCE AND ONLINE ADVERTISING The Internet has emerged as a significant global communications medium, enabling millions of people to share information, communicate and conduct business electronically. Both the number of Internet users and the amount of time they spend online are growing. This growth is the result of a number of factors, including: - an increase in the number of computers in the home, schools and workplace; - improvements in computer network infrastructure; - more convenient, faster and less expensive Internet access; - advances in computer and modem technology; 32 38 - an increase in public awareness of the benefits of using the Internet; and - the development of easy-to-use interfaces. The rapid adoption of the Internet represents a significant opportunity for businesses to market and sell products and services online and for advertisers and businesses to capitalize on the Internet's interactive nature by marketing their products to highly targeted audiences. The success of Internet advertising can be attributed to the following factors: - Internet advertising offers advertisers a flexible way to target their messages and measure their results; - Internet advertisers can tailor their messages to specific groups of consumers; - Internet advertisers can change advertising content frequently in response to market factors, current events and consumer feedback; and - Advertisers can more accurately track the effectiveness of their advertising messages based on the rate at which consumers directly respond to their advertisements through "click-throughs" that their advertisements receive. GROWTH OF TARGETED ONLINE CONTENT AND COMMUNITY SITES As the Internet has grown, users and advertisers have started seeking more targeted and compelling content, information, expression and interaction. Just as cable television channels, such as MTV and ESPN, have become more popular by aggregating content targeted towards a specific audience, online content and community sites that provide a demographically targeted environment have emerged. Like the major television networks that provide programming across many demographic segments, the major online portals typically provide a broad range of content and services without a specific demographic focus. Targeted online communities provide users with the ability to access relevant content and to interact directly with other people with similar interests. Registered users, or members, are often eligible for additional services from a site, such as customization options or access to premium content. As a site learns more about its members as they register and spend more time online, it can tailor its features to meet the needs and preferences of its users and members. This information also provides advertisers and merchants with more focused demographic and psychographic information that can be used to maximize direct marketing opportunities. TEENS ARE BECOMING AN INCREASINGLY IMPORTANT AUDIENCE TO ONLINE ADVERTISERS AND MERCHANTS Significant advertising opportunities exist on a teen-focused Web site. Teens are more difficult than adults to reach with targeted advertising because teens generally do not subscribe to magazines in large numbers, and they tend to watch less television and lead more active lifestyles than adults. While teens are flooded with literally thousands of broad-based marketing messages every day from other traditional sources, such as billboard and radio advertising, we believe they are largely unreceptive to advertising messages that are not personally relevant. We believe that marketing products and services to teens online through a site with contextual, editorial information focused on them is more effective than using traditional marketing methods. The United States Census Bureau projects that the number of individuals between the ages of 10 and 24 will grow to 63.1 million in 2010. This growth rate is estimated to outpace growth of the general population by nearly 10%. In addition, teens also possess substantial disposable income. eMarketer, a market research firm, estimates that over $109 billion is spent annually by teens in the United States alone. Teens are often early adopters of new technologies and are significantly involved with the Internet. According to eMarketer, about 57% of 13 to 17 year olds use the Internet regularly, as compared to about 36% of 18-34 year olds, 31% of 35-54 year olds and 17% of individuals over the age of 55. eMarketer also estimates that the number of 13 to 17 year olds who regularly access the Internet will rise to 12.4 million by 2000 from 9.1 million in 1998, an increase of over 36%. eMarketer estimates that 13 to 17 year olds currently spend an average of 8.5 hours online per week as compared to 6.7 hours for individuals over the age of 18. This creates a significant opportunity to both sell products and advertise to teens online. eMarketer also estimates that online commerce sales to 13 to 17 year olds will increase to $1.4 billion in 2002 from $161 million in 1999. 33 39 THE NEED FOR A RELEVANT INTERACTIVE FORUM FOR TEENS We believe that teens have a desire to express themselves when dealing with issues and problems affecting their lives, but they are often unable or unwilling to talk about these issues with adults or discuss them face to face with their friends. Accordingly, they require an interactive forum that will fill the need that teens have to anonymously express their ideas and opinions about teen-related issues to their peers. While traditional media is not suited to meet this need because it is not interactive, the Internet is particularly appropriate because it is currently the only mass medium that allows for real-time interactive communication. Accordingly, there appear to be substantial market opportunities for an online forum that combines content and community that is relevant to the lives of teens. The major Internet portals, however, have not seized this opportunity for the following reasons: - Most portals are generally not contextually relevant. These sites are designed to appeal to a broad audience, and therefore, we believe they have not created an environment that is contextually relevant to teens' needs and buying habits; - Major portals do not effectively address teen issues. We believe they do not effectively address the issues that are relevant to teens, such as peer, parental and school-related pressures, and issues revolving around friendship, relationships, sexuality and development; and - Major portals do not provide teen-relevant interactive services. We believe the major portals do not provide the kind of targeted interactivity and services that teens seek. THE BOLT SOLUTION Bolt.com is one of the most well-known and widely visited Web sites for teens on the Internet. We provide a site where teens can congregate in an environment that caters exclusively to their interests and promotes their participation and recognition. With Bolt.com, we generate revenues from advertising and sponsorship sales and e-commerce transactions, and we expect to generate revenues from market research fees in the future. WHY TEENS USE BOLT We empower our members. Bolt.com is a site that empowers our teen-focused audience to express opinions and ideas regarding the ever-changing issues and trends that impact their lives. Our members communicate on our site and provide content for our site using their chosen Bolt Member IDs. This ensures anonymity and encourages frank and open discussion. Our members provide most of the content of Bolt.com, unlike other sites where the non-teen staff or third parties generate most of the content. We have created a process where our members are, in effect, a collection of hundreds of thousands of "freelance-writers" from around the world who continually contribute content such as news reports, music and movie reviews, product reviews and survey questions and answers. Our producers then gather, edit and filter these submissions and feature items that ultimately provide Bolt.com with its content. Accordingly, we do not generate content based on what we believe our audience is interested in; rather, we let our teen audience direct our content. Our members provide the content, and we provide the processes, framework, tools, utilities, and applications that empower teens around the world to have a voice regarding what is important in their lives. We provide personalized tools. Our more than 1.5 million members can use our personalized tools to help them manage their lives, making the site more valuable to them the more they use it. Through tools such as our Bolt Notes and Diaries, User Profiles and a Personal Calendar our members can personalize our site. In addition, through our member program, we gather a significant amount of data concerning the preferences and dislikes of our members, which should allow our site to be continually relevant to them. This data can be used to target content as well as advertising information toward particular members, while maintaining the confidentiality of our members (Bolt does not give out information about members without a member's consent). We believe our registered member base creates member loyalty and leads to repeat site visits, referrals and higher quality member-generated content. 34 40 We offer member-directed online shopping. In September 1999, we launched the online Bolt Store, which offers products that our members have told us they want to buy. We allow our more than 1.5 million members to help create the Bolt Store by asking them, through surveys, polls and other interactive tools, which products they would like to buy. We then offer these items for sale and use third-party fulfillment sources to drop-ship products that are purchased at the Bolt Store. Currently, the Bolt Store offers over 1,000 products, including apparel, games, technology, sporting gear and other items. WHY MARKETERS ADVERTISE ON BOLT.COM We have developed a site that we believe is highly desirable to advertisers and have established relationships with over 100 new advertisers over the past nine months. We believe we have developed an attractive platform for advertisers for the following reasons: - Audience. We provide a highly-targeted, growing and demographically-focused audience. - Size. We have a large and active teen member base, as demonstrated by the over 141 million page views and over 6 million user sessions in October 1999. - Contextual Relevance and Targeting. Marketers can target their messages in a way that is particularly relevant to our members' interests. - Member Loyalty. According to Media Metrix, in October 1999, Bolt.com was the seventh "stickiest" site on the Internet, as measured by minutes per user per month. We offer advertisers a variety of advertising and sponsorship opportunities to allow them to take advantage of these factors, including: - Banner advertisements; - Integrated content sponsorships; - Pop-up advertisements; - Section sponsorships; - A rotating "viewer window"; - HTML-based and text-based advertisements in targeted emails; and - Opt-in registration boxes, that allow members to request information from selected advertisers. Because of the substantial amount of data we collect on individual members, advertisers are able to purchase highly-targeted advertisements that specifically address their marketing needs. For example, if an advertiser wishes to reach only 18 year-old men in urban areas who have indicated that they like snowboarding, we can deliver a marketing message specifically to those members. While this is efficient for our advertisers, it is also relevant to our members, who are seeking messages or advertising that specifically address their needs and do not want to be inundated with advertising messages not relevant to their particular interests. We plan to continue this advertising methodology in an effort to become a leader in one-to-one marketing. During the past year, we have also focused on offering our members the ability to select specific advertisers from whom they wish to receive more information. In addition, while banner advertisements are the accepted advertising method for many advertising agencies, advertisers are realizing that the Internet provides an excellent opportunity to add more value to the user experience through integrated sponsorships. For example, Neutrogena sponsors an interactive question and answer section on Bolt.com where content focused on health and beauty tips is integrated with Neutrogena's advertisements. PROVIDING VALUABLE DATA ON THE TEEN DEMOGRAPHIC The data and information we gather about our highly-focused audience can be extremely valuable to companies that wish to target this demographic group. We have created a proprietary environment that not 35 41 only provides a compelling online experience for teens, but also generates a tremendous amount of data about our members. We collect this data both explicitly, through member-generated profiles, poll responses and survey results, and implicitly, through click-stream analysis, purchasing history and other site activity. We are able to provide valuable information relating to our specific demographic group to advertisers without compromising the actual identities of our members. Our members know and appreciate this fact, and because of it they are very forthcoming about their likes, dislikes and opinions. We believe our ability to collect data and extract insights about teens' preferences in the form of market research reports to companies will generate additional revenues in the future. We also are currently selling the ability to survey our audience through a member "opt-in" program on the site, and we are significantly ramping-up our data-mining capabilities to provide a unique service to those wishing to collect market research on this unique and elusive demographic. THE BOLT STRATEGY Our goal is to be the leading media company focusing on teens. We intend to achieve this goal by pursuing the following strategies: CONTINUE TO BUILD BRAND AWARENESS. We believe that continuing to build brand awareness for our site is critical to attracting and expanding our global member base and customer loyalty. Our strategy is to enhance the recognition of the Bolt brand among our members, other users, customers and strategic partners through: - Traditional and Internet Advertising. We will continue to use traditional advertising, which may include print, television and radio, not only to continue to reach more advertising customers but also to publicize our brand to potential users. Also, we will use targeted online advertising on other Web sites, like Yahoo! or MSN, to promote our brand name to existing and potential members. - Non-Traditional Events. We will continue to promote our brand at events such as rock concerts, sporting events, and other events where teens gather. For example, in the summer of 1999, we conducted the "Power Trip," in which a Bolt-branded trailer traveled to over 50 events to encourage teens to discuss teen empowerment in their own communities. Tens of thousands of teens registered for our site through this event. CONTINUE TO DEVELOP AND EXTEND OUR RELATIONSHIPS WITH STRATEGIC PARTNERS AND ADVERTISERS. We intend to enhance our brand name and increase our customer base by expanding the number and type of strategic alliances and advertising relationships we have with online service providers and portals like America Online, MSN Hotmail, Yahoo! and Lycos, as well as traditional media outlets and retailers. In addition, we intend to strengthen our relationships with advertisers by providing more targeted advertising and sponsorship opportunities to our partners. We also intend to invest in additional reporting tools to provide unparalleled service in tracking results of promotional and advertising campaigns on the site. ENHANCE OUR ONLINE FEATURES. We will continue to develop our content, community and e-commerce product offerings to drive teen traffic to our Web site. We are always looking for innovative and exciting interactive tools and new technologies to enhance our users' experience. For instance, we intend to develop the ability to access many of the features and functionality found on Bolt.com by as many electronic means as possible, including wireless phones and pagers. EXPAND OUR E-COMMERCE OFFERINGS. We intend to continue to make e-commerce an integrated and valuable part of our Web site. The Bolt Store currently offers over 1,000 products for both men and women, and we intend to significantly increase the number of products we offer over the next year. In addition, we plan to integrate global shopping opportunities into the Bolt Store for our users outside of the United States who seek access to American products. DEVELOP A CO-BRANDED DEBIT CARD. We are planning to develop, with a strategic partner, the Bolt Card, a co-branded financial resource for teens that will not only provide them with a non-credit based means of conducting transactions at the Bolt Store but will also allow them to make purchases outside of the Bolt Store. 36 42 EXPAND OUR INTERNATIONAL PRESENCE. We believe teens throughout the world share similar interests and face similar issues and problems. Therefore, we plan to launch localized versions of our Web site in strategic locations throughout the world, focusing on countries that have large teen populations with a significant Internet presence. Initially, we intend to target countries such as the United Kingdom, France, Germany, Japan, Italy, and Mexico. We plan to develop local sales staffs and create hosting operations, but intend to leverage our domestic production facility to maintain economies of scale as we focus on additional countries. OUR WEB SITE The following table details some of the functions and tools we currently offer on Bolt.com: SERVICE/FUNCTION DESCRIPTION Member ID/Profile............. Each member chooses a Bolt member name and all communications on our site are accomplished using that name to ensure anonymity among our members. Our members are encouraged not to give their real names to other members. The member profile contains a member's basic information including age, sex, birthday, state, country if outside the U.S., and preferences. This is the basis for our database profile of each member, and provides members, as well as our advertising, commerce, and market research clients, with core data about the likes and interests of each member without disclosing any confidential personal information about the member. Tagbooks...................... Allows individual members to create personal questions and polls within their Member Profiles. In order to access the Tagbooks of a member and answer questions or leave messages, you must access that member's profile. This has become one of the most popular features of Bolt.com. In addition, because only members can create Tagbooks, we have found that this feature drives member registration. Bolt Notes.................... Allows members to leave a message for any Bolt member using a proprietary application that combines instant messaging capabilities with email. Bolt Boards................... Provides members with a forum to discuss almost any topic with each other on the Boards, ranging from Pro Wrestling to Alternative Religions. Bolt Boards are the main message boards on Bolt.com. Bolt Store Product Reviews.... Allows our members to comment on products for sale in or that they have purchased in the Bolt Store. This provides teens with peer-generated information to support their decision making for product purchasing. Bolt Email Service............ Provides every member with access to Internet email through the Bolt.com address. Currently, over 600,000 of our more than 1.5 million members have elected to subscribe to this service. Bolt Homepages................ Allows members to categorize and create their own Web pages that we host free of charge. 37 43 Polls......................... Allows our members to suggest poll topics. These poll topics are reviewed by our producers and highlighted in relevant channels where other members can respond to the poll questions. A member who responds to a poll question gets immediate feedback on how other members have responded. Friends....................... Enables members to generate listings of other Bolt members that the member chooses. When members access our site, they are told which of their Friends are also on the site. This facilitates online communication for our members. Member Search................. Provides members with the capability to find and contact other members with similar likes and/or dislikes. Personal Calendar............. This Web-based calendar allows members to set up reminders and appointments, including times to meet with friends online. Chat.......................... Provides real-time communication in "rooms" with specific topics, such as movies, music, style and religion. Also includes rooms for French, German, Dutch and Spanish speakers. Bolt Zap...................... Allows members to send instant messages to other online members and Friends, as well as to anyone else on the Internet. Cards......................... Allows our members to email "virtual cards" to other members with personalized messages. Horoscopes.................... Provides proprietary horoscopes targeted to our teen members and provides interactive feedback on the horoscopes from members. Diaries....................... Allows our members to create a digital diary that does not run the risk of being found by mom, dad or a sibling. Members have the option of allowing others to see certain entries if they desire. ADVERTISING SALES As of October 31, 1999, we had a direct advertising sales force comprised of nine sales people, in addition to our Director of Advertising and our Vice President of Ad Sales. This group is located primarily in New York, and we have sales offices in Chicago and Los Angeles and plan to open offices in Detroit and San Francisco in 2000. Our sales force has been successful in attracting a diverse group of advertisers by promoting the value of our teen audience and teen-focused Web site environment. During 1999, our sales force has entered into contracts with over 100 advertising customers. These are some of our customers who advertise on or sponsor some of the content of Bolt.com: COMMUNICATIONS AND TECHNOLOGY ENTERTAINMENT AND MEDIA HEALTH AND BEAUTY BellSouth Bertelsmann/BMG Music Clinique Hewlett Packard MGM Pictures Coty Intel MTV Gillette Microsoft Showtime Johnson & Johnson Sprint Sony Pictures Entertainment Smith Kline Beecham FASHION AND RETAIL FOOD AND BEVERAGE AUTOMOTIVE Artcarved Coca Cola Ford Motor Company Converse Dr. Pepper/7Up Toyota J.C. Penney
38 44 We currently derive, and expect to continue to derive, a substantial portion of our revenues from advertising sales. We offer advertisers the following advertising options: - Banner advertisements. An advertiser may purchase banners, which are graphical advertisements with the advertiser's logo, for placement throughout our site or in a specific area within our site. - Integrated content sponsorships. Advertisers may also sponsor a specific area or feature of our site. For example, Gillette currently sponsors a feature called "Lookin' Good" that features ways that teens deal with their personal appearance. - Pop-up advertisements. Advertisers may choose to have an advertising window "pop-up" following certain actions by members on Bolt.com. For instance, after a member responds to a poll question about a pop star, a window may pop-up advertising a new artist or musician. - Section sponsorships. Advertisers may also pay to own a premiere position within a particular section or sections of Bolt.com. For example, Emusic.com is currently a section sponsor of the Bolt.com music section. - A rotating "viewer window." Our front page contains a rotating viewer window that displays advertisements and promotes new content on the site. Because this window is constantly changing and is always visible to members, it provides our advertisers with an excellent way to catch the attention of our members. - HTML-based and text-based advertisements in targeted email. We send over 4.0 million targeted HTML-based emails every week. We provide advertisers the opportunity to place a graphic advertisement within these emails. In addition, we also send over 1.0 million text-based targeted emails every week. Advertisers can choose to include a textual advertisement in these messages. Because of our ability to target these emails, the advertisements tend to be more relevant to the recipient. - Opt-in registration boxes. When new members register, they have the opportunity to "opt-in" or request information about products or services from certain advertisers. These advertisers, such as BMG Music, pay a fee for each new member that opts-in for information about their products or services during registration. Thousands of new members register for our site every day. E-COMMERCE AND THE BOLT STORE In September 1999, we launched the Bolt Store, which we believe is one of the largest collections of teen-focused product offerings on the Internet. In creating the Bolt Store, we have utilized our relationships with our more than 1.5 million members by asking them, through surveys, polls and other interactive tools which products they would like to buy through our Web site. We allow our members to help create the Bolt Store by telling us what brands and products they like and do not like, and how their lifestyles are impacted by those products. We listen to their requests and attempt to facilitate their needs, by offering a number of these products through the Bolt Store. By using member input to create the Bolt Store, we shift the model of traditional retailing from promotion-based sales (a "push" model) to one where our members choose the products they want (a "pull" model). The Bolt Store currently contains over 1,000 products that our members help select, including apparel, games, technology, sporting gear and other items. We expect to significantly increase the number of products we offer over the next year. Because we have a valuable database of aggregate and individual product preferences from the millions of teens that visit Bolt.com on a monthly basis, we expect that the Bolt Store will become an effective example of one-to-one marketing on the Internet. Because of this, we believe we will be able to sell more effectively than traditional retailers and other online retail sites that are solely focused on commerce because our members are telling us and each other what brands and products they like and do not like, and how their lifestyles are impacted by those products. Within the Bolt Store, we manage all ordering, returns, and product selection. We have carefully selected several fulfillment partners to supply the products from their warehouses and drop-ship orders to our customers after receiving an order confirmation from us. We take title of inventory from the shipper; however, 39 45 products generally are shipped the same day the order is fulfilled, resulting in our having little, if any, inventory. Our customers are given a number of shipping options, all of which are handled by standard shipping franchises such as UPS and Federal Express. We also generate e-commerce revenues by charging transaction fees to retailers and e-commerce companies that wish to use our site to promote their products and services as well as to purchase premium positioning on our site. We facilitate contact between our members and many of these companies by providing a link from Bolt.com to their Web sites. Generally these companies pay us either a flat fee, a fee based on retail sales to our members or a combination of the two. We currently have e-commerce transaction fee arrangements with companies including CDNow, Lids and InfoBeat. MARKET RESEARCH We intend to utilize the valuable data and information we collect from our teen members in order to make market research an important part of our business. We intend to offer to teen-focused marketers a variety of products ranging from online surveys to complete trend reports within the scope of our Web site. These products will be sold as components of our advertising business. We have begun to provide market research to a number of our advertising customers, including a major apparel manufacturer researching the latest trends in the jeans market and Artcarved, a leading manufacturer of class rings. Through surveys and polls on Bolt.com, Artcarved was able to collect research information on how teens perceived class rings, the growth potential of the industry, and how teens intend to purchase rings (i.e., through in-school representatives or at jewelry stores). CUSTOMER CARE Site support. Users who are unfamiliar with our site can click on the "help" button on Bolt.com. This feature describes all of our Bolt.com features and services and explains to the user how to use them. In addition, our members can post messages on our help boards and our Bolt staff will respond. Finally, users can also send emails to Bolt Support, and our staff generally responds within one day. Bolt Store customer support. We provide live customer support to our Bolt Store customers 24 hours per day, seven days per week. We currently outsource this service to a third-party provider but we expect to provide this service in-house in the future. Our Bolt Store customers can obtain live customer support at any time simply by clicking through to a customer service representative and "chatting" online. In addition, our customers can obtain order processing, shipping status and other account information online at Bolt.com. MARKETING AND PROMOTION We employ a variety of online, offline and non-traditional marketing methods designed to: - build our brand awareness; - drive traffic to our site; - build our registered member base; and - minimize our member and customer acquisition costs. To increase our brand recognition online, we maintain strategic relationships with leading Internet portals and Web sites, including America Online, MSN Hotmail, Yahoo! and Lycos. We also use traditional advertising such as print, television and radio promotions. We believe that promotion in publications such as the New York Times and Advertising Age is particularly effective in reaching potential sponsors. We also intend to launch an advertising campaign in print, radio and television that will promote Bolt.com as a place for teens to be empowered through having a collective voice. We intend to choose media that will allow us to reach a significant portion of the teen market, including alternative and top 40 radio formats, teen magazines and television programming focused on the teen market. In addition, we promote our brand with non-traditional marketing promotions at events such as rock concerts, sporting events, and other gatherings of interest to teens. For example, in the third quarter of 1999, we conducted the "Power Trip," during which a Bolt-branded Airstream trailer traveled to over 50 events to encourage teens to discuss teen empowerment in their own communities. Tens of thousands of teens registered 40 46 for our site through this event. We are also a sponsor of the Gravity Games in Providence, Rhode Island and Mammoth Mountain, California which are produced by NBC and Petersen Action Sports Publications. We receive a sponsorship placement at the Gravity Games and ad placement in designated Petersen magazines, in return for a Gravity Games featured placement on Bolt.com. A Gravity Games page is contained within the Sports Section of Bolt.com and is promoted by banners and buttons as well as direct mail newsletters to Bolt.com members. BOLT.COM STRATEGIC RELATIONSHIPS We believe that forming strategic alliances with major online portals and service providers can increase our brand awareness and be a source of significant new Web site traffic. We currently have strategic relationships with the following: - America Online. We are the only teen community partner for the AOL branded service's teen message boards and teen chat rooms. We entered into a 26 month agreement with AOL on November 16, 1999. We will provide management of AOL's teen community tools, including the teen message boards and chat rooms. In return, we will receive brand exposure because we are entitled to establish and maintain a linked, customized, user-generated content environment at aol.bolt.com, and all teen-focused message boards, chat rooms, and teen community areas within the AOL service, including aol.bolt.com, will be Bolt branded. We will also have the exclusive ability to sell advertising on aol.bolt.com. In addition, we pay a fee for placement in the AOL shopping service and on teen targeted sites on the AOL network, including Spinner, WinAmp, Netscape, Compuserve and MovieFone. - MSN Hotmail. We provide teen content for the MSN Hotmail WebCourier Newsletter Program. We have an agreement with Hotmail which expires on August 27, 2000. This relationship has been a key traffic driver for us and an important service for Hotmail's teen user base. The Bolt newsletter is delivered twice per week to over 1.9 million Hotmail users who elected to receive our content when they registered with Hotmail. Bolt pays Hotmail a slotting fee and a minimal mail postage per mailing fee after the first 1.5 million newsletters have been mailed. In addition to the WebCourier Program, we also advertise on the MSN Shopping Channel, MSN Hotmail and the MSN service targeted to teens. We can include advertising in the newsletter and are entitled to all revenues generated from the sale of these advertisements. Our current agreement with Hotmail runs through August 27, 2000. - Yahoo!. We are a co-branding sponsor of the Yahoo! Teen Chat Channel, a popular area on Yahoo! for teens. This agreement, which was entered into in September 1999, has a nine month term. As a co-branding sponsor of the Yahoo! Teen Chat Channel, we are the only teen-focused site that has a fixed banner placement on the top of the entrance page to Yahoo! Teen Chat. We also receive a content placement on the left side of this page that changes continually with new Bolt content. In addition, we receive shopping related promotions and receive a number of teen targeted banner advertisements on the Yahoo! network. We pay Yahoo! a one-time fee and are guaranteed a certain number of impressions. - Lycos. We provide teen-generated content for Lycos' MailCity email Newsletter. We entered into an agreement with Lycos in August 1999. This agreement has a one year term that automatically renews unless either party gives 30 days written notice of its decision not to renew. This program allows us to deliver HTML-based email to over 350,000 teens who have specifically expressed interest in receiving our mailing. This mailing is delivered once per week every Tuesday. We include advertising and sponsorships in the newsletter and are entitled to all revenues generated from the sale of these advertisements. - Ford Motor Company. On November 17, 1999, we entered into a partnership with Ford Motor Company to develop Cars.bolt.com, a co-branded destination on our site, that we expect to launch in January 2000. Cars.bolt.com will feature auto-related content geared towards teens, including personalized classified advertisements, an automotive dictionary, teen-focused buyer guides, information on how to buy and lease cars and an interactive drivers education seminar called "Behind the Wheel" that will help our teen members prepare for their driving license tests. In addition, Cars.bolt.com will feature an interactive Ford-branded design studio called "Design Your Own 41 47 Dream Car." With this feature, our members will use a drag and drop graphical interface to design cars and submit their designs to Ford. Under this agreement, we will also provide quarterly market research studies to Ford. This agreement continues through December 31, 2002, but may be terminated on December 31, 2000 or 2001 by either party. COMPETITION The market for Internet traffic, registered users and Internet advertising is new and rapidly evolving, and competition is intense. With no substantial barriers to entry, we expect that competition will continue to intensify. We believe that the primary competitive factors in creating community on the Internet and attracting advertisers are: - functionality; - brand recognition; - user affinity and loyalty; - the ability to target a specific demographic; - variety of value-added services; - ease-of-use; - quality of service; - reliability and critical mass; and - the overall cost-effectiveness of the advertising medium. We compete with sites, and sites with areas, that are primarily focused on targeting teens online. These sites include MTV Online and the Yahoo! Teen Chat area. We also compete with retailers that have moved to the Web such as Alloy Clothing and Delia's. We will likely also face online competition in the future from: - search engine providers; - content sites; - commercial online services; - sites maintained by Internet service providers; - traditional media companies such as MTV, Disney and NBC, many of which have recently made significant acquisitions or investments in Internet companies; and - other entities that attempt to establish communities on the Internet by developing their own or purchasing one of our competitors. We also compete with traditional forms of media, such as newspapers, magazines, radio and television, for advertisers and advertising revenues. TECHNOLOGY AND SYSTEMS We rely almost exclusively on a variety of third-party products for our hardware and software. We operate our network to ensure maximum uptime, to obtain, preserve and analyze customer data, and to enhance our members' experience. Our goal is to maintain the technological infrastructure required to handle heavy traffic, e-commerce and complex graphics on our site. We currently house our servers at Exodus Communications in New Jersey. Exodus maintains an environmentally controlled data center with multiple communication lines and uninterrupted power. We believe that our infrastructure conforms to the latest industry standards. We are also in the process of installing additional servers. If a server fails, we believe that we have enough back-up servers to ensure that our service interruption would be minimized. Our infrastructure is scalable in that as additional capacity is needed, additional servers can be easily added. We are also planning to expand our server system to multiple data centers. Currently, a complete failure at our data center would prevent us from delivering our services to our customers and prevent users from accessing our Web site. 42 48 We also run weekly full backups of all of our servers, as well as daily incremental backups of these same machines. These tape backups are stored off of the premises. TRADEMARKS AND INTELLECTUAL PROPERTY We use the following trademarks for which applications in the United States Patent and Trademark Office are pending: "Bolt," our logo, "Banned On," "Bolt Notes" and "Bolt Reporter." We also have trademark and domain name applications pending in other countries. GOVERNMENT REGULATION We are subject to various laws and governmental regulations relating to our business. Although there are currently few laws or regulations directly applicable to online services or the Internet, the increasing popularity and use of the Internet might cause additional laws and regulations to be adopted. These laws and regulations currently cover or may cover in the future issues including the following: INTERNET PRIVACY The Children's Online Privacy Protection Act of 1998, which was enacted by the United States Congress on October 21, 1998 and for which the Federal Trade Commission issued its final regulations on October 20, 1999, regulates the collection, use, and/or disclosure of personal information obtained from children under the age of 13. Under the provisions of this Act, which becomes effective on April 21, 2000, Web sites catering to children will be required to: - provide notice on their Web site and to parents of children under the age of 13 with notice of what information is being collected, how the site uses the information, and the Web site's practices regarding disclosures of information; - obtain verifiable parental consent for the collection, use and/or disclosure of their children's information, and allow parents to terminate their consent at any time; - provide parents an opportunity to review the information collected from their children; and - refrain from conditioning a child's participation in a game on the child revealing more information than reasonably necessary to participate. We do not collect information from children under age 13 and therefore do not need to take any specific actions in order to comply with these regulations. However, if we discover that a Bolt member about whom we have collected information has misrepresented his or her age and is in fact under age 13, or that a child under 13 has disclosed personal information on our bulletin boards or in any other public forum on our site, we will have to either (1) remove that person as a Bolt member, or (2) comply with the Federal Trade Commission regulations under the Act. It is important to our members that we protect their privacy. We use password protection and member IDs to ensure anonymity among our members. In addition, we do not sell or distribute information about the identities, preferences or page views of individual members without their permission. We do disclose certain information to third parties, with our members' permission, in connection with product promotions and special programs in which members elect to participate. The market research data that we sell to third parties consists of trend information about various segments of our members; for example, what certain types of users like to do in their spare time or which of two products our members prefer. While we believe that we currently adequately provide for our members' privacy, our current programs may not conform to legislation or regulations adopted in the future by the Federal Trade Commission or other governmental entities. In addition, if unauthorized persons were able to penetrate our security and gain access to, or otherwise misappropriate, our members' personal information, we could be subject to liability. Such liability could include claims for misuses of personal information, such as for unauthorized marketing purposes or unauthorized use of credit cards. These claims could result in litigation which could require us to expend significant financial resources and divert management's attention from operations. 43 49 The European Union adopted a Directive which became effective in October 1998 that imposes restrictions on the collection and use of personal data. Under the Directive, European Union citizens are guaranteed the right of access to their data, the right to know where the data originated, the right to have inaccurate data corrected, the right to recourse in the event of unlawful processing of information and the right to withhold permission to use their data for direct marketing. The Directive could affect U.S. companies that collect information over the Internet from individuals in European Union member countries and may impose restrictions that are more stringent than current Internet privacy standards in the United States or our own privacy policies. The Directive does not, however, define what standards of privacy are adequate. As a result, the Directive might adversely affect the activities of entities, including Bolt, that engage in data collection from members in European Union member countries. INTERNET TAXATION A number of legislative proposals have been made by federal, state, local and foreign governments that would impose additional taxes on the sale of goods and services over the Internet, and some states have taken measures to tax Internet-related activities. Although in October 1998 Congress placed a three-year moratorium on state and local taxes on Internet access or on discriminatory taxes on electronic commerce, existing state or local laws were excluded from this moratorium. Further, once this moratorium is lifted, some type of federal or state taxes may be imposed upon Internet commerce. Such legislation or other attempts at regulating commerce over the Internet may cause sales at the Bolt Store to decrease, which would affect our business. DOMAIN NAMES Our domain names are our Internet "addresses." Domain names have been the subject of significant trademark litigation in the United States. We have applied for registration of certain domain names in the United States and foreign countries. Third parties might bring claims for infringement against us for the use of these domain names. Moreover, because domain names derive value from the individual's ability to remember such names, it is possible that our domain names could lose their value if, for example, members begin to rely on mechanisms other than domain names to access online resources. The current system for registering, allocating and managing domain names has been the subject of litigation and of proposed regulatory reform. Our domain names might lose their value, and we might have to obtain entirely new domain names in addition to or instead of our current domain names if such litigation or reform efforts result in a restructuring of the current system. JURISDICTION Due to the global reach of the Internet, it is possible that the governments of other states and foreign countries might attempt to regulate our activities or prosecute us for violations of their laws. This could seriously affect our business. In addition, because our products and services are available over the Internet anywhere in the world, multiple jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each of those jurisdictions. Our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties for the failure to qualify. It is possible that state and foreign governments might also attempt to regulate our transmissions of content on our Web sites or prosecute us for violations of their laws. State or foreign governments might allege or charge us with violations of local laws, we might unintentionally violate these laws, and these laws might be modified, or new laws might be enacted, in the future. 44 50 EMPLOYEES As of December 6, 1999, we employed a total of 88 full-time employees in the following areas: - product development; - technology; - sales and business development; - e-commerce; - marketing; - market research; and - finance and administration. In addition, about 11 persons provide services to us pursuant to consulting and/or freelance agreements. To support our anticipated future growth, we expect to hire additional employees, particularly in the areas of sales and marketing. None of our employees is represented by unions, and we believe our relations with our employees are good. FACILITIES Our principal offices are located in about 11,500 square feet of leased space at 304 Hudson Street, New York, New York 10013. The lease for this space expires February 27, 2007. As we expand, we expect that suitable additional space will be available on commercially reasonable terms, although no assurance can be made in this regard. We also currently lease a small office in Chicago, Illinois pursuant to a lease that expires on December 31, 2000 and a small office in Los Angeles, California pursuant to a lease that expires on January 31, 2000. LEGAL We are not currently involved in any material legal proceedings, nor, to our knowledge, are any threatened. 45 51 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information concerning our directors, executive officers and key employees as of December 6, 1999:
NAME AGE POSITION ---- --- -------- Daniel A. Pelson(2)....................... 33 President, Chief Executive Officer and Director Jane Mount................................ 28 Executive Vice President of Product Development Albert G. Pastino......................... 57 Chief Financial Officer Frank Harrison............................ 38 Senior Vice President of Finance Mark Stutzman............................. 30 Chief Technology Officer Jeanne Sachs.............................. 34 Vice President of Ad Sales Justin Nesci.............................. 30 Vice President of Business Development Alexa Tobin............................... 31 Vice President of Commerce David Titus, Ph.D......................... 45 Director of Business Intelligence Alan Colner(1)............................ 44 Director Robert Dove(1)............................ 45 Director Stephen Harrick(2)........................ 29 Director Samantha McCuen(1)(2)..................... 31 Director William S. Peabody........................ 28 Director
- ------------ (1) Member of our Audit Committee (2) Member of our Compensation Committee Daniel A. Pelson co-founded Bolt and has served as our President and Chief Executive Officer and as a director since our inception. Mr. Pelson also serves as Chairman of the Board of Directors for Concrete Media Construction, a custom publishing and Web site development company that was spun off from Bolt in December 1998. Prior to founding Bolt, in 1994 Mr. Pelson created Word, an online magazine that was acquired by Icon CMT Corporation in 1994. From 1988 to 1993, he served as a marketing, sales and product development executive for Sun Microsystems where he marketed and sold products and services to the media industry. Mr. Pelson holds a B.A. in political science and economics from Colgate University and an M.B.A. from New York University's Stern School of Business. Jane Mount co-founded Bolt and has served as our Executive Vice President of Product Development since October 1998 and also served as our Creative Director from September 1996 to September 1998. Ms. Mount is responsible for continually driving the usage statistics of Bolt, and responding to the constantly evolving needs of the teen marketplace. From November 1995 to August 1996, she served as Design Director of Word, an online magazine which was acquired by Icon CMT Corporation in 1994. Ms. Mount holds a B.A. from Davidson College. Albert G. Pastino has served as our Chief Financial Officer since November 1999. From June 1997 to June 1999, Mr. Pastino served as Senior Vice President and Treasurer of AmTec, Inc., a telecommunications company. From July 1993 to March 1997, Mr. Pastino was with Kohlberg and Company, a private equity investment company, where he served in a variety of positions, including as the President of Kisco Capital Company, Inc., an affiliate of Kohlberg and Company, and also served on the boards of directors of a number of Kohlberg & Company's portfolio companies. From 1989 through 1992, Mr. Pastino served as Senior Vice President and Chief Operating Officer of Fortis Private Capital, Inc., a private equity investment company specializing in expansion financings and management buyouts. Mr. Pastino began his business career at Deloitte & Touche LLP where he served as a partner. Mr. Pastino also gained investment banking experience while working at Alex. Brown & Sons, Incorporated and at various times throughout his career served as the interim chief financial officer of a number of privately and publicly held companies. 46 52 Frank Harrison has been our Senior Vice President of Finance since September 1998 and served as our acting Chief Financial Officer from September 1998 to October 1999. From 1991 to 1998, Mr. Harrison was the principal of Harrison & Company, LLC, a firm he founded in 1991 that provided finance and accounting services to middle-market advertising, new media, and high-technology companies, as well as to large, multi-national public companies. From 1987 to 1991, he was a manager in the Stamford, CT office of Coopers & Lybrand in the Emerging Business Services division. He holds a B.S. in Business Administration from the University of Dayton. Mark Stutzman has served as our Chief Technology Officer since July 1999. From July 1998 to June 1999, Mr. Stutzman served as Executive Director, Technology at Cyberian Outpost, a leading e-commerce retailer, where he managed the development, data, system operations and warehouse teams. From 1995 to 1998, he was employed at IBM where, he oversaw the design and implementation of an infrastructure that was designed to scale to support over 1,000 business-to-business Web sites for IBM's corporate customers. While at IBM, Mr. Stutzman also managed all technical facets of ShopIBM, IBM's premiere commerce site, and served as the technical team leader for IBM Global Service's Web hosting department. Mr. Stutzman holds a B.A. in English from S.U.N.Y. New Paltz in New York. Jeanne Sachs has served as our Vice President of Ad Sales since May 1, 1999. From November 1994 to May 1999, Ms. Sachs served as Advertising Director of YM, a leading teen-focused magazine. Prior to joining YM, Ms. Sachs held national advertising sales positions at a number of teen and woman-focused magazines, including Seventeen, Vogue and Woman's Day. Ms. Sachs holds a B.S. in International Business and Economics from New York University. Justin Nesci has been our Vice President of Business Development since December 1999 and served as our Director of Business Development from April 1999 to December 1999. From March 1997 to March 1999, Mr. Nesci served as an advertising director for E! Online. From February 1996 to March 1997, Mr. Nesci managed brand marketing and media sales for 2d Interactive, Inc., a start-up, interactive media company. From August 1994 to January 1996, Mr. Nesci was a management consultant at Lochridge & Company. From September 1991 to August 1994, Mr. Nesci was an industry analyst for Dataquest, Inc. Mr. Nesci holds a B.A. in Organizational Behavior & Management and Political Science from Brown University. Alexa Tobin has served as our Vice President of Commerce since May 1999. From February 1998 to April 1999, Ms. Tobin served as Director of Merchandising for Music Boulevard/N2K, Inc., a leading e-commerce company. From June 1996 to July 1997, Ms. Tobin was the Music Director at WXRK-FM in New York City. From May 1994 to February 1995, Ms. Tobin was the Program Director at WEQX-FM in Albany, NY. From February 1995 to June 1996, she served as Program Director at WBRU-FM, in Providence, Rhode Island. From October 1989 to April 1994, Ms. Tobin worked for Newbury Comics, a leading retailer of music and lifestyle merchandise, where her duties included store management, buying, and ultimately managing the entire distribution facility. Ms. Tobin holds a B.A. in political science from Brown University. Dr. David Titus has served as our Director of Business Intelligence since August 1999. From June 1997 to July 1999, Dr. Titus managed consumer research at Philip Morris. From June 1994 to May 1997, he served as a Client Service Executive at Eric Marder Associates, a market research consulting company, where his accounts included Fortune 100 companies in the telecommunications, high tech and consumer package goods industries. Dr. Titus holds a Ph.D. and M.S. in Social Psychology from Rutgers University and B.A in psychology from Montclair State College. Alan Colner has been a director since November 1998. Since August 1996, he has served as Managing Director, Private Equity Investments at Moore Capital Management, Inc. Before Joining Moore Capital, Mr. Colner was a Managing Director of Corporate Advisors, L.P., the general partner of Corporate Partners, a private equity fund affiliated with Lazard Freres & Co. LLC. He also serves on the board of directors of iVillage Inc. and NextCard, Inc. as well as several private companies. Mr. Colner holds a B.A. from Yale University and an M.B.A. from the Stanford University Graduate School of Business. 47 53 Robert Dove has been a director since January 1997. Since May 1996, Mr. Dove has been an Executive Vice President and Managing Director of Bechtel Enterprises Holdings, Inc., a wholly-owned subsidiary of Bechtel Group, Inc. Mr. Dove is also a Senior Vice President of Bechtel Group, Inc. From 1985 until 1996, Mr. Dove worked for UBS Securities, an investment banking firm, where he served as, among other things, a Managing Director. Mr. Dove also serves as a director of several private companies. Mr. Dove is a graduate of the Forest School and is a past member of the Institute of bankers in London. Stephen J. Harrick has been a director since February 1999. Mr. Harrick has been a Principal at Highland Capital Partners, a venture capital firm focused on Internet and e-commerce companies, since 1997. Mr. Harrick attended Harvard Business School from 1995 to 1997. From 1993 to 1995, he worked at Morgan Stanley & Co. Incorporated as a Financial Analyst specializing in mergers and acquisitions. Mr. Harrick also serves as a director of several private companies. He holds a B.A. in History from Yale University and an M.B.A. from Harvard Business School. Samantha McCuen has been a director since February 1999. Ms. McCuen is a Managing Director of Sandler Capital Management, an investment management firm. Ms. McCuen joined Sandler in 1996 and is currently responsible for analyzing, structuring and managing Sandler's investments in Internet and technology companies in the public and private sectors. She is also a Principal of Sandler Internet Partners, L.P. From 1990 to 1996, Ms. McCuen held both equity research and investment banking positions at Morgan Stanley & Co. Incorporated where she specialized in Internet and PC software companies, and was a co-author of The Internet Report. Ms. McCuen also serves as a director of several private Internet companies. Ms. McCuen holds a B.A. in Economics from Lehigh University. William S. Peabody has been a director since February 1999. In September 1992, Mr. Peabody founded Tripod.com, a successful Web site community that had over four million registered users. He served as the President and Chief Executive Officer of Tripod until it was sold to Lycos, Inc. in February 1998. Since February 1998, he has served as the Vice President of Network Strategy for Lycos. Mr. Peabody is an observer to the Lycos board of directors, and sits on the board of directors of several private companies, including Streetmail.com and eZiba.com. Mr. Peabody holds a bachelor's degree in political philosophy and sociology from Williams College. BOARD COMPOSITION Upon completion of this offering, our board of directors will consist of six members divided into three classes with two members in each class. Each year the stockholders will elect the members of one of the three classes to a three-year term of office. Upon completion of this offering, Robert Dove and Samantha McCuen will serve in the class whose term expires in 2001; Stephen Harrick and Alan Colner will serve in the class whose term expires in 2002; and Daniel Pelson and William Peabody will serve in the class whose term expires in 2003. COMMITTEES OF THE BOARD OF DIRECTORS Upon completion of this offering, our board of directors will have a compensation committee, which will make recommendations concerning salaries and incentive compensation for our employees and consultants, establish and approve salaries and incentive compensation for our executive officers and administer our stock plans. Upon completion of this offering, our board of directors will also have an audit committee, which will review the result and scope of audits and other services provided by our independent public accountants. COMPENSATION OF DIRECTORS Our directors who are also our employees receive no compensation for serving on the board of directors. We reimburse our non-employee directors for all travel and other reasonable expenses incurred in attending board of director and committee meetings. Our non-employee directors are eligible to receive nonqualified stock option grants under our stock option plans. In April 1999, we granted William S. Peabody, one of our directors, an option to purchase 48,400 shares of our common stock at an exercise price of $.58 per share. One fourth of this option becomes exercisable after one year and the remaining portion becomes exercisable in 36 48 54 equal monthly installments thereafter. We may in the future grant additional nonqualified stock options to non-employee directors as an incentive to join or remain on the board of directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Upon completion of this offering, the compensation committee of our board of directors will consist of Daniel Pelson, Samantha McCuen and Stephen Harrick. Neither Ms. McCuen nor Mr. Harrick has been an officer or employee of Bolt at any time since our inception. No executive officer of Bolt serves as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Prior to the formation of the compensation committee, the board of directors as a whole made decisions relating to the compensation of our executive officers. EXECUTIVE COMPENSATION The following table sets forth the total compensation paid or accrued during the year ended December 31, 1998 to our Chief Executive Officer. No other executive officer earned greater than $100,000 in the year ended December 31, 1998. SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SHARES --------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY($) BONUS($) OPTIONS(#) COMPENSATION($) - ---------------------------------- --------- -------- ------------ --------------- Daniel A. Pelson.................. $80,000 -- -- -- President and Chief Executive Officer
OPTION GRANTS IN LAST FISCAL YEAR There were no options granted by Bolt to the executive officer named in the Summary Compensation Table above during our fiscal year ended December 31, 1998. FISCAL YEAR-END OPTION VALUES The executive officer named in the Summary Compensation Table above did not exercise any options during our fiscal year ended December 31, 1998 and did not hold any stock options as of December 31, 1998. STOCK PLANS 1999 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN Our 1999 Employee, Director and Consultant Stock Option Plan was approved by our board of directors and by our stockholders in February 1999. Under this plan, we may grant incentive stock options and nonqualified stock options. As of December 6, 1999, a total of 3,077,948 shares of common stock had been reserved for issuance under this plan. As of December 6, 1999, no shares had been issued pursuant to options granted under this plan, 2,207,600 shares were subject to outstanding options and 870,348 shares were available for future grant. On December 15, 1999, our board of directors voted to increase the number of shares issuable under this plan to 3,814,000. Upon completion of this offering, this plan is to be administered by our Compensation Committee. The Compensation Committee will determine the terms of options granted pursuant to this plan, including: - the exercise price and the number of shares subject to each option; - the vesting schedule for options; 49 55 - the termination or cancellation provisions applicable to options; and - the conditions relating to our right to reacquire shares subject to options. The maximum term of options granted under this plan is ten years. If we are acquired, the Compensation Committee will provide that outstanding options under this plan shall be: (1) assumed by the successor or acquiring company; (2) exercised within a specified number of days or the options will terminate; or (3) terminated in exchange for a cash payment equal to the value of the option at the time we are acquired. If we are acquired, the Compensation Committee may also provide that all outstanding options fully vest. 1997 STOCK OPTION PLAN Our 1997 Stock Option Plan was approved by our board of directors and by our stockholders in February 1997. Under this plan we may grant incentive stock options, nonqualified stock options and stock appreciation rights (SARs). As of December 6, 1999, a total of 424,544 shares of common stock have been reserved for issuance under this plan. Of these shares, 38,544 shares have been issued pursuant to options granted under this plan, 386,000 shares were subject to outstanding options and no shares were available for future grant. Upon completion of this offering, this plan is to be administered by our Compensation Committee. The Compensation Committee will determine the terms of options granted pursuant to this plan, including: - the term, exercise price and the number of shares subject to each option or SAR; - the form of consideration to be paid upon exercise of options and SARs; - the vesting schedule for options and SARs; and - the termination or cancellation provisions applicable to options and SARs. The maximum term of options granted under this plan is ten years. If we are acquired or in the event of a change of control, the Compensation Committee may provide that certain options or SARs then outstanding for at least one year shall receive upon exercise an amount equal to the fair market value of the consideration to be received per share upon acquisition or change of control minus the applicable exercise price multiplied by the number of shares subject to such option or SAR. The Compensation Committee may provide that this amount may be paid in cash, in the kind of property payable in such merger or change of control or by a combination of cash and property. 401(k) PLAN We maintain a retirement and deferred savings plan for our employees that is intended to qualify as a tax-qualified plan under the Internal Revenue Code. The 401(k) Plan provides that each participant may contribute up to 15% of their salary up to a statutory limit, which is $10,000 in calendar year 1999. Under this Plan we may match up to 25% of employee contributions, up to a maximum of 4% of an employee's compensation. LIMITATION OF DIRECTORS' LIABILITY AND INDEMNIFICATION The Delaware General Corporation Law authorizes corporations to limit or eliminate, subject to certain conditions, the personal liability of directors to corporations and their stockholders for monetary damages for breach of their fiduciary duties. Our certificate of incorporation limits the liability of our directors to the fullest extent permitted by Delaware law. Our certificate of incorporation and bylaws also provide that we will indemnify any of our directors and officers who, by reason of the fact that he or she is one of our officers or directors, is involved in a legal proceeding of any nature. We will repay certain expenses incurred by a director or officer in connection with any civil or criminal action or proceeding, specifically including actions by us or in our name (derivative suits). Such indemnifiable expenses include, to the maximum extent permitted by law, attorney's fees, judgments, civil or criminal fines, settlement amounts and other expenses customarily incurred in connection with legal 50 56 proceedings. A director or officer will not receive indemnification if he or she is found not to have acted in good faith and in a manner he or she reasonably believed to be in, or not opposed to, our best interest. Such limitation of liability and indemnification does not affect the availability of equitable remedies. In addition, we have been advised that in the opinion of the SEC, indemnification for liabilities arising under the Securities Act is against public policy as expressed in the Securities Act and is therefore unenforceable. There is no pending litigation or proceeding involving any of our directors, officers, employees or agents in which indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. 51 57 CERTAIN TRANSACTIONS Stock Purchases. The following executive officers, directors or holders of more than five percent of our voting securities purchased securities in the amounts as of the dates set forth below. Each share of our Series A-1, Series A-2, Series B-1, and Series B-2 preferred stock is convertible into four shares of our common stock. Each share of our Series C preferred stock is convertible into one share of our common stock.
PREFERRED STOCK COMMON --------------------------------------------------------------- STOCK SERIES A-1 SERIES A-2 SERIES B-1 SERIES B-2 SERIES C ---------- ---------- ---------- ---------- ---------- ----------- DIRECTORS AND EXECUTIVE OFFICERS Daniel A. Pelson.......... 2,684,000 -- -- -- -- 9,756 Albert G. Pastino......... -- -- -- -- -- 7,317 Frank Harrison............ -- -- -- 2,828 -- 2,439 William S. Peabody(1)..... -- -- -- 24,193 -- 36,585 Samantha McCuen........... -- -- -- 4,839 -- -- Concrete Media, Inc.(2)... -- -- -- -- -- 4,878 5% STOCKHOLDERS Bechtel Enterprises Holdings, Inc.(3)....... -- 600,000 125,000 -- -- 507,317 Sandler Capital Management(4)........... -- -- -- 459,677 -- 317,072 Highland Capital Partners(5)............. -- -- -- 483,871 -- 341,463 Oak Investment Partners VIII, Limited Partnership............. -- -- -- -- 268,818 195,122 Moore Capital Management, Inc.(6)................. -- -- -- -- -- 975,610 Price Per Share........... $.00002 $2.50 $3.60 $6.20 $7.44 $10.25 Date(s) of Purchase....... 9/1/96 1/10/97 2/22/99 2/23/99 3/1/99 11/17/99, 11/23/99 and 12/6/99
- ------------ (1) The 36,585 shares of Series C preferred stock purchased by Mr. Peabody consist of 16,097 shares purchased by Peabody Sabot Ventures, 19,513 shares purchased by Peabody Family Ventures and 975 shares purchased by Caribou Ventures. Mr. Peabody, one of our directors, is the Managing General Partner of each of these entities. (2) Dan Pelson, our President and Chief Executive Officer, Jane Mount, our Executive Vice President of Product Development, Frank Harrison, our Senior Vice President of Finance, and Bechtel Enterprises Holdings, Inc., a five percent stockholder, own a total of 87% of the stock of this company. (3) Robert Dove, one of our directors, is an Executive Vice President and Managing Director of Bechtel Enterprises Holdings, Inc. (4) Samantha McCuen, one of our directors, is a Managing Director of Sandler Capital Management. (5) Stephen J. Harrick, one of our directors, is a Principal of Highland Capital Partners. (6) Alan Colner, one of our directors, is Managing Director, Private Equity Investments of Moore Capital Management, Inc. We have entered into the following agreements and transactions with our executive officers, directors and holders of more than five percent of our voting securities: Amended and Restated Registration Rights Agreement. Bolt, Daniel A. Pelson, our President and Chief Executive Officer, the preferred stockholders listed above and other stockholders have entered into an agreement, pursuant to which they will have registration rights with respect to their shares of common stock following this offering. See "Description of Capital Stock -- Registration Rights" for a more detailed description of the terms of this agreement. 52 58 Sale of custom publishing division. On December 30, 1998, we sold our custom publishing division that provided Web site development services to third parties to Concrete Media Construction, LLC. In consideration we received: - A promissory note in the amount of $315,000, bearing interest at a rate equal to the Federal Rate, as defined by the Internal Revenue Code. This note is due and payable in full on December 31, 2001. - A promissory note in the amount of $105,000, bearing interest at the Federal Rate. This note was guaranteed by the individuals and entity listed below and was due and payable in full on January 15, 1999. It was paid in full on January 29, 1999. At the time of this transaction, Dan Pelson, our President and Chief Executive Officer, Jane Mount, our Executive Vice President of Product Development, Frank Harrison, our Senior Vice President of Finance, and Bechtel Enterprises Holdings, Inc., a five percent stockholder, held a total of 87% of the equity interest in Concrete Media Construction. After this transaction, we rented space and provided financial, administrative and accounting services to Concrete Media Construction. Concrete Media Construction also provided the services of an information services employee to us. Concrete Media Construction has paid us about $103,000 for rent and the financial, administrative and accounting services we have provided. We have paid Concrete Media Construction about $25,000 for the services they have provided to us. On October 1, 1999, Concrete Media Construction, LLC was reorganized as a Delaware corporation and renamed Concrete Media, Inc. The officers and five percent stockholder mentioned above hold the same total percentage of the equity of Concrete Media, Inc. as they held in Concrete Media Construction, LLC. We are currently providing only minimal administrative services to Concrete Media, Inc. Sale of Girls On division. On January 29, 1999, we sold our Girls On division to Girls On, Inc., a wholly-owned subsidiary of Concrete Media Construction, in exchange for the assumption by Girls On, Inc. of all current and future liabilities of this division. The agreement for this sale also included a provision entitling us to receive additional contingent consideration if Girls On, Inc. was sold by Concrete Media Construction to a third party. On August 5, 1999, Concrete Media Construction sold Girls On, Inc. to Oxygen Media, LLC. Pursuant to the contingent consideration provision of the agreement, we received $386,000 in cash as well as equity securities in Oxygen Media valued at $1,050,000. Bechtel Enterprises Holding, Inc. On January 22, 1998, we issued a promissory note to Bechtel in the principal amount of $500,000 with an interest rate of ten percent per year. This note was due and payable in full upon the demand of Bechtel at any time after July 22, 1998. In February 1999, this note was converted in exchange for: - $52,466 in cash as full and final consideration for the payment of the interest on this note; - $50,000 in cash as a payment of a portion of the principal of this note; and - 125,000 shares of our Series A-2 Convertible Preferred Stock. Bechtel is a five percent stockholder and Robert Dove, one of our directors, is an Executive Vice President and Managing Director of Bechtel. 53 59 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of our common stock as of December 6, 1999, and as adjusted to reflect the sale of our common stock offered by this prospectus by: - the executive officer named in the Summary Compensation Table; - each of our directors; - all of our current directors and executive officers as a group; and - each stockholder known by us to own beneficially more than five percent of our common stock. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the securities. Shares of common stock that may be acquired by an individual or group within 60 days of December 6, 1999, pursuant to the exercise of options or warrants are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Percentage of ownership is based on 14,973,965 shares of common stock outstanding on December 6, 1999, which assumes the conversion of all outstanding shares of preferred stock into common stock, and shares of common stock outstanding after the completion of this offering. Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is: c/o Bolt, Inc., 304 Hudson Street, 7th Floor, New York, NY 10013.
PERCENTAGE OF COMMON STOCK BENEFICIALLY OWNED --------------------------- NUMBER OF SHARES BEFORE AFTER BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING - --------------------------------------------- ------------------ --------------- -------- DIRECTORS AND EXECUTIVE OFFICERS Daniel A. Pelson(1).......................... 2,993,434 20.0% Robert Dove(2)............................... 3,412,195 22.8 Samantha McCuen(3)........................... 2,175,136 14.5 Stephen J. Harrick(4)........................ 2,276,947 12.9 Alan Colner(5)............................... 975,610 6.5 William S. Peabody(6)........................ 133,357 * All current executive officers and directors as a group (14 persons)(7)................. 12,579,681 84.0 FIVE PERCENT STOCKHOLDERS Bechtel Enterprises Holdings, Inc.(2)........ 3,412,195 22.8 Highland Capital Partners(4)................. 2,276,947 15.2 Sandler Capital Management(3)................ 2,155,780 14.4 Oak Investment Partners VIII, Limited Partnership(8)............................. 1,270,394 8.5 Moore Capital Management, Inc.(5)............ 975,610 6.5
- ------------ * Represents beneficial ownership of less than 1% of the shares of Common Stock. (1) Includes 4,878 shares held by Concrete Media, Inc. Mr. Pelson owns 38% of the equity securities of Concrete Media. He disclaims beneficial ownership of these shares except to the extent of his proportional pecuniary interest in these shares. (2) Consists of 3,407,317 shares held by Bechtel Enterprises Holdings, Inc. and 4,878 shares held by Concrete Media, Inc. Bechtel owns 37% of the equity securities of Concrete Media. Bechtel disclaims beneficial ownership of these shares except to the extent of its 54 60 proportional pecuniary interest in these shares. Mr. Dove is an Executive Vice President and Managing Director of Bechtel and disclaims beneficial ownership of these shares. Bechtel is located at 50 California Street--Suite 2200, San Francisco, California 94111. (3) Includes 1,451,736 shares held by Sandler Capital Partners IV, L.P., 594,289 shares held by Sandler Capital Partners IV FTE, L.P. and 109,755 shares held by Sandler Internet Partners, L.P. Ms. McCuen is a Managing Director of Sandler Capital Management and disclaims beneficial ownership of these shares except to the extent of her proportional pecuniary interest in these shares. Sandler Capital Management is located at 767 Fifth Avenue--45th Floor, New York, New York 10153. (4) Consists of 2,185,868 shares held by Highland Capital Partners IV Limited Partnership and 91,079 shares held by Highland Entrepreneurs Fund IV Limited Partnership. Highland Capital Partners manages these two entities. Mr. Harrick is a Principal of Highland Capital Partners and disclaims beneficial ownership of these shares. Highland Capital Partners IV Limited Partnership and Highland Entrepreneurs Fund IV Limited Partnership each disclaim beneficial ownership of the shares owned by the other entity. Highland Capital Partners is located at 2 International Place--22nd Floor, Boston, Massachusetts 02110. (5) Includes 780,488 shares held by Moore Global Investments, Ltd and 195,122 shares held by Remington Investments Strategies, L.P. Moore Capital Management, Inc., a Connecticut corporation, is vested with investment discretion with respect to portfolio assets held for the account of Moore Global Investments. Moore Capital Advisors, L.L.C., a New York limited liability company, is the sole general partner of Remington Investment Strategies. Mr. Louis M. Bacon is the majority shareholder of Moore Capital Management, Inc., and is the majority equity holder of Moore Capital Advisors, L.L.C. As a result, Mr. Bacon, though he disclaims beneficial ownership of the shares, may be deemed to be the beneficial owner of the aggregate shares held by Moore Global Investments and Remington Investment Strategies. Alan Colner is Managing Director, Private Equity Investments of Moore Capital Management, Inc., which is the trading advisor of Moore Global Investments. He is also a director of Bolt. Mr. Colner does not have voting or investment power with respect to the shares of securities owned by Moore Global Investments or Remington Investment Strategies, and disclaims beneficial ownership of the shares. Moore Capital Management, Inc. is located at 1251 Avenue of the Americas, New York, New York 10020. (6) Includes 67,897 shares held by Peabody Family Ventures of which Mr. Peabody is the Managing General Partner, 48,353 shares held by Peabody Sabot Ventures of which Mr. Peabody is the Managing General Partner and 975 shares held by Caribou Ventures of which Mr. Peabody is the Managing General Partner. (7) Includes 8,937,757 shares held by entities affiliated with our directors and executive officers. See footnotes 1 through 6 above. Also includes 585,800 shares issuable upon options exercisable within 60 days of December 6, 1999. (8) Includes 24,139 shares held by Oak VIII Affiliates Fund, Limited Partnership. Oak Investment Partners VIII, Limited Partnership is located at One Gorham Island, Westport, Connecticut 06880. 55 61 DESCRIPTION OF CAPITAL STOCK Upon completion of this offering, we will be authorized to issue 50,000,000 shares of common stock, $.001 par value per share, and 5,000,000 shares of preferred stock, $.001 par value per share, and there will be shares of common stock and no shares of preferred stock outstanding. Assuming the conversion of our preferred stock, as of December 6, 1999, we had 14,973,965 shares of common stock outstanding held of record by 49 stockholders, and there were outstanding options to purchase 2,593,600 shares of common stock and outstanding warrants to purchase 47,900 shares of common stock. COMMON STOCK Holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, and do not have cumulative voting rights. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by our board of directors out of funds legally available for dividend payments. All outstanding shares of common stock are fully paid and nonassessable, and the holders of common stock have no preferences or rights of conversion, exchange or pre-emption. In the event of any liquidation, dissolution or winding-up of our affairs, holders of common stock will be entitled to share ratably in our assets that are remaining after payment or provision for payment of all of our debts and obligations and after liquidation payments to holders of outstanding shares of preferred stock, if any. PREFERRED STOCK The preferred stock, if issued, would have priority over the common stock with respect to dividends and other distributions, including the distribution of assets upon liquidation. Our board of directors has the authority, without further stockholder authorization, to issue from time to time shares of preferred stock in one or more series and to fix the terms, limitations, relative rights and preferences and variations of each series. Although we have no present plans to issue any shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of common stock, could adversely affect the rights and powers, including voting rights, of the common stock, and could have the effect of delaying, deterring or preventing a change in control of Bolt or an unsolicited acquisition proposal. WARRANTS As of December 6, 1999, the following warrants were outstanding. - A warrant to purchase 40,000 shares of our common stock was outstanding at an exercise price of $.025 per share. This warrant expires on April 22, 2009. - A warrant to purchase 1,975 shares of our Series B-3 Convertible Preferred Stock was outstanding at an exercise price of $30.37 per share. Upon completion of this offering, this warrant will automatically convert into a warrant to purchase 7,900 shares of our common stock at an exercise price of $7.59 per share. This warrant expires on August 31, 2006. Each of these warrants contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant in the event of stock dividends, stock splits, reorganizations, and reclassifications and consolidations. REGISTRATION RIGHTS The holders of the following shares of our common stock are entitled to certain registration rights with respect to those shares. These registration rights are subject to certain conditions and limitations, including the right of the underwriters of an offering to limit the number of shares included in any such registration under certain circumstances. All expenses incurred in connection with registrations effected in connection with the following rights will be borne by us. 56 62 Demand Rights. Beginning 180 days after completion of this offering: - The holders of 11,147,620 shares of common stock and 890,500 shares of common stock issuable upon the exercise of outstanding options and warrants will have certain rights to cause us to register those shares under the Securities Act. We may be required to effect up to three such registrations. - The holders of 3,787,801 shares of common stock will the right, on one occasion, to cause us to register those shares under the Securities Act. Stockholders with these registration rights who are not part of an initial registration demand are entitled to notice and are entitled to include their shares of common stock in the registration. Piggyback Rights. If at any time after this offering we propose to register any of our equity securities under the Securities Act, other than in connection with - a registration relating solely to our stock option plans or other employee benefit plans, or - a registration relating solely to a business combination or merger involving us, the holders of 14,935,421 shares of common stock and 890,500 shares of common stock issuable upon the exercise of outstanding options and warrants are entitled to notice of such registration and are entitled to include their common stock in the registration. Shelf Registration Rights. In addition, the holders of 14,935,421 shares of common stock and 890,500 shares of common stock issuable upon the exercise of outstanding options and warrants will have the right to cause us to register these shares on a Form S-3, provided that we are eligible to use this form. There is no limit to the number of registrations on Form S-3 that we may be required to effect, except that we will not be required to effect such a registration unless the aggregate offering price of the shares to be registered, based on the then current market price, is at least $1.0 million. Stockholders with these registration rights who are not part of an initial registration demand are entitled to notice and are entitled to include their shares of common stock in the registration. DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS The provisions of Delaware law and of our certificate of incorporation and by-laws discussed below could discourage or make it more difficult to accomplish a proxy contest or other change in our management or the acquisition of control by a holder of a substantial amount of our voting stock. It is possible that these provisions could make it more difficult to accomplish, or could deter, transactions that stockholders may otherwise consider to be in their best interests or the best interests of Bolt. Delaware Statutory Business Combinations Provision. We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporations Law. In general, Section 203 prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. For purposes of Section 203, a "business combination" is defined broadly to include a merger, asset sale or other transaction resulting in a financial benefit to the interested stockholder, and, subject to certain exceptions, an "interested stockholder" is a person who, together with his or her affiliates and associates, owns (or within three years prior, did own) 15% or more of the corporation's voting stock. Classified Board of Directors. Upon completion of this offering, our board of directors will be divided into three classes. Each year the stockholders will elect the members of one of the three classes to a three-year term of office. All directors elected to our classified board of directors will serve until the election and qualification of their respective successors or their earlier resignation or removal. The board of directors is authorized to create new directorships and to fill such positions so created and is permitted to specify the class to which any such new position is assigned. The person filling such position would serve for the term applicable to that class. The board of directors (or its remaining members, even if less than a quorum) is also empowered 57 63 to fill vacancies on the board of directors occurring for any reason for the remainder of the term of the class of directors in which the vacancy occurred. Members of the board of directors may only be removed for cause. These provisions are likely to increase the time required for stockholders to change the composition of the board of directors. For example, in general, at least two annual meetings will be necessary for stockholders to effect a change in a majority of the members of the board of directors. Advance Notice Provisions for Stockholder Proposals and Stockholder Nominations of Directors. Our by-laws provide that, for nominations to the board of directors or for other business to be properly brought by a stockholder before a meeting of stockholders, the stockholder must first have given timely notice of the proposal in writing to our Secretary. For an annual meeting, a stockholder's notice generally must be delivered not less than 45 days nor more than 75 days prior to the anniversary of the mailing date of the proxy statement for the previous year's annual meeting. For a special meeting, the notice must generally be delivered by the later of 90 days prior to the special meeting or ten days following the day on which public announcement of the meeting is first made. Detailed requirements as to the form of the notice and information required in the notice are specified in the by-laws. If it is determined that business was not properly brought before a meeting in accordance with our by-law provisions, such business will not be conducted at the meeting. Special Meetings of Stockholders. Special meetings of the stockholders may be called only by our board of directors pursuant to a resolution adopted by a majority of the total number of directors. No Stockholder Action by Written Consent. Our certificate of incorporation does not permit our stockholders to act by written consent. As a result, any action to be effected by our stockholders must be effected at a duly called annual or special meeting of the stockholders. Super-Majority Stockholder Vote required for Certain Actions. The Delaware General Corporation Law provides generally that the affirmative vote of a majority of the shares entitled to vote on any matter is required to amend a corporation's certificate of incorporation or by-laws, unless the corporation's certificate of incorporation or by-laws, as the case may be, requires a greater percentage. Our certificate of incorporation requires the affirmative vote of the holders of at least 80% of our outstanding voting stock to amend or repeal any of the provisions discussed in this section of this prospectus entitled "Delaware Law and Certain Charter and By-law Provisions". This 80% stockholder vote would be in addition to any separate class vote that might in the future be required pursuant to the terms of any preferred stock that might then be outstanding. A 80% vote is also required for any amendment to, or repeal of, our by-laws by the stockholders. Our by-laws may be amended or repealed by a simple majority vote of the board of directors. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the common stock will be American Stock Transfer and Trust Company. LISTING We will complete an application for listing our common stock on the Nasdaq National Market under the symbol "BOLT." 58 64 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our common stock in the public market after the restrictions lapse. This may adversely affect the prevailing market price and our ability to raise equity capital in the future. Upon completion of this offering, we will have shares of common stock outstanding, assuming no exercise of options and warrants outstanding as of December 6, 1999, and the conversion of all outstanding shares of preferred stock. Of these shares, the shares sold in this offering will be freely transferable without restriction or registration under the Securities Act, except for any shares purchased by one of our existing "affiliates," as that term is defined in Rule 144 under the Securities Act. The remaining 14,973,965 shares of common stock existing are "restricted shares" as defined in 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 or 701 of the Securities Act. As a result of the contractual 180-day lock-up period described below and the provisions of Rules 144 and 701, these shares will be available for sale in the public market as follows:
NUMBER OF SHARES DATE - ------------------------------------------ ---------------------------------------------- .......................................... On the date of this prospectus. ................................ After 90 days from the date of this prospectus. ................................ After 180 days from the date of this prospectus (subject, in some cases, to volume limitations). ................................ At various times after 180 days from the date of this prospectus (subject, in some cases, to volume limitations).
LOCK-UP AGREEMENTS Bolt, our directors and executive officers and certain of our stockholders and option holders have each agreed not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock, for a period of 180 days after the date of this prospectus, without the prior written consent of Morgan Stanley & Co. Incorporated, subject to limited exceptions. Morgan Stanley & Co. Incorporated, however, may in its sole discretion, at any time without notice, release all or any portion of the shares subject to lock-up agreements. RULE 144 In general, under Rule 144 as currently in effect, beginning 90 days after this offering, a person, or persons whose shares are aggregated, who owns shares that were purchased from us, or any affiliate, at least one year previously, is entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of our then-outstanding shares of common stock, which will equal about shares immediately after this offering, or the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the filing of a notice of the sale on Form 144. Sales under Rule 144 are also subject to manner of sale provisions, notice requirements and the availability of current public information about us. Any person, or persons whose shares are aggregated who is not deemed to have been one of our affiliates at any time during the three months preceding a sale, and who owns shares within the definition of "restricted securities" under Rule 144 that were purchased from us, or any affiliate, at least two years previously, would be entitled to sell shares under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements. 59 65 RULE 701 Subject to limitations on the aggregate offering price of a transaction and other conditions, Rule 701 may be relied upon with respect to the resale of securities originally purchased from us by our employees, directors, officers or consultants prior to the date we become subject to the reporting requirements of the Securities Exchange Act of 1934, or the Exchange Act, under written compensatory benefit plans or written contracts relating to the compensation of these persons. In addition, the Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Exchange Act, along with the shares acquired upon exercise of the options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than affiliates subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its minimum holding period requirements. REGISTRATION RIGHTS Upon completion of this offering, the holders of about 14,935,421 shares of common stock and 890,500 shares of common stock issuable upon the exercise of outstanding options and warrants shares of common stock or their transferees, will be entitled to various rights with respect to the registration of these shares under the Securities Act. Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by affiliates. See "Description of Capital Stock--Registration Rights" for a more complete description of these registration rights. STOCK OPTIONS As of December 6, 1999, options to purchase a total of 2,593,600 shares of common stock under our stock option plans were outstanding and 1,017,183 were exercisable. of the shares subject to options are subject to lock-up agreements. An additional 870,348 shares of common stock were available for future option grants under our stock plans. Upon completion of this offering, we intend to file a registration statement under the Securities Act covering all shares of common stock subject to outstanding options or issuable pursuant to our stock option plans. Subject to Rule 144 volume limitations applicable to affiliates, shares registered under any registration statements will be available for sale in the open market, beginning 90 days after the date of the prospectus, except to the extent that the shares are subject to vesting restrictions with us or the contractual restrictions described above. 60 66 UNDERWRITERS Under the terms and subject to the conditions contained in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. Incorporated, Thomas Weisel Partners LLC and J.P. Morgan Securities Inc. are acting as representatives, have severally agreed to purchase and we have agreed to sell to them, the respective number of shares of common stock set forth opposite the names of these underwriters below:
NUMBER OF NAME SHARES - ---- --------- Morgan Stanley & Co. Incorporated........................... Thomas Weisel Partners LLC.................................. J.P. Morgan Securities Inc.................................. Total............................................. ========
The underwriters are offering the shares of common stock subject to their acceptance of the shares from us and subject to prior sale. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the approval of specified legal matters by their counsel and to other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus, except those shares covered by the over-allotment option described below, if any shares are taken. The underwriters initially propose to offer part of the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus and a portion to some dealers at a price that represents a concession not in excess of $ per share under the public offering price. Any underwriter may allow, and these dealers may reallow, a concession not in excess of $ per share to other underwriters or to other dealers. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives. We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to an aggregate of additional shares at the public offering price set forth on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares offered by this prospectus. To the extent this option is exercised, each underwriter will become obligated, subject to specified conditions, to purchase about the same percentage of additional shares as the number set forth next to the underwriter's name in the preceding table bears to the total number of shares set forth next to the names of all underwriters in the preceding table. If the underwriters exercise the over-allotment option in full, the total price to the public for this offering would be $ , the total underwriting discounts and commissions would be $ and the total proceeds to Bolt would be $ . The underwriters have informed us that they do not intend sales to discretionary accounts to exceed five percent of the total number of shares of common stock offered by them. At our request, the underwriters have reserved up to shares of common stock offered by this prospectus for sale at the initial public offering price to some of our directors, officers, employees, business associates and related persons of Bolt. The number of shares available for sale to the general public will be reduced to the extent that these persons purchase these reserved shares. Any reserved shares not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. Bolt has applied to list the common stock on the Nasdaq National Market under the symbol "BOLT." 61 67 Bolt, our directors and executive officers and certain of our stockholders and option holders have each agreed that, without the prior written consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, he, she or it will not, during the period ending 180 days after the date of this prospectus: - offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or - enter into any swap or other agreement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. The restrictions described in the immediately preceding paragraph do not apply to: - the issuance by us of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing; or - transactions by any person other than Bolt relating to shares of common stock or other securities acquired in open market transactions after the completion of this offering. In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may over-allot in connection with the offering, creating a short position in the common stock for their own account. In addition, to cover over-allotments or to stabilize the price of the common stock, the underwriters may bid for, and purchase, shares of common stock in the open market. Finally, the underwriting syndicate may reclaim selling concessions allowed to an underwriter or a dealer for distributing the common stock in the offering, if the syndicate repurchases previously distributed shares of common stock in transactions to cover syndicate short positions, in stabilization transactions or otherwise. Any of these activities may stabilize or maintain the market price of the common stock above independent market levels. The underwriters are not required to engage in these activities, and may end any of these activities at any time. Bolt and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act. 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 has been named as a lead or co-manager on 98 filed public offerings of equity securities, of which 78 have been completed, and has acted as a syndicate member in an additional 53 public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with us or any of our officers, directors or other controlling persons, except with respect to its contractual relationship with us pursuant to the underwriting agreement entered into in connection with this offering. PRICING OF THE OFFERING Prior to this offering, there has been no public market for the common stock. Consequently, the initial public offering price will be determined by negotiations between us and the representatives of the underwriters. Among the factors to be considered in determining the initial public offering price will be: - the future prospects of Bolt and its industry in general; - sales, earnings and certain other financial and operating information of Bolt in recent periods; and - the price-earnings ratios, price-sales ratios, market prices of securities and certain financial and operating information of companies engaged in activities similar to those of Bolt. 62 68 The estimated initial public offering price range set forth on the cover page of this prospectus is subject to change as a result of market conditions and other factors. LEGAL MATTERS The validity of the issuance of the common stock offered by us in this offering will be passed upon for us by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts. As of the date of this prospectus, persons and entities affiliated with Mintz Levin own an aggregate of 9,759 shares of our common stock. The underwriters are being represented by Davis Polk & Wardwell, New York, New York. EXPERTS The financial statements of Bolt as of and for the nine months ended September 30, 1999 and for the years ended December 31, 1998 and December 31, 1997 and for the period of August 15, 1996 through December 31, 1996, included in this prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports appearing in this prospectus and are included in reliance upon the reports of that firm given upon their authority as experts in accounting and auditing. WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act, with respect to the common stock offered by this prospectus. This prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and our common stock, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved. You may read and copy all or any portion of the registration statement without charge at the office of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of the registration statement may be obtained from the SEC at prescribed rates from the Public Reference Section of the SEC at such address, and at the SEC's regional offices located at 7 World Trade Center, 13th Floor, New York, New York 10048, and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. In addition, registration statements and certain other filings made with the SEC electronically are publicly available through the SEC's Web site at http://www.sec.gov. The registration statement, including all exhibits and amendments to the registration statement, has been filed electronically with the SEC. 63 69 BOLT, INC. INDEX TO FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report................................ F-2 Balance Sheets as of December 31, 1997 and 1998 and September 30, 1999.......................................... F-3 Statements of Operations for the period August 15, 1996 (date of inception) to December 31, 1996, for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998 (unaudited) and 1999............. F-4 Statements of Stockholders' Equity (Deficiency) for the period August 15, 1996 (date of inception) to December 31, 1996, for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1999.............. F-5 Statements of Cash Flows for the period August 15, 1996 (date of inception) to December 31, 1996, for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998 (unaudited) and 1999............. F-6 Notes to Financial Statements............................... F-7
F-1 70 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Bolt, Inc. We have audited the accompanying balance sheets of Bolt, Inc. (the "Company") as of December 31, 1997 and 1998 and September 30, 1999, and the related statements of operations, stockholders' equity (deficiency) and cash flows for the period August 15, 1996 (date of inception) to December 31, 1996, for each of the two years in the period ended December 31, 1998 and for the nine months ended September 30, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1997, 1998 and September 30, 1999, and the results of its operations and its cash flows for the period August 15, 1996 (date of inception) to December 31, 1996, for each of the two years in the period ended December 31, 1998 and for the nine months ended September 30, 1999, in conformity with generally accepted accounting principles. /s/ DELOITTE & TOUCHE LLP New York, New York December 6, 1999 F-2 71 BOLT, INC. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1997 1998 1999 ------------ ------------ ------------- ASSETS Current assets: Cash and cash equivalents............................... $ 184 $ 194 $ 3,637 Accounts receivable, net of allowance for doubtful accounts of $0, $11 and $101 as of December 31, 1997, 1998 and September 30, 1999, respectively............ 150 338 1,062 Prepaid expenses and other current assets............... 61 -- 356 ------- ------- ------- Total current assets............................ 395 532 5,055 Property and equipment, net............................... 242 454 2,377 Investments............................................... -- -- 1,050 Other assets.............................................. 25 47 270 ------- ------- ------- Total assets.............................................. $ 662 $ 1,033 $ 8,752 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) Current liabilities: Accounts payable........................................ $ 172 $ 246 $ 1,757 Accrued expenses........................................ 95 234 329 Short-term debt......................................... -- -- 500 Current portion of note payable and capital lease obligations.......................................... -- 182 338 ------- ------- ------- Total current liabilities....................... 267 662 2,924 Deferred revenues......................................... -- 53 51 Convertible promissory note............................... -- 450 -- Note payable.............................................. -- 320 297 Capital lease obligations, less current portion........... -- 178 578 ------- ------- ------- Total liabilities......................................... 267 1,663 3,850 ------- ------- ------- Commitments Redeemable convertible preferred stock: Series B-1 convertible preferred stock, $.001 par value; no shares authorized, issued and outstanding, 1997 and 1998; 1,048,387 shares authorized, issued and outstanding, 1999 ................................... -- -- 6,132 Series B-2 convertible preferred stock, $.001 par value; no shares authorized, issued and outstanding, 1997 and 1998; 268,818 shares authorized, issued and outstanding, 1999 ................................... -- -- 1,887 ------- ------- ------- Total redeemable convertible preferred stock ............. -- -- 8,019 ------- ------- ------- Stockholders' equity (deficiency): Common stock, $.001 par value; 16,000,000 shares authorized; 4,400,000 shares issued and outstanding, 1997; 4,400,000 shares issued and 2,978,800 shares outstanding, 1998; and 4,438,544 shares issued and 3,017,344 shares outstanding, 1999 .................. 4 4 4 Series A-1 convertible preferred stock, $.001 par value; 600,000 shares authorized, issued and outstanding, 1997, 1998 and 1999 ................................. 1 1 1 Series A-2 convertible preferred stock, $.001 par value; no shares authorized, issued and outstanding, 1997 and 1998; 125,000 shares authorized, issued and outstanding, 1999 ................................... -- -- -- Additional paid-in capital.............................. 1,593 1,987 7,781 Warrants................................................ -- -- 1,521 Deferred financing costs................................ -- -- (633) Accumulated deficit..................................... (1,203) (1,741) (6,139) Deferred compensation................................... -- -- (4,876) Note receivable from related party...................... -- (420) (315) Treasury stock.......................................... -- (461) (461) ------- ------- ------- Total stockholders' equity (deficiency)................. 395 (630) (3,117) ------- ------- ------- Total liabilities and stockholders' equity (deficiency).................................. $ 662 $ 1,033 $ 8,752 ======= ======= =======
See notes to financial statements. F-3 72 BOLT, INC. STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
PERIOD FROM AUGUST 15, 1996 YEAR ENDED NINE MONTHS ENDED (DATE OF INCEPTION) DECEMBER 31, SEPTEMBER 30, THROUGH --------------------- ----------------------- DECEMBER 31, 1996 1997 1998 1998 1999 ------------------- --------- --------- ----------- --------- (UNAUDITED) Bolt revenues................. $ -- $ 32 $ 404 $ 184 $ 1,885 Revenues related to the Girls On and custom publishing divisions................... 19 446 2,281 1,606 38 --------- --------- --------- --------- --------- Total revenues...... 19 478 2,685 1,790 1,923 --------- --------- --------- --------- --------- Costs and expenses: Production and technology... 15 810 1,138 813 2,389 E-commerce.................. -- -- -- -- 235 Sales and marketing......... 1 287 630 393 2,782 General and administrative........... 51 549 1,327 967 999 Depreciation and amortization............. 4 25 75 50 211 Stock-based compensation.... -- -- -- -- 1,256 --------- --------- --------- --------- --------- Total costs and expenses.......... 71 1,671 3,170 2,223 7,872 --------- --------- --------- --------- --------- Loss from operations.......... (52) (1,193) (485) (433) (5,949) Other income (expense): Interest income (expense), net...................... -- 42 (53) (30) 115 Gain on sale of Girls On.... -- -- -- -- 1,436 --------- --------- --------- --------- --------- Net loss...................... $ (52) $ (1,151) $ (538) $ (463) $ (4,398) ========= ========= ========= ========= ========= Basic loss per share.......... $ (.01) $ (.26) $ (.12) $ (.11) $ (1.46) ========= ========= ========= ========= ========= Weighted average number of shares of common stock outstanding................. 4,400,000 4,400,000 4,368,850 4,400,000 3,009,720 ========= ========= ========= ========= =========
See notes to financial statements. F-4 73 BOLT, INC. STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) (IN THOUSANDS, EXCEPT SHARE DATA)
CONVERTIBLE PREFERRED STOCK ----------------------------------- COMMON STOCK SERIES A-1 SERIES A-2 ADDITIONAL ------------------ ---------------- ---------------- PAID IN SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL --------- ------ ------- ------ ------- ------ ---------- Balance at August 15, 1996 (date of inception)....... -- $-- -- $-- -- $-- $ -- Issuance of common stock to founders................. 4,400,000 4 -- -- -- -- 94 Net loss............................................. -- -- -- -- -- -- -- --------- -- ------- -- ------- -- ------- Balance at December 31, 1996......................... 4,400,000 4 -- -- -- -- 94 Issuance of Series A-1 convertible preferred stock... -- -- 600,000 1 -- -- 1,499 Net loss............................................. -- -- -- -- -- -- -- --------- -- ------- -- ------- -- ------- Balance at December 31, 1997......................... 4,400,000 4 600,000 1 -- -- 1,593 Purchase of founders common stock.................... -- -- -- -- -- -- -- Sale of custom publishing division to related party............................................... -- -- -- -- -- -- 394 Net loss............................................. -- -- -- -- -- -- -- --------- -- ------- -- ------- -- ------- Balance at December 31, 1998......................... 4,400,000 4 600,000 1 -- -- 1,987 Issuance of Series A-2 convertible preferred stock in exchange for convertible note....................... -- -- -- -- 125,000 -- 450 Sale of Girls On division............................ -- -- -- -- -- -- 55 Issuance of common stock............................. 38,544 -- -- -- -- -- 24 Proceeds on payment of note receivable............... -- -- -- -- -- -- -- Issuance of warrant to purchase common stock to placement agent..................................... -- -- -- -- -- -- (868) Deferred compensation on stock options............... -- -- -- -- -- -- 6,133 Amortization of deferred compensation................ -- -- -- -- -- -- -- Issuance of warrant to purchase Series B-3 convertible preferred stock in connection with credit facility..................... -- -- -- -- -- -- -- Deferred financing costs on warrants................. -- -- -- -- -- -- -- Net loss............................................. -- -- -- -- -- -- -- --------- -- ------- -- ------- -- ------- Balance at September 30, 1999........................ 4,438,544 $4 600,000 $1 125,000 $-- $ 7,781 ========= == ======= == ======= == ======= NOTES RECEIVABLE TREASURY STOCK DEFERRED FROM ------------------ DEFERRED FINANCING RELATED SHARES AMOUNT COMPENSATION WARRANTS COSTS PARTY --------- ------ ------------ -------- --------- ---------- Balance at August 15, 1996 (date of inception)....... -- $ -- $ -- $ -- $ -- $ -- Issuance of common stock to founders................. -- -- -- -- -- -- Net loss............................................. -- -- -- -- -- -- --------- ----- ------- ------ ----- ----- Balance at December 31, 1996......................... -- -- -- -- -- Issuance of Series A-1 convertible preferred stock... -- -- -- -- -- -- Net loss............................................. -- -- -- -- -- -- --------- ----- ------- ------ ----- ----- Balance at December 31, 1997......................... -- -- -- -- -- -- Purchase of founders common stock.................... 1,421,200 (461) -- -- -- -- Sale of custom publishing division to related party............................................... -- -- -- -- -- (420) Net loss............................................. -- -- -- -- -- -- --------- ----- ------- ------ ----- ----- Balance at December 31, 1998......................... 1,421,200 (461) -- -- -- (420) Issuance of Series A-2 convertible preferred stock in exchange for convertible note....................... -- -- -- -- -- -- Sale of Girls On division............................ -- -- -- -- -- -- Issuance of common stock............................. -- -- -- -- -- -- Proceeds on payment of note receivable............... -- -- -- -- -- 105 Issuance of warrant to purchase common stock to placement agent..................................... -- -- -- 868 -- -- Deferred compensation on stock options............... -- -- (5,553) -- -- -- Amortization of deferred compensation................ -- -- 677 -- -- -- Issuance of warrant to purchase Series B-3 convertible preferred stock in connection with credit facility..................... -- -- -- 653 -- -- Deferred financing costs on warrants................. -- -- -- -- (633) -- Net loss............................................. -- -- -- -- -- -- --------- ----- ------- ------ ----- ----- Balance at September 30, 1999........................ 1,421,200 $(461) $(4,876) $1,521 $(633) $(315) ========= ===== ======= ====== ===== ===== ACCUMULATED DEFICIT TOTAL ----------- ------- Balance at August 15, 1996 (date of inception)....... $ -- $ -- Issuance of common stock to founders................. -- 98 Net loss............................................. (52) (52) ------- ------- Balance at December 31, 1996......................... (52) 46 Issuance of Series A-1 convertible preferred stock... -- 1,500 Net loss............................................. (1,151) (1,151) ------- ------- Balance at December 31, 1997......................... (1,203) 395 Purchase of founders common stock.................... -- (461) Sale of custom publishing division to related party............................................... -- (26) Net loss............................................. (538) (538) ------- ------- Balance at December 31, 1998......................... (1,741) (630) Issuance of Series A-2 convertible preferred stock in exchange for convertible note....................... -- 450 Sale of Girls On division............................ -- 55 Issuance of common stock............................. -- 24 Proceeds on payment of note receivable............... -- 105 Issuance of warrant to purchase common stock to placement agent..................................... -- -- Deferred compensation on stock options............... -- 580 Amortization of deferred compensation................ -- 677 Issuance of warrant to purchase Series B-3 convertible preferred stock in connection with credit facility..................... -- 653 Deferred financing costs on warrants................. -- (633) Net loss............................................. (4,398) (4,398) ------- ------- Balance at September 30, 1999........................ $(6,139) $(3,117) ======= =======
See notes to financial statements. F-5 74 BOLT, INC. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
PERIOD AUGUST 15, 1996 YEAR ENDED NINE MONTHS ENDED (DATE OF INCEPTION) DECEMBER 31, SEPTEMBER 30, THROUGH --------------- --------------------- DECEMBER 31, 1996 1997 1998 1998 1999 ------------------- ------- ----- ----------- ------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss............................................... $(52) $(1,151) $(538) $(463) $(4,398) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization........................ 4 25 75 50 231 Deferred stock based compensation.................... -- -- -- -- 1,256 Gain on sale of Girls On............................. -- -- -- -- (1,436) Changes in operating assets and liabilities: Increase in accounts receivable.................... (13) (136) (188) (237) (724) (Increase) decrease in prepaid expenses and other current assets................................... -- (61) 61 17 (356) (Decrease) increase in other assets................ (7) (17) (23) 1 (195) Increase in accounts payable....................... 19 153 74 129 1,585 Increase in accrued expenses....................... 22 73 138 85 130 Increase (decrease) in deferred revenues........... 8 (8) 53 32 (2) ---- ------- ----- ----- ------- Net cash used in operating activities.............. (19) (1,122) (348) (386) (3,909) ---- ------- ----- ----- ------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment................... (43) (229) (65) (55) (2,214) Proceeds from the sale of Girls On................... -- -- -- -- 386 ---- ------- ----- ----- ------- Net cash used in investing activities.............. (43) (229) (65) (55) (1,828) ---- ------- ----- ----- ------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of convertible preferred stock, net......................................... -- 1,500 -- -- 8,019 Proceeds from equipment lease financing.............. -- -- -- -- 651 Proceeds from credit facility........................ -- -- -- -- 500 Proceeds from the payment of note receivable......... -- -- -- -- 105 Proceeds from the issuance of common stock........... 72 25 -- -- 24 Proceeds from convertible note....................... -- -- 500 500 -- Payments of capital lease obligations................ -- -- (20) -- (45) Payment of convertible note payable.................. -- -- -- -- (50) Payments made for treasury stock..................... -- -- (57) -- (24) ---- ------- ----- ----- ------- Net cash provided by financing activities.......... 72 1,525 423 500 9,180 ---- ------- ----- ----- ------- Increase in cash and cash equivalents.................. 10 174 10 59 3,443 Cash and cash equivalents, beginning of period......... -- 10 184 184 194 ---- ------- ----- ----- ------- Cash and cash equivalents, end of period............... $ 10 $ 184 $ 194 $ 243 $ 3,637 ==== ======= ===== ===== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes........................... $ -- $ 1 $ 1 $ -- $ 6 Cash paid for interest............................... $ -- $ -- $ 13 $ -- $ 57 SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW TRANSACTIONS: Fixed assets acquired under capital leases........... $ -- $ -- $ 247 $ -- $ 651 Note issued to founders for treasury stock........... $ -- $ -- $ 404 $ -- $ -- Note received for net assets of custom publishing division from related party........................ $ -- $ -- $ 420 $ -- $ -- Transfer of Girls On liabilities, net................ $ -- $ -- $ -- $ -- $ 55 Conversion of promissory note........................ $ -- $ -- $ -- $ -- $ 450 Warrant issued for Series B-3 convertible preferred stock in connection with credit facility........... $ -- $ -- $ -- $ -- $ 653 Warrant issued for common stock to placement agent... $ -- $ -- $ -- $ -- $ 868
See notes to financial statements. F-6 75 BOLT, INC. NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD AUGUST 15, 1996 (DATE OF INCEPTION) TO DECEMBER 31, 1996, FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 1. THE COMPANY ORGANIZATION--Bolt, Inc., was incorporated in the State of Delaware on August 15, 1996 under the name Concrete Media, Inc. ("Concrete"). Concrete amended and restated its certificate of incorporation on January 10, 1997. As part of a reorganization, the Company sold its custom publishing business division, effective December 30, 1998, and sold its Girls On Web content site ("Girls On") effective January 29, 1999. Effective February 1999, Bolt Media, Inc. was merged into Concrete and Concrete changed its name to Bolt Media, Inc. (the "Company"). On November 17, 1999, Bolt Media, Inc. changed its name to Bolt, Inc. ("Bolt"). Prior to December 30, 1998, the Company operated through three divisions and/or subsidiaries: Bolt, a leading provider of member generated, teen focused content on the Internet through its portal site, Bolt. com; Custom Publishing, which provided Web site development and related services to third parties; and Girls On, a leading provider of entertainment-related content, written by and focused toward young women. 2. SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES BASIS OF PRESENTATION--The financial statements include the accounts of Bolt, Inc., and its wholly-owned subsidiary from the date of inception through the period December 31, 1998. The subsidiary was merged with and into the Company on February 16, 1999 (see note 1). All significant intercompany accounts and transactions have been eliminated in consolidation through December 31, 1998. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect the reported amount of assets and liabilities and disclosures 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 these estimates. CASH AND CASH EQUIVALENTS--The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. PROPERTY AND EQUIPMENT AND RELATED DEPRECIATION AND AMORTIZATION--Property and equipment are stated at cost, and in the case of equipment under capital leases, the present value of the future minimum lease payments, less accumulated depreciation and amortization. Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the depreciable assets, which range from three to seven years, or the lease term. Improvements are capitalized, while repair and maintenance costs are charged to operations as incurred. Depreciation and amortization expense was $4,310, $24,844, $75,000, $50,000, and $211,000 for the period August 15, 1996 to December 31, 1996, for years ended December 31, 1997 and 1998, and for the nine month periods ended September 30, 1998 (unaudited) and 1999, respectively. INVESTMENTS--Investments in less than 20% of the share capital of other companies are presented at cost. In the event that management identifies a decline of an other than temporary nature in the estimated fair value of an investment to an amount below cost, such investment will be written down to fair market value. IMPAIRMENT OF ASSETS--The Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. When such events occur, the Company measures impairment by comparing the carrying value of the long-lived asset to the F-7 76 BOLT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) estimated undiscounted future cash flows expected to result from use of the assets and their eventual disposition. If the sum of the expected undiscounted future cash flows were less than the carrying amount of the assets, the Company would recognize an impairment loss. The impairment loss, if determined to be necessary, would be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. The Company determined that, as of December 31, 1997, 1998 and September 30, 1999, there had been no impairment in the carrying value of its long-lived assets. COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE--As of January 1, 1999, costs of computer software developed or obtained for internal use are capitalized while in the application development stage and are expensed while in the preliminary stage and post-implementation stage. The Company amortizes these capitalized costs over the life of the systems, which is estimated to be four years. The Company capitalized approximately $1.4 million of internal development and software purchase costs relating to its Web site incurred during the application development stage. Prior to January 1, 1999 the Company expensed all internal costs related to software development. DEFERRED REVENUES--Deferred revenues represents amounts billed in excess of revenues recognized. Included in accounts receivable are amounts due (under contract) relating to deferred revenues. REVENUE RECOGNITION--Income is derived from a variety of sources, including advertising, custom publishing and syndication and E-commerce. Revenues from advertising are derived from the sale of advertising space on the Company's different online services, typically include the guarantee of a minimum number of impressions (times that an advertisement is viewed by members of the Company's online service) and are recognized ratably as impressions are delivered over the period of the advertising contract. Revenues from custom publishing projects and production services from customers that advertise on our site are recognized as earned, over the term of each project. Substantially all projects were completed by December 31, 1997, 1998 and September 30, 1999. E-commerce revenues are recognized when the products are shipped. We also generate e-commerce revenues by charging transaction fees to retailers and e-commerce companies that wish to use our site to promote their products and services as well as to purchase premiere positioning on our site. Generally these companies pay us either a flat fee, a fee based on retail sales to our members or a combination of the two. We recognize transaction fee revenues when earned from our third party partners or, in cases where we receive a flat fee, based on the term of the contract. INCOME TAXES--The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes," pursuant to which deferred income tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities, using enacted tax rates currently in effect. State and local taxes are based on factors other than income. NET LOSS PER COMMON SHARE--Basic loss per common share was computed by dividing net loss by the weighted average number of shares of common stock outstanding. Diluted loss per share has not been presented since the impact for options and warrants, and conversion of preferred shares would have been anti- dilutive (see notes 11 & 13). RECENT ACCOUNTING PRONOUNCEMENTS--In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components. The Company has no elements of comprehensive income and the net loss reported in the statements of operations is equivalent to the total comprehensive loss. Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for the way business enterprises F-8 77 BOLT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) report information about operating segments, as well as enterprise-wide disclosures about products and services, geographic areas and major customers. The Company operates in one segment in the United States. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and hedging activities. Generally, it requires than an entity recognize all derivatives as either an asset or liability and measure those instruments at fair value, as well as identify the conditions for which a derivative may be specifically designed as a hedge. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. The Company does not currently engage or plan to engage in any derivative or hedging activities. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." This statement requires companies to capitalize qualifying computer software costs which are incurred during the application development stage and amortize them over the software's estimated useful life. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. The Company adopted the requirements of SOP 98-1 as of January 1, 1999. FAIR VALUE OF FINANCIAL INSTRUMENTS--The Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, and notes payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments and the relatively stable interest rate environment. UNAUDITED FINANCIAL INFORMATION--The interim financial information for the nine months ended September 30, 1998, and the related notes, are unaudited. The unaudited interim financial information has been prepared on the same basis as the annual financial statements and, in the opinion of management, reflects all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results of operations and cash flows for the nine months period ended September 30, 1998. 3. SALE OF CERTAIN PORTIONS OF THE BUSINESS CUSTOM PUBLISHING--On December 30, 1998, the Company sold its custom publishing division, primarily comprised of the name "Concrete Media," the division's customer list, certain computer equipment and all related liabilities of the division to a related party, Concrete Media Construction, LLC (the "LLC"). The selling price was $420,000, payable in the form of two promissory notes, one for $105,000 and one for $315,000. At December 31, 1998, the notes receivable were reflected as a reduction of stockholders' equity. The first note was paid on January 29, 1999 and the other note is due on December 30, 2001. The amount in excess of the carrying value of net assets transferred to the LLC was recorded as additional paid-in capital. The Company continues to provide customers with content production services related to advertising or product presentation on the Company's Web site. GIRLS ON--On January 29, 1999, the Company sold all assets of the business of Girls On (primarily the name "Girls On," related trademarks and the software code necessary to operate the site) to a subsidiary of the LLC, Girls On, Inc. in exchange for Girls On, Inc.'s assumption of all current and future liabilities of Girls On. The Girls On sale agreement included a provision entitling the Company to additional contingent consideration based on a formula set forth in the agreement. On August 5, 1999, the LLC sold Girls On to Oxygen Media, LLC. In connection with this sale, pursuant to the contingent consideration provision of the agreement, the Company received $386,000 in cash as well as equity securities in Oxygen Media with a fair value of $1,050,000. The gain of $1,436,000 was recognized in the third quarter of 1999. F-9 78 BOLT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 4. CONCENTRATION OF CREDIT RISK Financial instruments, which subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, and trade accounts receivable. The Company maintains cash and cash equivalents with various domestic financial institutions. The Company performs periodic evaluations of the relative credit standing of these institutions. From time to time, the Company's cash balances with any one financial institution may exceed Federal Deposit Insurance corporation insurance limits. The Company's customers are concentrated in the United States. The Company performs ongoing credit evaluations, generally does not require collateral and establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of customers, historical trends and other information; to date such losses have been within management's expectations. 5. PROPERTY AND EQUIPMENT At December 31, 1997 and 1998 and September 30, 1999, property and equipment consisted of the following (in thousands):
DECEMBER 31, ------------ SEPTEMBER 30, DESCRIPTION 1997 1998 1999 - ------------------------------------------------------ ---- ---- ------------- Computer equipment, including assets under capital leases.............................................. $222 $365 $2,316 Furniture and fixtures................................ 49 193 363 ---- ---- ------ 271 558 2,679 Less accumulated depreciation and amortization........ 29 104 302 ---- ---- ------ Property, plant and equipment, net.................... $242 $454 $2,377 ==== ==== ======
6. INCOME TAXES No provision for income taxes has been made because the Company has sustained cumulative losses since the commencement of operations. At September 30, 1999, the Company had net operating loss carryforwards ("NOLs") of approximately $6,209,000, which will be available to reduce future taxable income. The NOLs are expected to expire in the following years (in thousands):
YEAR ENDING DECEMBER 31, - ------------------------------------------------------------ 2012........................................................ $1,166 2013........................................................ 554 2014........................................................ 4,489 ------ $6,209 ======
In accordance with SFAS No. 109, the Company has computed the components of deferred income taxes as follows (in thousands):
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1997 1998 1999 ------------ ------------ ------------- Deferred tax assets................... $ 670 $ 771 $ 2,918 Less valuation allowance.............. (670) (771) (2,918) ----- ----- ------- Net deferred taxes.................... $ 0 $ 0 $ 0 ===== ===== =======
F-10 79 BOLT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The Company's NOLs primarily generated the deferred tax assets. At December 31, 1997 and 1998 and September 30, 1999, a valuation allowance was provided as the realization of the deferred tax benefits is not likely. 7. CONVERTIBLE PROMISSORY NOTE On January 22, 1998, the Company entered into a convertible promissory note with the Series A preferred stockholder whereby the Company received a $500,000 loan, due July 22, 1998, or thereafter on demand. The note bears interest at 10% per annum. On February 17, 1999, a portion of the note was paid, along with accrued interest. The balance of this note was then converted into 125,000 shares of Series A-2 preferred stock (see note 11). 8. SHORT TERM DEBT In August 1999, the Company entered into a short-term revolving line of credit of up to $500,000 with a financing company, maturing on September 1, 2000. Borrowings under this line are made available to the Company against certain eligible receivables as defined in the agreement and bear interest at prime (8 1/4 percent as of September 30, 1999) plus one percent. As of September 30, 1999, $500,000 was outstanding under the line. The loan is collateralized by the Company's cash and cash equivalents and accounts receivable. 9. COMMITMENTS OFFICE LEASES--In August 1998, the Company entered into a sublease agreement to rent office space through February 27, 2007. Rent expense was $8,675, $52,523, $111,859, $89,699 and $148,508 for the period August 15, 1996 to December 31, 1996, for the years ended December 31, 1997 and 1998, and for the nine month period ended September 30, 1998 (unaudited) and 1999, respectively. Future minimum payments under the operating lease are as follows (in thousands): Three months ending December 31, 1999....................... $ 66 Year ending December 31, 2000............................... 265 Year ending December 31, 2001............................... 265 Year ending December 31, 2002............................... 265 Year ending December 31, 2003............................... 265 Year ending December 31, 2004............................... 265 Thereafter.................................................. 574 ------ Total minimum lease payments...................... $1,965 ======
EQUIPMENT LEASES--In August 1999, the Company entered into an equipment lease financing agreement with a financing company. The agreement provides for borrowings not to exceed $1,000,000 which are secured by the Company's equipment and fixtures, and expires at the end of each lease term. The Company has an option to increase this lease line by an additional $500,000 by providing written notice. As of September 30, 1999, $651,023 was outstanding under the line. In addition, the Company issued the financing company a warrant to purchase preferred stock (see note 10). F-11 80 BOLT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The Company is a lessee under several capital lease agreements with third parties for certain equipment. Future minimum lease payments under noncancelable capital leases, together with the present value of the net minimum payments as of September 30, 1999, are as follows (in thousands): Three months ending December 31, 1999....................... $ 78 Year ending December 31, 2000............................... 311 Year ending December 31, 2001............................... 282 Year ending December 31, 2002............................... 205 Year ending December 31, 2003............................... 23 Year ending December 31, 2004............................... 23 Thereafter.................................................. 49 ---- Total minimum lease payments...................... $971 ---- Less: amounts representing interest......................... 138 ---- Present value of minimum capital lease payments............. 833 Less: current portion....................................... 255 ---- Long-term capitalized lease obligations..................... $578 ====
The assets and liabilities under capital leases are recorded at the present value of the minimum lease payments using effective interest rates ranging from 8 percent to 21 percent per annum. 10. REDEEMABLE CONVERTIBLE PREFERRED STOCK In February 1999, the Company sold 1,317,205 shares of Series B-1 and B-2 Convertible Preferred Stock (the "Series B Preferred Stock") to a group of investors. The net proceeds to the Company were approximately $8,019,000. Currently each share of Series B Preferred Stock is convertible, at any time, at the option of the holder, into four shares of common stock. The Company will be required to redeem all outstanding shares of Series B Preferred Stock on February 23, 2004. The Series B-1 Preferred Stock will be redeemed for $6.20 per share plus all declared and unpaid dividends, if any. The Series B-2 Preferred Stock will be redeemed for $7.44 per share plus all declared and unpaid dividends, if any. The carrying value of the Series B Preferred Stock is its redemption value, as no dividends have been declared or paid on these shares. The Series B Preferred stockholders have senior preference and priority as to the dividends of the Company. If declared, dividends on the Series B shares shall accrue at 8% of the $6.20 stated value of the Series B-1 Preferred Stock and at 8% of the $7.44 stated value of the Series B-2 Preferred Stock. Series B Preferred Stock dividends are not cumulative. Series B and Series A Preferred stockholders are entitled to voting rights equal to the number of shares of Common Stock into which the preferred stock is convertible. These holders have additional voting rights regarding matters that affect their series of preferred stock and certain other matters. 11. STOCKHOLDERS' EQUITY (DEFICIENCY) PREFERRED STOCK--In January 1997, the Company sold 600,000 shares of Series A-1 Convertible Preferred Stock to an investor in a private placement. The Company received net proceeds of $1,500,000. Currently, each share of Series A-1 Preferred Stock is convertible, at the option of the holder, into four shares of Common Stock. In February 1999, the holder of the convertible promissory note (see note 7) exercised its option to convert the convertible promissory note after the Company made payments of $50,000 of principal and F-12 81 BOLT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) $52,479 of interest. The remaining $450,000 under this note was converted into 125,000 shares of Series A-2 Preferred Stock. Each share of Series A-2 Preferred Stock is convertible into four shares of Common Stock. The Series A-1 and Series A-2 (the "Series A Preferred Stock") Preferred Stockholders have senior preference and priority to the Common Stock to the dividends of the Company. Dividends payable on the Series A Preferred Stock, if declared, will be payable at a rate per annum determined by the Company's Board of Directors. Series A Preferred Stock Dividends are not cumulative. After dividends are paid on the Company's Series B Preferred Stock and Series A Preferred Stock, holders of such shares shall participate with the holders of the Company's Common Stock in the issuance of any further dividends ratably in proportion to the number of shares of Common Stock that would be held by each such holder if all outstanding shares of the Company's Series B Preferred Stock and Series A Preferred Stock were converted into common stock. TREASURY STOCK--In July 1998, a founder left the Company. Under the terms of a Shareholders' Agreement, on December 22, 1998, the Company repurchased 710,600 shares for approximately $.0125 per share. The balance of the founder's shares, 710,600 shares, were repurchased at a price of $.625 per share. The total purchase price of $453,750 was paid as follows: $50,000 upon closing, and the balance in the form of a promissory note. The note requires twenty-two monthly payments of $2,750 each, and a payment of $50,000 due December 22, 1999, and the balance of $293,250 with interest, is due November 2000. In addition, the Company incurred $7,203 of expenses related to this transaction. WARRANTS--The Company has issued a warrant to purchase 40,000 shares of Common Stock at $.025 per share to a placement agent in connection with the Series B Preferred Stock financing. This warrant may be exercised in the event of any of the following: (a) a sale of assets of the Company for which stockholder approval is required, (b) a sale of shares of Common Stock of the Company pursuant to an effective registration Statement, (c) the purchase of more than 66 2/3% of the Company's Common Stock by any person or entity and (d) a merger or consolidation of the Company which existing shareholders do not own a majority of the shares of the surviving entity. The Company has recorded this warrant at $868,000 using the Black Scholes option pricing method and has reduced additional paid in capital for a like amount. In connection with an equipment lease line of credit, the Company has granted a warrant to purchase Series B-3 Preferred Stock. This warrant expires on August 31, 2006. Initially the warrant was for 8,065 Shares of Series B-3 Preferred Stock and was valued at $652,484 using the Black Scholes option pricing model. However, this warrant is adjustable and the final number of shares issuable and the exercise price per share will be based on a future financing event. An offset in the stockholders' equity section has been recorded as deferred financing costs and will be amortized over the three-year life of the financing agreement (see note 16 for the final terms of this warrant). 12. RETIREMENT PLAN The Company has a 401(k) Retirement/Savings Plan (the "401(k) Plan") for all eligible employees. Employees are eligible to participate on the first semi-annual enrollment date after their date of hire. The Company is not required to, but may make discretionary contributions to the 401(k) Plan. The Company did not make any voluntary contributions to the 401(k) Plan for the years ended December 31, 1997, and 1998 or for the nine month period ended September 30, 1999. 13. STOCK OPTION PLANS The Company has established the 1997 Stock Option Plan (the "1997 Plan") and the 1999 Employee, Director and Consultant Stock Option Plan (the "1999 Plan") to reward employees, consultants and directors for service to the Company and to provide incentives for future service and enhancement of shareholder value. F-13 82 BOLT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) As of September 30, 1999, the 1997 Plan and the 1999 Plan provided for awards of up to 424,544 and 2,537,948 shares of common stock of the Company, respectively. Options granted under these plans typically vest over a four-year period with 25% vesting in the first year of grant and the remainder vesting equally each month over a thirty-six month period. A total of 2,659,000 options had been granted under these plans as of September 30, 1999. The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations in accounting for its employee stock options. Transactions involving the incentive stock options granted to employees are summarized as follows:
WEIGHTED AVERAGE NUMBER EXERCISE EXERCISE OF OPTIONS PRICE PRICE ---------- -------- -------- Granted.......................................... 570,000 $ .625 $ .625 Exercised........................................ -- $ .625 $ .625 Canceled......................................... -- $ .625 $ .625 --------- Outstanding, December 31, 1997................... 570,000 Granted.......................................... 160,000 $ .625 $ .625 Exercised........................................ -- $ .625 $ .625 Canceled......................................... (102,000) $ .625 $ .625 --------- Outstanding, December 31, 1998................... 628,000 Granted.......................................... 2,273,000 $ .58 $ .58 Exercised........................................ (38,544) $ .58 $ .58 Canceled......................................... (203,456) $ .58 $ .58 --------- Outstanding, September 30, 1999.................. 2,659,000 =========
There were 37,042, 59,375 and 1,004,433 options exercisable as of December 31, 1997, December 31, 1998 and September 30, 1999, respectively. These plans also provide for stock appreciation rights ("SAR's"). As of September 30, 1999, no SAR's had been granted. SFAS No. 123, Accounting for Stock-Based Compensation, provides for a fair value based method of accounting for employee options and options granted to non-employees and measures compensation expense using an option valuation model that takes into account, as of the grant date, the exercise price and expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the expected term of the options. For each of the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1999, no options were granted to non-employees. F-14 83 BOLT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) In connection with the issuance of certain options at prices below the fair market value, the Company had recorded deferred compensation expense of $4.9 million as of September 30, 1999, representing the difference between the exercise price and the deemed fair market value of the Company's common stock at such date. Such amount is included as a reduction of stockholders' equity and is being amortized by charges to operations over the vesting period. Amortization of deferred compensation amounted to $677,250 for the nine months ended September 30, 1999. On February 19, 1999, the Company granted 710,600 stock options to two of the Company's founders at an exercise price of $.58. Such options vested immediately. The Company has recorded a charge of $579,139, representing the difference between the exercise price and the deemed fair market value of the Company's common stock at such date. Pro forma disclosure as if the Company adopted the cost recognition requirement under SFAS 123 is presented below (in thousands).
NINE MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1997 1998 1999 ----------------- ----------------- ------------------ Net loss applicable to common shares--as reported.............................. $1,151 $538 $4,398 Net loss applicable to common shares--pro forma..................... $1,163 $552 $5,107 Loss per common share--as reported...... $.26 $.12 $1.46 Loss per common share--pro forma........ $.26 $.13 $1.70
The Company used the Black-Scholes option pricing model to estimate fair value utilizing the following assumtions for the respective years (all numbers shown are weighted averages):
NINE MONTHS YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31, SEPTEMBER 30, 1997 1998 1999 ----------------- ----------------- ------------------ Risk-free interest rate................. 4.62% 4.62% 6.00% Expected life of options................ 3.25 years 3.25 years 3.25 years Expected annual volatility.............. .001% .001% 50% Expected dividend yield................. none none none
14. MAJOR CUSTOMERS Revenues from one customer represented 25% of total revenues for the nine months ended September 30, 1999. Revenues from one customer represented 52% of total revenues in 1998. Revenues from two customers represented 15% and 10% of total revenues in 1997 and 81% and 19% for the period August 15, 1996 (date of inception) through December 31, 1996. 15. RELATED PARTY TRANSACTIONS On December 30, 1998, the Company entered into an agreement whereby the Company and the LLC have been providing and will continue to provide certain services to each other as defined in the agreement. These amounts are determined based on the actual costs incurred related to such services provided. F-15 84 BOLT, INC. NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 16. SUBSEQUENT EVENTS STOCK SPLIT--On November 17, 1999, the Company effected a four-for-one stock split of each outstanding share of common stock. The four-for-one stock split described above has been applied retrospectively for all periods presented. SERIES C FINANCING--On November 17, 1999, November 23, 1999 and December 6, 1999, the Company sold an aggregate of 3,787,801 shares of Series C Convertible Preferred Stock ("Series C Preferred Stock") to a group of investors for $10.25 per share. The Company received gross proceeds from this sale of approximately $38.8 million. The Company will be required to redeem all of the shares of Series C Preferred Stock and Series B Preferred Stock on November 17, 2004. The Series C Preferred Stock is redeemable at an amount equal to $10.25 per share (subject to appropriate adjustment for any recapitalization events), plus an amount equal to all declared and unpaid dividends, if any. Currently, each share of Series C Preferred Stock is convertible, at any time, at the option of the holder, into one share of common stock. INCREASE IN AUTHORIZED STOCK--In connection with the Series C financing, the Company amended and restated its certificate of incorporation to increase the number of authorized shares of common stock and preferred stock to an aggregate of 30,000,000 and 7,500,000, respectively. ADJUSTMENT OF SERIES B-3 PREFERRED STOCK WARRANT--The terms of the warrant issued by the Company in connection with the equipment lease line of credit (see note 11) have been finalized. This warrant is now exercisable for up to 1,975 shares of Series B-3 Preferred Stock at an exercise price of $30.37 per share and has a redemption value of $30.37 per share plus all declared and unpaid dividends, if any. Each share of Series B-3 Preferred Stock is convertible into four shares of the Company's Common Stock. Upon the completion of an initial public offering of the Company's Common Stock, this warrant will automatically convert into a warrant to purchase 7,900 shares of Common Stock at an exercise price of $7.59 per share. INCREASE IN SHARES UNDER STOCK PLAN--On November 17, 1999, the board of directors and the stockholders of the Company approved an amendment to the 1999 Plan to increase the number of shares of Common Stock issuable thereunder to 3,077,948. AGREEMENT WITH AMERICA ONLINE, INC.--In the fourth quarter of 1999, the Company entered into an agreement with America Online, Inc. ("AOL"). The agreement requires the Company to manage and monitor AOL's teen channel as well as to develop a version of Bolt's primary web site that adheres to AOL teen content policies. In return, the Company will receive a minimum number of impressions during the term of the agreement based on branded content and promotional placements that will appear on a variety of AOL properties. The Company will pay AOL a cash amount over the course of 18 months and will provide AOL with certain programming content. The Company will amortize the cost of this agreement ratably as the impressions are delivered. The value of the services the Company will provide to AOL will be recognized as barter revenues as the Company's services are delivered to AOL. AGREEMENT WITH FORD MOTOR COMPANY, INC.--In the fourth quarter of 1999, the Company entered into an agreement with Ford Motor Company, Inc. ("Ford") under which the Company will create, manage and provide certain content for a co-branded area of the Company's site. The Company will also provide market research information to Ford. The agreement is to run from January 1, 2000 through December 31, 2002, but may be terminated by either party on December 31, 2000 or 2001. Ford has agreed to pay the Company a cash amount over the course of the contract life in exchange for the above services and for a scheduled minimum number of guaranteed impressions as defined in the agreement. The Company will recognize the revenue derived from this agreement ratably as such impressions are delivered in accordance with the terms of the agreement. F-16 85 [DESCRIPTION OF GRAPHICS] The graphic at the top of the page contains the following phrases: "Bolt Profiles give members the chance to find out more about each other (Info about Me, My Homepage, My Board Posts, and Diary), contact each other [Notes], and respond to each other's personal polls [Tagbook]"; and "Stats: 40k notes sent per day, 45k board posts per day, 75k poll responses per day and 600K email accounts." The remainder of the page contains a graphic which is a sample profile application, "SupaFlyGuy", which includes "stats" regarding the age, sex, birthday, zodiac sign, country of, and membership information for the member. Click-throughs from various links from the profile are displayed around the profile, such as samples of various applications for "info about me", "diary", "tagbook", "my board posts", "send notes", and "my homepage". Directly below the profile application page is a quote from a member, which states: "Bolt cuts out the fluff. It's about the people who use it, what we want to see, our lives." 86 BOLT.COM LOGO 87 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth an itemization of all estimated expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered: SEC Registration Fee........................................ $ 12,144 Nasdaq National Market Listing Fee.......................... 90,000 NASD Filing Fee............................................. 5,100 Printing and Engraving Fees................................. 150,000 Legal Fees and Expenses..................................... 375,000 Accounting Fees and Expenses................................ 325,000 Blue Sky Fees and Expenses.................................. 10,000 Transfer Agent and Registrar Fees........................... 10,000 Miscellaneous............................................... 22,756 ---------- Total............................................. $1,000,000 ==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Our certificate of incorporation provides that we shall indemnify, to the fullest extent authorized by the Delaware General Corporation Law, each person who is involved in any litigation or other proceeding because such person is or was a director or officer of Bolt, Inc. or is or was serving as an officer or director of another entity at our request, against all expense, loss or liability reasonably incurred or suffered in connection therewith. Our certificate of incorporation provides that the right to indemnification includes the right to be paid expenses incurred in defending any proceeding in advance of its final disposition, provided, however, that such advance payment will only be made upon delivery to us of an undertaking, by or on behalf of the director or officer, to repay all amounts so advanced if it is ultimately determined that such director is not entitled to indemnification. If we do not pay a proper claim for indemnification in full within 60 days after we receive a written claim for such indemnification, our bylaws authorize the claimant to bring an action against us and prescribes what constitutes a defense to such action. Section 145 of the Delaware General Corporation Law permits a corporation to indemnify any director or officer of the corporation against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in connection with any action, suit or proceeding brought by reason of the fact that such person is or was a director or officer of the corporation, if such person acted in good faith and in a manner that he reasonably believed to be in, or not opposed to, the best interests of the corporation, and, with respect to any criminal action or proceeding, if he or she had no reason to believe his or her conduct was unlawful. In a derivative action, (i.e., one brought by or on behalf of the corporation), indemnification may be provided only for expenses actually and reasonably incurred by any director or officer in connection with the defense or settlement of such an action or suit if such person acted in good faith and in a manner that he or she reasonably believed to be in, or not opposed to, the best interests of the corporation, except that no indemnification shall be provided if such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the court in which the action or suit was brought shall determine that the defendant is fairly and reasonably entitled to indemnity for such expenses despite such adjudication of liability. II-1 88 Pursuant to Section 102(b)(7) of the Delaware General Corporation Law, Article Tenth of our certificate of incorporation eliminates the liability of a director to us or our stockholders for monetary damages for such a breach of fiduciary duty as a director, except for liabilities arising: - from any breach of the director's duty of loyalty to us or our stockholders; - from acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; - under Section 174 of the Delaware General Corporation Law; and - from any transaction from which the director derived an improper personal benefit. We carry insurance policies insuring our directors and officers against certain liabilities that they may incur in their capacity as directors and officers. Additionally, reference is made to the Underwriting Agreement filed as Exhibit 1.1 hereto, which provides for indemnification by the underwriters of Bolt, our directors and officers who sign the Registration Statement and persons who control Bolt, under certain circumstances. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In the three years preceding the filing of this Registration Statement, we have sold the following securities that were not registered under the Securities Act. The following information gives effect to a 4-for-1 split of our common stock effected on November 17, 1999. (a) ISSUANCES OF CAPITAL STOCK AND WARRANTS The sale and issuance of the securities described in paragraphs (1) through (8) below were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2) or Regulation D promulgated thereunder. (1) On September 1, 1996, we issued a total of 4,400,000 shares of common stock to two of our founders for $.00002 per share. We repurchased 1,421,200 of these shares in December 1998. (2) On January 10, 1997, we sold and issued a total of 600,000 shares of Series A-1 Convertible Preferred Stock for $2.50 per share to one investor in a private placement. Each share of our Series A-1 preferred stock is convertible into four shares of our common stock. (3) On February 22, 1999, we issued 125,000 shares of Series A-2 Convertible Preferred Stock to one investor in exchange for $450,000 of principal of a note payable by Bolt. Each share of our Series A-2 preferred stock is convertible into four shares of our common stock. (4) On February 23, 1999, we sold and issued a total of 1,048,387 shares of Series B-1 Convertible Preferred Stock for $6.20 per share to 18 investors in a private placement. Each share of our Series B-1 preferred stock is convertible into four shares of our common stock. (5) On March 1, 1999, we sold and issued a total of 268,818 shares of Series B-2 Convertible Preferred Stock for $7.44 per share to two investors in a private placement. Each share of our Series B-2 preferred stock is convertible into four shares of our common stock. (6) On November 17, 1999, November 23, 1999 and December 6, 1999, we sold and issued a total of 3,787,801 shares of Series C Convertible Preferred Stock for $10.25 per share to 32 investors in a private placement. Each share of our Series C preferred stock is convertible into one share of our common stock. (7) On April 22, 1999, we issued a warrant to purchase 40,000 shares of our common stock at an exercise price of $.025 per share to one investor. II-2 89 (8) On August 23, 1999, we issued a warrant to purchase 1,975 shares of our Series B-3 Convertible Preferred Stock at an exercise price of $30.37 per share to one investor. Each share of our Series B-3 preferred stock is convertible into four shares of our common stock. (b) CERTAIN GRANTS AND EXERCISES OF STOCK OPTIONS The sale and issuance of the securities described below were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act, as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under Rule 701. Pursuant to our 1999 Employee, Director and Consultant Stock Option Plan and our 1997 Stock Option Plan, we have issued options to purchase an aggregate of 3,222,000 shares of common stock. Of these options: - options to purchase 589,856 shares of common stock have been canceled or lapsed without being exercised; - options to purchase 38,544 shares of common stock have been exercised; and - options to purchase a total of 2,593,600 shares of common stock are currently outstanding, at a weighted average exercise price of $.82 per share. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) EXHIBITS
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- *1.1 Form of Underwriting Agreement. 3.1 Restated Certificate of Incorporation of the Registrant. *3.2 Restated Certificate of Incorporation of the Registrant to be filed upon completion of this offering. 3.3 Amended and Restated Bylaws of the Registrant. *3.4 Restated Bylaws of the Registrant to be effective upon completion of this offering. *4.1 Form of Common Stock Certificate. *5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with respect to the legality of securities being registered. 10.1 The Registrant's 1999 Employee, Director and Consultant Stock Option Plan. 10.2 The Registrant's 1997 Stock Option Plan. 10.3 Second Amended and Restated Registration Rights Agreement, dated November 17, 1999 by and between the Registrant and Certain Stockholders. 10.4 Agreement of Sublease, dated August 15, 1998, by and between Avalanche Solutions, Inc. and the Registrant. 10.5 Office Service Agreement, dated October 29, 1999, by and between Vantas West Wacker, Inc., dba VANTAS, and the Registrant. 10.6 Office Service Agreement, dated June 30, 1999, by and between Vantas and the Registrant. *10.7 Anchor Tenant Agreement, dated November 16, 1999, by and between America Online, Inc. and the Registrant. *10.8 Special Delivery/Special Offer Agreement, dated August 15, 1999, by and between Lycos, Inc. and the Registrant. *10.9 Agreement, dated November 17, 1999, by and between Ford Motor Co. and the Registrant. *10.10 Anchor Provider Agreement, dated August 27, 1999, by and between Microsoft Corporation and the Registrant. *10.11 Advertising Insertion Order, dated September 1, 1999, by and between Yahoo! Inc. and the Registrant.
II-3 90
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.12 Asset Purchase and Assumption of Liabilities Agreement, dated December 30, 1998, by and between the Registrant and Concrete Media Construction, LLC. 10.13 Asset Purchase and Assumption of Liabilities Agreement, dated January 29, 1999, by and between the Registrant and Girls On, Inc. 23.1 Consent of Deloitte & Touche LLP * 23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see Exhibit 5.1) 24.1 Powers of Attorney (See page II-5) 27.1 Financial Data Schedule
- ------------ * To be filed by amendment. (b) FINANCIAL STATEMENT SCHEDULES Financial Statement Schedules are omitted because the information is included in our financial statements or notes to those financial statements. ITEM 17. UNDERTAKINGS. The undersigned registrant hereby undertakes 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 directors, officers and controlling persons of the registrant pursuant to the provisions described under Item 14 above, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 91 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York, on December 21, 1999. BOLT, INC. By: /s/ DANIEL A. PELSON ------------------------------------ Daniel A. Pelson President & Chief Executive Officer POWER OF ATTORNEY We the undersigned officers and directors of Bolt, Inc., hereby severally constitute and appoint Daniel A. Pelson and Al Pastino, and each of them singly (with full power to each of them to act alone), our true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution in each of them for him and in his name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement (or any other Registration Statement for the same offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite or 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 all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities held on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DANIEL A. PELSON President, Chief Executive December 21, 1999 - --------------------------------------------------- Officer and Director Daniel A. Pelson (principal executive officer) /s/ ALBERT G. PASTINO Chief Financial Officer December 21, 1999 - --------------------------------------------------- (principal financial and Albert G. Pastino accounting officer) /s/ ROBERT DOVE Director December 21, 1999 - --------------------------------------------------- Robert Dove /s/ WILLIAM PEABODY Director December 21, 1999 - --------------------------------------------------- William Peabody /s/ SAMANTHA MCCUEN Director December 21, 1999 - --------------------------------------------------- Samantha McCuen /s/ STEPHEN J. HARRICK Director December 21, 1999 - --------------------------------------------------- Stephen J. Harrick /s/ ALAN COLNER Director December 21, 1999 - --------------------------------------------------- Alan Colner
II-5 92 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- *1.1 Form of Underwriting Agreement. 3.1 Restated Certificate of Incorporation of the Registrant. *3.2 Restated Certificate of Incorporation of the Registrant to be filed upon completion of this offering. 3.3 Amended and Restated Bylaws of the Registrant. *3.4 Restated Bylaws of the Registrant to be effective upon completion of this offering. *4.1 Form of Common Stock Certificate. *5.1 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. with respect to the legality of securities being registered. 10.1 The Registrant's 1999 Employee, Director and Consultant Stock Option Plan. 10.2 The Registrant's 1997 Stock Option Plan. 10.3 Second Amended and Restated Registration Rights Agreement, dated November 17, 1999 by and between the Registrant and Certain Stockholders. 10.4 Agreement of Sublease, dated August 15, 1998, by and between Avalanche Solutions, Inc. and the Registrant. 10.5 Office Service Agreement, dated October 29, 1999, by and between Vantas West Wacker, Inc., dba VANTAS, and the Registrant. 10.6 Office Service Agreement, dated June 30, 1999, by and between Vantas and the Registrant. *10.7 Anchor Tenant Agreement, dated November 16, 1999, by and between America Online, Inc. and the Registrant. *10.8 Special Delivery/Special Offer Agreement, dated August 15, 1999, by and between Lycos, Inc. and the Registrant. *10.9 Agreement, dated November 17, 1999, by and between Ford Motor Co. and the Registrant. *10.10 Anchor Provider Agreement, dated August 27, 1999, by and between Microsoft Corporation and the Registrant. *10.11 Advertising Insertion Order, dated September 1, 1999, by and between Yahoo! Inc. and the Registrant. 10.12 Asset Purchase and Assumption of Liabilities Agreement, dated December 30, 1998, by and between the Registrant and Concrete Media Construction, LLC. 10.13 Asset Purchase and Assumption of Liabilities Agreement, dated January 29, 1999, by and between the Registrant and Girls On, Inc. 23.1 Consent of Deloitte & Touche LLP *23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see Exhibit 5.1) 24.1 Powers of Attorney (See page II-5) 27.1 Financial Data Schedule
- ------------ * To be filed by amendment. EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 RESTATED CERTIFICATE OF INCORPORATION OF BOLT MEDIA, INC. Bolt Media, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: 1. The name of the Corporation is Bolt Media, Inc. 2. The Corporation was originally incorporated under the name "Concrete Media, Inc.", and the original Certificate of Incorporation of the Corporation was filed with the Secretary of the State of Delaware on August 15, 1996. 3. The Corporation filed a Restated Certificate of Incorporation of the Corporation with the Secretary of the State of Delaware on January 10, 1997 and further amended such Restated Certificate of Incorporation by filing with the Secretary of the State of Delaware (i) a Certificate of Ownership and Merger to change the name of the Corporation from "Concrete Media, Inc." to "Bolt Media, Inc." on February 16, 1999, (ii) an Amendment to Restated Certificate of Incorporation of the Corporation on February 22, 1999, (iii) a Restated Certificate of Incorporation of the Corporation on March 1, 1999 and (iv) an Amendment to the Restated Certificate of Incorporation of the Corporation on March 9, 1999. 4. This Amended and Restated Certificate of Incorporation was duly adopted in accordance with the provisions of Sections 141(f), 242, 245 and 228 of the General Corporation Law of the State of Delaware by the unanimous written consent of the Corporation's Board of Directors and by the Corporation's stockholders having not less than the minimum number of votes required to adopt this Amended and Restated Certificate of Incorporation, with written notice being provided to all stockholders in accordance with Section 228(d) of such law. This Amended and Restated Certificate of Incorporation restates, integrates, amends and supersedes the provisions of the Certificate of Incorporation of this Corporation as heretofore amended. 5. The text of the Certificate of Incorporation as heretofore amended is hereby restated and further amended to read in its entirety as follows: FIRST. The name of the Corporation is Bolt, Inc. SECOND. The name and address of the Corporation's registered agent in the State of Delaware is National Registered Agents, Inc., 9 East Lockerman Street in the City of Dover, County of Kent. THIRD. The purpose or purposes of the Corporation 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, and to have and exercise all the powers conferred by the laws of the State of Delaware upon corporations formed under the General Corporation Law of the State of Delaware. 2 FOURTH. The amount of the total authorized capital stock of this Corporation shall be thirty-seven million five hundred thousand (37,500,000) shares, divided as follows: (i) thirty million (30,000,000) shares of Common Stock, par value $0.001 per share (the "Common Stock"), and (ii) seven million five hundred thousand (7,500,000) shares of preferred stock, par value $0.001 per share (the "Preferred Stock"). The Preferred Stock shall be divided into series. The first series shall consist of six hundred thousand (600,000) shares which shall be designated as "Series A-1 Convertible Preferred Stock" (the "Series A-1 Preferred Stock"). The second series shall consist of one hundred twenty-five thousand (125,000) shares which shall be designated as "Series A-2 Convertible Preferred Stock" (the "Series A-2 Preferred Stock), (the Series A-1 Preferred Stock and the Series A-2 Preferred Stock, collectively, the "Series A Preferred Stock"). The third series shall consist of one million forty-eight thousand three hundred eighty-seven (1,048,387) shares which shall be designated as "Series B-1 Convertible Preferred Stock" (the "Series B-1 Preferred Stock"). The fourth series shall consist of two hundred sixty-eight thousand eight hundred eighteen (268,818) shares which shall be designated as "Series B-2 Convertible Preferred Stock", (the "Series B-2 Preferred Stock"). The fifth Series shall consist of One thousand nine hundred seventy five (1,975) shares which shall be designated as "Series B-3 Convertible Preferred Stock" (the "Series B-3 Preferred Stock" and together with the Series B-1 Preferred and the Series B-2 Preferred Stock, collectively, (the "Series B Preferred Stock"). The sixth series shall consist of four million four hundred thousand (4,400,000) shares which shall be designated as Series C Convertible Preferred Stock (the "Series C Preferred Stock"). One million fifty-five thousand eight hundred twenty (1,055,820) shares of the Preferred Stock shall be undesignated ("Undesignated Preferred Stock"), subject to the provisions of paragraph (b) of this Article Fourth. (a) Common Stock. The Common Stock authorized for issuance by the Corporation shall be thirty million (30,000,000) shares, at a par value of $0.001 per share. Each share shall be entitled to one vote. (b) Preferred Stock. The Preferred Stock authorized by this Amended and Restated Certificate of Incorporation may be divided and issued from time to time in series. Except as otherwise provided in this Amended and Restated Certificate of Incorporation, or as may be provided in that certain Second Amended and Restated Stockholders Agreement by and among the Corporation, Sandler Capital Partners IV, L.P., Sandler Capital Partners IV FTE, L.P., Bechtel Enterprises Holdings, Inc., Highland Capital Partners IV Limited Partnership, Highland Entrepreneurs Fund IV Limited Partnership, Oak Investment Partners VIII, Limited Partnership, Oak VIII Affiliates Fund, Limited Partnership, Moore Global Investments, Ltd., Remington Investments Strategies, L.P. and the parties listed on Schedules 1 and 2 thereto (the "Stockholders Agreement"), and subject to limitations and requirements prescribed by law, the Board of Directors of the Corporation (the "Board") is expressly authorized, by a vote or written consent of at least a majority of the Board then in office, to provide for the issuance of the Undesignated Preferred Stock in one or more series, each with such designations, preferences, voting powers (or no voting powers), relative, participating, optional or other special rights and privileges and such qualifications, limitations or restrictions thereof as shall be stated in the resolution or resolutions adopted by the Board to create such series, and a Certificate of Designations of said resolution or resolutions shall be filed in accordance with the General Corporation Law of the State of Delaware. 2 3 The Board is also authorized to decrease the number of shares of any series, including the Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the Series B-1 Preferred Stock, the Series B-2 Preferred Stock, the Series B-3 Preferred Stock and the Series C Preferred Stock, subsequent to the issuance of such 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. The powers, rights, preferences, restrictions, and other matters relating to the Series A Preferred Stock, the Series B Preferred Stock and the Series C Preferred Stock are as follows (section references below are to the corresponding sections of paragraph (b) of this Article Fourth): Section 1. Dividends. (a) Priority of Dividends. No dividends shall be declared or set aside for the Common Stock, the Series A Preferred Stock or any other classes or series of the Corporation's capital stock which ranks junior to the Series C Preferred Stock and Series B Preferred Stock (collectively, the "Junior Stock") (other than dividends of Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of the Common Stock of the Corporation) unless prior thereto all accrued and unpaid dividends on the Series C Preferred Stock and Series B Preferred Stock shall be declared, set aside and paid on all the then outstanding shares of Series C Preferred Stock and Series B Preferred Stock. In the event that any such dividends or distributions are declared and paid on the Series C Preferred Stock and Series B Preferred Stock, dividends or distributions may be declared and paid to holders of the Series A Preferred Stock in accordance with paragraph (h) hereof. In the event that any such dividends or distributions are declared and paid on the Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock, dividends or distributions may be declared and paid to holders of the Common Stock equal to such holder's pro rata share (as determined on a fully-converted basis) of the aggregate "grossed up" amount of such dividends or distributions paid on the Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock. After the payment of all accrued and unpaid dividends on the Series C Preferred Stock, the Series B Preferred Stock and the Series A Preferred Stock in accordance with this Section 1, the holders of Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock shall be entitled to participate with the Common Stock in the issuance of any further dividends on the Common Stock ratably in proportion to the number of shares of Common Stock that would be held by each such holder if all outstanding shares of Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock were converted into Common Stock. Notwithstanding the provisions contained in this Section 1(a), no dividends may be declared or paid to the Series B Preferred Stock without the declaration or payment of such dividends to the Series C Preferred Stock. (b) In the event that funds legally available for distribution on any Series C Dividend Payment Date (as defined in paragraph (d) of this Section 1) are insufficient to fully pay the cash dividend due and payable on such Series C Dividend Payment Date to all holders of outstanding Series C Preferred Stock entitled to receive such dividend, then all funds legally available for distribution shall be paid in cash to holders of Series C Preferred Stock entitled to 3 4 receive such dividend in accordance with the number of shares of Series C Preferred Stock for which dividend has been declared held by each such holder. Any remaining dividend amount owed to holders of the Series C Preferred Stock shall be accrued in accordance with paragraph (e) of this Section 1. The holders of the Series C Preferred Stock shall have senior preference and priority to the Series A Preferred Stock and Common Stock with respect to the dividends of the Corporation and pari passu preference and priority to the Series B Preferred Stock to the dividends of the Corporation. (c) In the event that funds legally available for distribution on any Series B Dividend Payment Date (as defined in paragraph (f) of this Section 1) are insufficient to fully pay the cash dividend due and payable on such Series B Dividend Payment Date to all holders of outstanding Series B Preferred Stock entitled to receive such dividend, then all funds legally available for distribution shall be paid in cash to holders of Series B Preferred Stock entitled to receive such dividend in accordance with the number of shares of Series B Preferred Stock for which dividend has been declared held by each such holder. Any remaining dividend amount owed to holders of the Series B Preferred Stock shall be accrued in accordance with paragraph (f) of this Section 1. The holders of the Series B Preferred Stock shall have senior preference and priority to the Series A Preferred Stock and Common Stock with respect to the dividends of the Corporation and pari passu preference and priority to the Series C Preferred Stock to the dividends of the Corporation. (d) In the event that funds legally available for distribution on any Series A Dividend Payment Date (as defined in paragraph (g) of this Section 1) are insufficient to fully pay the cash dividend due and payable on such Series A Dividend Payment Date to all holders of outstanding Series A Preferred Stock entitled to receive such dividend, then all funds legally available for distribution shall be paid in cash to holders of Series A Preferred Stock entitled to receive such dividend in accordance with the number of shares of Series A Preferred Stock for which a dividend has been declared held by each such holder. Any remaining dividend amount owed to holders of the Series A Preferred Stock entitled to receive dividends shall be accrued in accordance with paragraph (g) of this Section 1. The holders of the Series A Preferred Stock shall have senior preference and priority to the Common Stock with respect to the dividends of the Corporation and junior preference and priority to the Series C Preferred Stock and Series B Preferred Stock to the dividends of the Corporation. (e) Series C Preferred Stock Dividend Rate; Series C Dividend Payment Dates. Each holder of the Series C Preferred Stock shall be entitled to receive when, as and if declared by the Board, out of funds legally available therefor, cash dividends, in preference and priority to dividends on any Junior Stock, that shall accrue on the Stated Value for the Series C Preferred Stock (as defined in Section 2(a)) of each share of the Series C Preferred Stock at the rate of eight percent (8%) per annum, from and including the date on which such stock was first issued (the "Series C Original Issue Date") to and including the date on which the Series C Liquidation Price (as defined) of such share is paid in full to the holder of such share pursuant to Section 2. The accrued dividends will be appropriately adjusted for stock splits, stock dividends, combinations, recapitalizations, reclassifications, mergers, consolidations and other similar events (together referred to as "Recapitalization Events") which affect the number of outstanding shares of the Series C Preferred Stock. Accrued dividends on the Series C Preferred Stock shall be payable out of funds legally available therefor when, as, and if declared by the Board (a 4 5 "Series C Dividend Payment Date"), to the holders of record of Series C Preferred Stock for which such dividend has been declared as of the close of business on the applicable record date. Dividends shall not be cumulative. Previously declared but unpaid dividends with respect to an outstanding share of Series C Preferred Stock shall, upon conversion of such share to Common Stock (except in the case of a Series C Qualified Public Offering (as defined below)) be paid out of assets legally available therefor, in cash or in shares of Common Stock, as the Board may elect, and in the case of assets or shares of Common Stock, valued at the fair market value on the date of payment as determined by the Board in good faith. The amount of dividends "accrued" with respect to any share of Series C Preferred Stock as of the first Series C Dividend Payment Date with respect to such share after the applicable Series C Original Issue Date with respect to such share, or as of any other date after the applicable Series C Original Issue Date with respect to such share that is not a Series C Dividend Payment Date with respect to such share, shall be calculated on the basis of the actual number of days elapsed from and including the applicable Series C Original Issue Date with respect to such share, in the case of the first Series C Dividend Payment Date with respect to such share and any date of determination prior to the first Series C Dividend Payment Date with respect to such share, or from and including the last preceding Series C Dividend Payment Date with respect to such share, in the case of any other date of determination, to and including such date of determination which is to be made with respect to such share, in each case based on a year of 365 or 366 days, as the case may be. Whenever the Board declares any dividend pursuant to this Section 1, notice of the applicable record date and related Series C Dividend Payment Date shall be given. As used herein, a "Series C Qualified Public Offering" shall mean the closing of a firm commitment underwritten public offering, pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering the offer and sale of Common Stock to the public that raises proceeds for the Company of at least $25,000,000 after underwriters' discounts and expenses and at an offering price to the public of at least $17.94, subject to Recapitalization Events. (f) Series B Preferred Stock Dividend Rate; Series B Dividend Payment Dates. Each holder of the Series B Preferred Stock shall be entitled to receive when, as and if declared by the Board, out of funds legally available therefor, cash dividends, in preference and priority to dividends on any Junior Stock, that shall accrue on the Stated Value for the Series B-1 Preferred Stock, the Stated Value for the Series B-2 Preferred Stock and the Stated Value for the Series B-3 Preferred Stock (as defined in Section 2(a)) of each share of the Series B-1 Preferred Stock, Series B-2 Preferred Stock and Series B-3 Preferred Stock, respectively, at the rate of eight percent (8%) per annum, from and including the date on which such stock was first issued (each, a "Series B Original Issue Date") to and including the date on which the Series B-1 Liquidation Price (as defined), or the Series B-2 Liquidation Price (as defined) or the Series B-3 Liquidation Price (as defined), as the case may be, of such share is paid in full to the holder of such share pursuant to Section 2. The accrued dividends will be appropriately adjusted for Recapitalization Events which affect the number of outstanding shares of the Series B Preferred Stock. Accrued dividends on the Series B-1 Preferred Stock, the Series B-2 Preferred Stock and Series B-3 Preferred Stock shall be payable out of funds legally available therefor when, as, and if declared by the Board (each a "Series B Dividend Payment Date"), to the holders of record of each Series B Preferred Stock for which such dividend has been declared as of the close of business on the applicable record date. Dividends shall not be cumulative. Previously declared but unpaid dividends with respect to an outstanding share of Series B Preferred Stock shall, upon conversion of such share to Common Stock (except in the case of a Series B Qualified Public 5 6 Offering (as defined below)) be paid out of assets legally available therefor, in cash or in shares of Common Stock, as the Board may elect, and in the case of assets or shares of Common Stock, valued at the fair market value on the date of payment as determined by the Board in good faith. The amount of dividends "accrued" with respect to any share of Series B Preferred Stock as of the first Series B Dividend Payment Date with respect to such share after the applicable Series B Original Issue Date with respect to such share, or as of any other date after the applicable Series B Original Issue Date with respect to such share that is not a Series B Dividend Payment Date with respect to such share, shall be calculated on the basis of the actual number of days elapsed from and including the applicable Series B Original Issue Date with respect to such share, in the case of the first Series B Dividend Payment Date with respect to such share and any date of determination prior to the first Series B Dividend Payment Date with respect to such share, or from and including the last preceding Series B Dividend Payment Date with respect to such share, in the case of any other date of determination, to and including such date of determination which is to be made with respect to such share, in each case based on a year of 365 or 366 days, as the case may be. Whenever the Board declares any dividend pursuant to this Section 1, notice of the applicable record date and related Series B Dividend Payment Date shall be given. As used herein, a "Series B Qualified Public Offering" shall mean the closing of a firm commitment underwritten public offering, pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), covering the offer and sale of Common Stock to the public that raises gross proceeds for the Company of at least $20,000,000 and at an initial aggregate offering price to the public that reflects a value of the Company, on a Fully-Diluted Basis, of (i) at least $25,000,000 (on a pre-money equity valuation) if such offering is commenced on or before the first anniversary of the Series B-1 Original Issue Date or (ii) at least $31,250,000 (on a pre-money equity valuation) if such offering is commenced after the first anniversary of the Series B-1 Original Issue Date. "Fully-Diluted Basis" gives effect, without duplication, to (i) all shares of Common Stock outstanding at the time of determination plus (ii) all shares of Common Stock issuable upon conversion of the Series A Preferred Stock and Series B Preferred Stock or any other convertible securities of the Corporation or upon the exercise of any option, warrant or similar right (whether or not presently exercisable) to acquire shares of Common Stock or shares of Preferred Stock convertible into Common Stock, as if such Series A Preferred Stock and Series B Preferred Stock or other convertible securities had been so converted or such option, warrant or similar right had been so exercised. (g) Series A Preferred Stock Dividend Rate; Series A Dividend Payment Dates. Each holder of the Series A Preferred Stock shall be entitled to receive when, as and if declared by the Board, out of funds legally available therefor, cash dividends, in preference and priority to dividends on any Common Stock or any other classes or series of the Corporation's capital stock which rank junior to the Series A Preferred Stock, that shall accrue on each share of the Series A Preferred Stock at a rate per annum determined by the Board, from and including the date on which such stock was first issued (each, a "Series A Original Issue Date") to and including the date on which the Series A-1 Liquidation Price (as defined) or the Series A-2 Liquidation Price (as defined), as the case may be, of such share is paid in full to the holder of such share pursuant to Section 2. The accrued dividends will be adjusted for Recapitalization Events which affect the number of outstanding shares of the Series A Preferred Stock. Accrued dividends on the Series A-1 Preferred Stock and the Series A-2 Preferred Stock shall be payable out of funds legally available therefor when, as, and if declared by the Board (each a "Series A Dividend Payment Date"), to the holders of record of such Series A Preferred Stock for which 6 7 such dividend has been declared as of the close of business on the applicable record date. Dividends shall not be cumulative. Declared but unpaid dividends with respect to an outstanding share of Series A Preferred Stock shall, upon conversion of such share to Common Stock (except in the case of a Series A Qualified Public Offering (as defined below)) be paid when, as and if declared by the Board, out of assets legally available therefor, in cash or in shares of Common Stock as the Board may elect, and in the case of assets or shares of Common Stock, valued at the fair market value on the date of payment as determined by the Board in good faith. The amount of dividends "accrued" with respect to any share of Series A Preferred Stock as of the first Series A Dividend Payment Date with respect to such share after the applicable Series A Original Issue Date with respect to such share, or as of any other date after the applicable Series A Original Issue Date that with respect to such share is not a Series A Dividend Payment Date with respect to such share, shall be calculated on the basis of the actual number of days elapsed from and including the applicable Series A Original Issue Date with respect to such share, in the case of the first Series A Dividend Payment Date with respect to such share and any date of determination prior to the first Series A Dividend Payment Date with respect to such share, or from and including the last preceding Series A Dividend Payment Date with respect to such share, in the case of any other date of determination, to and including such date of determination which is to be made with respect to such share, in each case based on a year of 365 or 366 days, as the case may be. Whenever the Board declares any dividend pursuant to this Section 1, notice of the applicable record date and related Series A Dividend Payment Date shall be given. As used herein, a "Series A Qualified Public Offering" shall mean the closing of the sale of the Corporation's Common Stock in a firm commitment underwritten public offering registered under the Securities Act, other than a registration relating solely to a transaction under Rule 145 promulgated under the Securities Act (or any successor thereto) or to an employee benefit plan of the Corporation, at a public offering price (prior to underwriters' discounts and expenses) equal to or exceeding ten dollars ($10.00) per share of Common Stock (as adjusted for Recapitalization Events with respect to such shares), and the aggregate proceeds to the Corporation and/or any selling stockholders (after deduction for underwriters' discounts and expenses relating to the issuance, including, without limitation, fees of counsel to the Corporation) of which exceed ten million dollars ($10,000,000). (h) Pro Rata Declaration and Payment of Dividends. All dividends paid with respect to shares of Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock, Series A-1 Preferred Stock, Series A-2 Preferred Stock or Common Stock, as the case may be, pursuant to this Section 1 shall be declared and paid pro rata within each class to all the holders of the shares of Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock, Series A-1 Preferred Stock, Series A-2 Preferred Stock or Common Stock, as the case may be, outstanding as of the applicable record date. (i) Form of Payment of Dividends. In the event that the Corporation declares and pays dividends to the holders of its capital stock, each holder shall receive the same form of consideration. 7 8 Section 2. Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, any merger or consolidation of the Corporation with another entity, the sale of substantially all of its assets or the consummation of an Approved Sale (as defined below), pursuant to which, the holders of the Series C Preferred Stock do not receive an amount of consideration per share equal to the Stated Value (as defined below) for the Series C Preferred Stock (each such event, a "Liquidation"), except as provided in paragraph (b) of this Section 2, the holders of shares of Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock then outstanding shall be entitled, ratably in proportion to the shares of Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock, Series A-1 Preferred Stock, Series A-2 Preferred Stock held by such holders, to be paid out of the assets of the Corporation available for distribution to its stockholders before payment to the holders of Junior Stock (excluding in this case, the Series A Preferred Stock) by reason of their ownership thereof, an amount equal to: (i) in the case of the Series C Preferred Stock (1) $10.25 per share (subject to appropriate adjustments for any Recapitalization Events) (the "Stated Value for the Series C Preferred Stock"), plus (2) an amount equal to all declared and unpaid dividends on such shares since the Series C Original Issue Date thereof as of such time of determination (the "Series C Liquidation Price"); (ii) in the case of the Series B-1 Preferred Stock, (1) $6.20 per share (subject to appropriate adjustment for any Recapitalization Events) (the "Stated Value for the Series B-1 Preferred Stock"), plus (2) an amount equal to all declared and unpaid dividends on such shares since the Series B-1 Original Issue Date thereof as of such time of determination (the "Series B-1 Liquidation Price"); (iii) in the case of the Series B-2 Preferred Stock, (1) equal to $7.44 per share (subject to appropriate adjustment for any Recapitalization Events) (the "Stated Value for the Series B-2 Preferred Stock"), plus (2) an amount equal to all declared and unpaid dividends on such shares since the Series B-2 Original Issue Date thereof as of such time of determination (the "Series B-2 Liquidation Price"); (iv) in the case of the Series B-3 Preferred Stock (1) $30.37 per share (subject to appropriate adjustment for any Recapitalization Events) (the "Stated Value for the Series B-3 Preferred Stock"), plus (2) an amount equal to all declared and unpaid dividends on such shares since the Series B-3 Original Issue Date thereof as of such time of determination (the "Series B-3 Liquidation Price"); (v) in the case of the Series A-1 Convertible Preferred Stock, (l) $2.50 per share (subject to appropriate adjustment for any Recapitalization Events), plus (2) an amount equal to all declared and unpaid dividends on such shares since the Series A-1 Original Issue Date thereof as of such time of determination (the "Series A-1 Liquidation Price"); and (vi) in the case of the Series A-2 Convertible Preferred Stock, (l) $3.60 per share (subject to appropriate adjustment for any Recapitalization Events), plus (2) an amount equal to all declared and unpaid dividends on such shares since the Series A-2 Original Issue Date thereof as of such time of determination (the "Series A-2 Liquidation Price"). "Approved Sale" means the sale of the Corporation, in a single transaction or a series of related transactions, to a third party (which is not an affiliate of any of the Approving Stockholders): (i) pursuant to which such third party proposes to acquire all or substantially all of the outstanding capital stock (on a fully-diluted basis) (whether by merger, consolidation, recapitalization, reorganization, purchase of all of the capital stock or otherwise) of the Corporation or all or substantially all of the assets of the Corporation; (ii) which has been approved by the Board of Directors and holders of a majority of the outstanding shares of Series A Stock, the Series B Stock and the Series C Stock, voting 8 9 together as a single class (the "Approving Stockholders"); and (iii) pursuant to which all holders of Common Stock will receive with respect thereto (whether in such transaction or, with respect to an asset sale, upon a subsequent liquidation) the same form and amount of consideration per share of Common Stock, or if any holders are given an option as to the form and amount of consideration to be received, all holders are given the same option. (b) If upon any such Liquidation the remaining assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock the full amount to which they shall be entitled, then the entire assets of the Corporation shall be distributed among the holders of shares of Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock, ratably in proportion to the full amount to which such holders are entitled. (c) After the payment of all preferential amounts required to be paid to the holders of Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock, upon the Liquidation of the Corporation, the holders of shares of the other Junior Stock (excluding in this case, the Series A Preferred Stock) then outstanding shall be entitled to receive the remaining assets and funds of the Corporation available for distribution to its stockholders. (d) In the event of a distribution pursuant to this Section 2, such distribution shall be payable in cash, securities or property. Whenever such distribution shall be in securities or property other than cash, the value of such securities or property other than cash shall be the fair market value of such securities or other property as determined by the Board in good faith. Section 3. Voting Rights. (a) Each holder of shares of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, shall be entitled to votes equal in the aggregate to the number of votes to which the number of whole shares of Common Stock into which such shares of Series B Preferred Stock or Series A Preferred Stock, as the case may be, held by such holder are convertible would be entitled (as adjusted from time to time pursuant to Section 4 hereof), at each meeting of the stockholders of the Corporation (and for purposes of written actions of stockholders in lieu of meetings) with respect to any and all matters presented to the stockholders of the Corporation for their action or consideration, and shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation. Except as otherwise provided herein or required by law, holders of shares of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock shall vote with the holders of shares of Common Stock and any other class of stock entitled to vote and not as a separate class. Each holder of Common Stock is entitled to one (1) vote per share of Common Stock held by such holder. Except as otherwise provided herein, holders of the Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock shall each have the right to vote as separate classes on all matters requiring their vote or approval under, and in the manner set forth in, the General Corporation Law of the State of Delaware. Except as otherwise provided herein, any class vote pursuant to this Section 3 or required by law shall be determined by the holders of a majority of the shares of capital stock of such class voting as a class as of the applicable record date. 9 10 (b) Without the written consent or affirmative vote of the holders of sixty percent (60%) of the then outstanding shares of Series C Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, in person or by proxy for so long as any shares of Series C Preferred Stock remain outstanding, the Corporation shall not (i) amend, alter or repeal or otherwise change any provision of this Restated Certificate of Incorporation, or the preferences, special rights or other powers of the Series C Preferred Stock, in each case so as to affect adversely the Series C Preferred Stock or (ii) create, authorize, issue, or increase the authorized amount of, any preferred stock or any other class or series of any equity securities, or any warrants, options or other rights convertible or exchangeable into any class or series of any equity securities of the Corporation, having a preference or priority over or ranking pari passu with the Series C Preferred Stock as to redemption rights, the right to receive dividends or amounts distributable upon Liquidation of the Corporation. In the event of a proposed amendment to Section 5B(a) of Article Fourth, Section 5B(a) shall not be amended without first obtaining the written consent or affirmative vote of the holders of eighty percent (80%) of the then outstanding shares of Series C Preferred Stock, given in writing or by a vote at a meeting, consenting or voting (as the case may be) separately as a class, in person or by proxy for so long as any shares of Series C Preferred Stock remain outstanding. The holders of the Series C Preferred Stock shall have the right to vote as a class for purposes of this paragraph (b) of this Section 3. (c) For so long as any shares of Series B-2 Preferred Stock or Series B-3 Preferred Stock remain outstanding, the Corporation shall not amend, alter or repeal or otherwise change any provision of this Restated Certificate of Incorporation, the resolutions of its Board of Directors authorizing and creating the Series B-2 Preferred Stock and Series B-3 Preferred Stock, or the preferences, special rights or other powers of the Series B-2 Preferred Stock and Series B-3 Preferred Stock, in each case so as to affect adversely the Series B-2 Preferred Stock or Series B-3 Preferred Stock, without the written consent or affirmative vote of the holders of sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares of Series B-2 Preferred Stock and Series B-3 Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) together as a single class, in person or by proxy. For this purpose, without limiting the generality of the foregoing, amendments, alterations, repeals or other changes to any provision of this Restated Certificate of Incorporation considered to affect adversely the Series B-2 Preferred Stock and Series B-3 Preferred Stock shall include, but are not limited to: (i) the creation, authorization, issuance, or increase in the authorized amount of, any preferred stock or any other class or series of any equity securities, or any warrants, options or other rights convertible or exchangeable into any class or series of any equity securities of the Corporation, having a preference or priority over or ranking pari passu with the Series B-2 Preferred Stock and Series B-3 Preferred Stock as to the right to receive dividends or amounts distributable upon Liquidation of the Corporation; (ii) those that reduce the dividend rates on the Series B-2 Preferred Stock or Series B-3 Preferred Stock or cancel declared and unpaid dividends; (iii) those that change the relative seniority rights of the holders of the Series B-2 Preferred Stock or Series B-3 Preferred Stock as to the payment of dividends in relation to the holders of any other capital stock of the Corporation; or (iv) those that reduce the amount payable to the holders of the Series B-2 Preferred Stock or Series B-3 Preferred Stock upon Liquidation or change the relative seniority of the liquidation preferences of the holders of the Series B-2 Preferred or Series B-3 Preferred Stock to the rights upon Liquidation of the holders of any other capital stock of the Corporation. The holders of the Series B-2 Preferred Stock and Series B-3 Preferred Stock shall 10 11 have the right to vote together as a single class for purposes of this paragraph (c) of this Section 3. (d) For so long as any shares of Series B-1 Preferred Stock remain outstanding, the Corporation shall not amend, alter or repeal or otherwise change any provision of this Amended and Restated Certificate of Incorporation, the resolutions of its Board authorizing and creating the Series B-1 Preferred Stock, or the preferences, special rights or other powers of the Series B-1 Preferred Stock, in each case so as to affect adversely the Series B-1 Preferred Stock, without the written consent or affirmative vote of the holders of sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of Series B-1 Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, in person or by proxy. For this purpose, without limiting the generality of the foregoing, amendments, alterations, repeals or other changes to any provision of this Restated Certificate of Incorporation considered to affect adversely the Series B-1 Preferred Stock shall include, but are not limited to: (i) the creation, authorization, issuance, or increase in the authorized amount of, any preferred stock or any other class or series of any equity securities, or any warrants, options or other rights convertible or exchangeable into any class or series of any equity securities of the Corporation, having a preference or priority over or ranking pari passu with the Series B-1 Preferred Stock as to the right to receive dividends or amounts distributable upon Liquidation of the Corporation; (ii) those that reduce the dividend rates on the Series B-1 Preferred Stock or cancel declared and unpaid dividends; (iii) those that change the relative seniority rights of the holders of the Series B-1 Preferred Stock as to the payment of dividends in relation to the holders of any other capital stock of the Corporation; or (iv) those that reduce the amount payable to the holders of the Series B-1 Preferred Stock upon Liquidation or change the relative seniority of the liquidation preferences of the holders of the Series B-1 Preferred to the rights upon Liquidation of the holders of any other capital stock of the Corporation. The holders of the Series B-1 Preferred Stock shall have the right to vote as a class for purposes of this paragraph (d) of this Section 3. (e) For so long as any shares of Series A Preferred Stock remain outstanding, the Corporation shall not amend, alter or repeal or otherwise change any provision of this Amended and Restated Certificate of Incorporation, the resolutions of its Board authorizing and creating the Series A Preferred Stock or the preferences, special rights or other powers of the Series A Preferred Stock so as to affect adversely the Series A Preferred Stock, without the written consent or affirmative vote of the holders of sixty-six and two-thirds percent (66 2/3%) of the then outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, in person or by proxy. For this purpose, without limiting the generality of the foregoing, amendments, alterations, repeals or other changes to any provision of this Restated Certificate of Incorporation considered to affect adversely the Series A Preferred Stock shall include, but are not limited to: (i) the creation, authorization, issuance, or increase in the authorized amount of, any preferred stock or any other class or series of any equity securities, or any warrants, options or other rights convertible or exchangeable into any class or series of any equity securities of the Corporation, having a preference or priority over or ranking pari passu with the Series A Preferred Stock as to the right to receive dividends or amounts distributable upon Liquidation of the Corporation; (ii) those that reduce the dividend rates on the Series A Preferred Stock or cancel declared and unpaid dividends; (iii) those that change the relative seniority rights of the holders of the Series 11 12 A Preferred Stock as to the payment of dividends in relation to the holders of any other capital stock of the Corporation; or (iv) those that reduce the amount payable to the holders of the Series A Preferred Stock upon Liquidation or change the relative seniority of the liquidation preferences of the holders of the Series A Preferred to the rights upon Liquidation of the holders of any other capital stock or the Corporation. The holders of the Series A Preferred Stock shall have the right to vote as a class for purposes of this paragraph (e) of this Section 3. (f) Subject to the provisions of paragraphs (b), (c), (d) and (e) of this Section 3, for so long as any shares of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock (in each case, subject to appropriate adjustment for any Recapitalization Event) remain outstanding, the Corporation shall not and shall not permit any subsidiary of the Corporation, to declare or pay dividends or other distributions upon, or redeem, purchase, retire or otherwise acquire for value of, any shares of the capital stock of the Corporation (other than shares of capital stock that rank pari passu with or senior to the Series C Preferred Stock, Series B Preferred Stock or the Series A Preferred Stock, shares of capital stock repurchased as contemplated by the Stockholders Agreement or shares of capital stock repurchased pursuant to the authorization of the Board of Directors of the Corporation in connection with employee stock option grants or restricted stock grants) or any shares of the capital stock of any subsidiary of the Corporation (other than the payment of dividends or distributions, or other payments in redemption, made by such subsidiary solely to the Corporation) without the written consent or affirmative vote of stockholders representing at least a majority of the then outstanding shares of Series C Preferred Stock Series B Preferred Stock and Series A Preferred Stock, voting as a single class. (g) Subject to the provisions of paragraphs (b), (c), (d) and (e) of this Section 3, for so long as any shares of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock (in each case, subject to appropriate adjustment for any Recapitalization Event) remain outstanding, the Corporation shall not take, and shall not permit any subsidiary of the Corporation to take, any of the following actions without the written consent or affirmative vote of stockholders representing at least a majority of the then outstanding shares of Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock, voting as a single class: (i) increase or decrease the authorized number of shares of Preferred Stock. (ii) merge or consolidate the Corporation or any of its subsidiaries with or into another entity, or enter into any other business combination, recapitalization, binding share exchange or similar transaction with any entity, if such would result in, the stockholders of the Corporation just prior to the date of the event not owning a majority of the outstanding shares of the capital stock of the Corporation after such event, or the Corporation not being the surviving entity; or (iii) sell, transfer, lease or dispose of all or substantially all of the assets of the Corporation or of any of its subsidiaries, in one transaction or a series of related transactions, or effect the liquidation, dissolution or winding-up of the Corporation or any of its subsidiaries. Section 4. Conversion at the Option of a Holder. 12 13 The holders of the Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Each share of Series C Preferred Stock shall be convertible at the option of the holder thereof, at any time and from time to time, into such number of fully-paid and nonassessable shares of Common Stock as determined by dividing the Series C Conversion Value (as defined) by the Series C Conversion Price (as defined) then in effect (as appropriately adjusted in accordance with this Section 4) (the "Series C Conversion Rate"). No additional consideration shall be paid by a holder of Series C Preferred Stock upon exercise of its respective Conversion Rights pursuant to this paragraph 4(a). (i) Series C Conversion Value. The conversion value for each share of Series C Preferred Stock shall be the Stated Value for the Series C Preferred Stock. (ii) Series C Conversion Price. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Series C Preferred Stock without the payment of additional consideration by the holder thereof shall initially be the Stated Value for the Series C Preferred Stock (the "Series C Conversion Price"). Such initial Series C Conversion Price, and the corresponding rate at which shares of Series C Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided in this Section 4. (b) Each share of Series B-1 Preferred Stock shall be convertible at the option of the holder thereof, at any time and from time to time, into such number of fully-paid and nonassessable shares of Common Stock as determined by dividing the Series B-1 Conversion Value by the Series B-1 Conversion Price then in effect (as appropriately adjusted in accordance with this Section 4) (the "Series B-1 Conversion Rate"). No additional consideration shall be paid by a holder of Series B-1 Preferred Stock upon exercise of its respective Conversion Rights pursuant to this paragraph (b). Each share of Series B-2 Preferred Stock shall be convertible at the option of the holder thereof, at any time and from time to time, into such number of fully-paid and nonassessable shares of Common Stock as determined by dividing the Series B-2 Conversion Value by the Series B-2 Conversion Price then in effect (as appropriately adjusted in accordance with this Section 4) (the "Series B-2 Conversion Rate"). No additional consideration shall be paid by a holder of Series B-2 Preferred Stock upon exercise of its respective Conversion Rights pursuant to this paragraph (b). Each Share of Series B-3 Preferred Stock shall be convertible at the option of the holder thereof, at any time and from time to time, into such number of fully-paid and nonassessable shares of Common Stock as determined by dividing the Series B-3 Conversion Value by the Series B-3 Conversion Price then in effect (as appropriately adjusted with this Section 4) (the "Series B-3 Conversion Price"). (i) Series B-1 Conversion Value. The conversion value for each share of Series B-1 Preferred Stock shall be the Stated Value for the Series B-1 Preferred Stock. (ii) Series B-1 Conversion Price. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Series B-1 Preferred Stock without the payment of additional consideration by the holder thereof shall initially be the Stated Value for the Series B-1 Preferred Stock (the "Series B-1 Conversion Price"). Such initial Series B-1 Conversion Price, and the corresponding rate at which shares of Series B-1 Preferred Stock may 13 14 be converted into shares of Common Stock, shall be subject to adjustment as provided in this Section 4. (iii) Series B-2 Conversion Value. The conversion value for each share of Series B-2 Preferred Stock shall be the Stated Value for the Series B-2 Preferred Stock. (iv) Series B-2 Conversion Price. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Series B-2 Preferred Stock without the payment of additional consideration by the holder thereof shall initially be the Stated Value for the Series B-2 Preferred Stock (the "Series B-2 Conversion Price"). Such initial Series B-2 Conversion Price, and the corresponding rate at which shares of Series B-2 Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided in this Section 4. (v) Series B-3 Conversion Value. The conversion value for each share of Series B-3 Preferred Stock shall be the Stated Value for the Series B-3 Preferred Stock. (vi) Series B-3 Conversion Price. The conversion price at which shares of Common Stock shall be deliverable upon conversion of Series B-3 Preferred Stock without the payment of additional consideration by the holder thereof shall initially be the Stated Value for the Series B-3 Preferred Stock (the "Series B-3 Conversion Price"). Such initial Series B-3 Conversion Price, and the corresponding rate at which shares of Series B-3 Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided in this Section 4. (c) Each share of Series A Preferred Stock shall be convertible at the option of the holder thereof, at any time and from time to time, into one share of fully-paid and nonassessable shares of Common Stock (the number of shares of Common Stock into which one share of Series A Preferred Stock is convertible shall be referred to herein as the "Series A Conversion Amount"). No additional consideration shall be paid by a holder of Series A Preferred Stock upon exercise of its Conversion Rights pursuant to this paragraph (c). (d) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series C Preferred Stock, Series B Preferred Stock or the Series A Preferred Stock. In lieu of any fractional shares to which a holder of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by: (i) in the case of the Series C Preferred Stock, the then effective Series C Conversion Price; (ii) in the case of the Series B-1 Preferred Stock, the then effective Series B-1 Conversion Price; (iii) in the case of the Series B-2 Preferred Stock, the then effective Series B-2 Conversion Price; (iv) in the case of the Series B-3 Preferred Stock, the then effective Series B-3 Conversion Price; (v) in the case of the Series A-1 Convertible Preferred Stock, $2.50; and (vi) in the case of the Series A-2 Convertible Preferred Stock, $3.60. (e) Mechanics of Conversion. (i) In order for a holder of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock to convert shares of Series C Preferred Stock, Series B Preferred 14 15 Stock or Series A Preferred Stock, as the case may be, into shares of Common Stock, such holder shall surrender the certificate or certificates for such shares of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, at the office of the transfer agent for the Series C Preferred Stock, Series B Preferred Stock or the Series A Preferred Stock, as the case may be (or at the principal office of the Corporation if the Corporation serves as its own transfer agent), together with written notice that such holder elects to convert all or any number of the shares of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock represented by such certificate or certificates and stating therein the name or names the holder desires the certificate or certificates for shares of the Common Stock to be issued. If required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his or its attorney duly authorized in writing. Each date of receipt of such certificates and notice by the transferring agent (or by the Corporation if the Corporation serves as its own transfer agent) shall be a conversion date (each, a "Conversion Date"). The Corporation shall, as soon as practicable after each Conversion Date, issue and deliver at such office to such holder of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid, together with cash in lieu of any fraction of a share in accordance with paragraph (d) above. Such conversion shall be deemed to have been made immediately prior to the close of business on the applicable Conversion Date, and the person entitled to receive certificates of Common Stock on such date shall be regarded for all corporate purposes as the holder of the number of shares of Common Stock to which he or it is entitled upon the conversion on such Conversion Date. (ii) If the conversion of the Series A Preferred Stock is in connection with a Series A Required Conversion Event (as defined in Section 6), the conversion may, at the option of any holder tendering shares of Series A Preferred Stock for conversion, be conditioned upon the closing of the Series A Required Conversion Event, in which event the person or persons entitled to receive the Common Stock upon such conversion shall not be deemed to have converted such shares until immediately prior to the closing of the Series A Required Conversion Event. (iii) The Corporation shall, at all times when any of Series C Preferred Stock, the Series B Preferred Stock or Series A Preferred Stock shall remain outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Series C Preferred Stock, Series B Preferred Stock or the Series A Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series B Preferred Stock and Series A Preferred Stock. (iv) All shares of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, shall immediately cease and terminate on the applicable Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor. Any shares of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock so converted shall be retired and canceled and shall not be reissued, and the Corporation may from time to time take 15 16 such appropriate action as may be necessary to reduce the authorized Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, accordingly. (f) Adjustments to Series C Conversion Price, Series B-1 Conversion Price, Series B-2 Conversion Price and Series B-3 Conversion Price for Diluting Issues. (i) Special Definitions. For purposes of this Section 4(f), the following definitions shall apply: (A) "Option" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities, excluding options to purchase up to an aggregate of 870,570 shares of Common Stock, appropriately adjusted for Recapitalization Events (the "Initial Option Pool Amount") of Common Stock of the Company, or such greater number of shares as may be approved by the Compensation Committee of the Board, issued to employees pursuant to stock option or restricted stock agreements adopted by the Board and approved by the Compensation Committee of the Board after the Series C Original Issue Date (such options herein referred to as "Employee Options"). (B) "Series B-1 Original Issue Date" shall mean the date on which a share of Series B-1 Preferred Stock was first issued. (C) "Series B-2 Original Issue Date" shall mean the date on which a share of Series B-2 Preferred Stock was first issued. (D) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock. (E) "Series B-3 Original Issue Date" shall mean the date on which a share of Series B-3 Preferred Stock was first issued. (F) "Series C Original Issue Date" shall mean the date on which a share of Series C Preferred Stock was first issued. (G) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to subparagraph (iii) below, deemed to be issued) by the Corporation after the Series C Original Issue Date, Series B-1 Original Issue Date, the Series B-2 Original Issue Date or the Series B-3 Original Issue Date, as the case may be, other than shares of Common Stock issued or issuable: (I) upon the conversion of shares of Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock outstanding; (II) as a dividend or distribution on the Series C Preferred Stock or Series B Preferred Stock; (III) by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock; 16 17 (IV) upon the exercise of Employee Options or Options granted on or prior to the Series C Original Issue Date, Series B-1 Original Issue Date, the Series B-2 Original Issue Date or the Series B-3 Original Issue Date, as the case may be; (V) pursuant to equity compensation plans adopted by the Board and approved by the Compensation Committee of the Board after the applicable Series C Original Issue Date, Series B-1 Original Issue Date, the Series B-2 Original Issue Date or the Series B-3 Original Issue Date, as the case may be; or (VI) in debt financings approved by the Board of Directors where the Common Stock equivalents of such securities in the aggregate does not exceed five (5%) of the Company's Common Stock, on a fully-diluted basis. (ii) No Adjustment of Conversion Price. No adjustment in the number of shares of Common Stock into which the Series C Preferred Stock or Series B Preferred Stock is convertible shall be made, by adjustment in the applicable Series C Conversion Price, applicable Series B-1 Conversion Price, the applicable Series B-2 Conversion Price or the applicable Series B-3 Conversion Price thereof: unless the consideration per share (determined pursuant to subparagraph (v) below) for an Additional Share of Common Stock issued or deemed to be issued pursuant to subparagraph (iii) below by the Corporation is less than the applicable Series C Conversion Price, applicable Series B-1 Conversion Price, the applicable Series B-2 Conversion Price or the applicable Series B-3 Conversion Price in effect on the date of, and immediately prior to, the issuance of such Additional Shares, provided, that if prior to such issuance, the Corporation receives written notice from the holders of at least sixty percent (60%) of the then outstanding shares of Series C Preferred Stock, or at least a majority of the Series B-1 Preferred Stock, Series B-2 Preferred Stock or Series B-3 Preferred Stock, as the case may be, agreeing that no such adjustment shall be made as the result of the issuance of such Additional Shares of Common Stock, then no such adjustments shall be made to such series. (iii) Issue of Securities Deemed Issue of Additional Shares of Common Stock. If the Corporation at any time or from time to time after the applicable Series C Original Issue Date, Series B-1 Original Issue Date, the Series B-2 Original Issue Date or Series B-3 Original Issue Date, as the case may be, shall issue any Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issuance, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to subparagraph (v) below) of such Additional Shares of Common Stock would be less than the Series C Conversion Price, Series B-1 Conversion Price, the Series B-2 Conversion Price or Series B-3 Conversion Price, as the case may be, in effect on the date of and immediately prior to such issuance, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (A) No further adjustment in the Series C Conversion Price, Series B-1 Conversion Price, the Series B-2 Conversion Price or the Series B-3 Conversion 17 18 Price, respectively, shall be made upon the subsequent issuance of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) If such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the conversion price computed upon the original issuance thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (C) No readjustment pursuant to clause (B) above shall have the effect of increasing the Series C Conversion Price, Series B-1 Conversion Price, the Series B-2 Conversion Price or the Series B-3 Conversion Price, respectively, to an amount which exceeds the Series C Conversion Price, Series B-1 Conversion Price, the Series B-2 Conversion Price or the Series B-3 Conversion Price, respectively, on the original adjustment date; and (D) In the event of any change in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any Option or Convertible Security, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Series C Conversion Price, the Series B-1 Conversion Price, the Series B-2 Conversion Price or the Series B-3 Conversion Price, respectively, then in effect shall forthwith be readjusted to such Series C Conversion Price, Series B-1 Conversion Price the Series B-2 Conversion Price or the Series B-3 Conversion Price, respectively, as would have obtained had the adjustment which was made upon the issuance of such Option or Convertible Security not exercised or converted prior to such change been made upon the basis of such change, but no further adjustment shall be made for the actual issuance of Common Stock upon the exercise or conversion of any such Option or Convertible Security. (E) Upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Series C Conversion Price, the Series B-1 Conversion Price, the Series B-2 Conversion Price or the Series B-3 Conversion Price computed upon the Series C Original Issue Date, the Series B-1 Original Issue Date, the Series B-2 Original Issue Date or the Series B-3 Original Issue Date, respectively (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if: (1) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Company upon such exercise; or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Company upon such conversion or exchange; and 18 19 (2) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Company for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Company for the issue of all such Options, whether or not exercised, plus the consideration deemed to have been received by the Company upon the issue of the Convertible Securities with respect to which such Options were actually exercised. (iv) Adjustment of Series C Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series C Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to subparagraph (iii) above, but excluding shares issued as a dividend or distribution as provided in paragraph (h) below or upon a stock split or combination as provided in paragraph (g) below), for a consideration per share (determined pursuant to subparagraph (viii) below) less than the Series C Conversion Price in effect on the date of and immediately prior to such issuance, then and in each such case, such Series C Conversion Price shall be reduced, concurrently with such issuance, to a Series C Conversion Price equal to the price (calculated to the nearest cent) determined by multiplying such Series C Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (together with the number of shares of Common Stock then issuable upon conversion of the outstanding shares of Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock and the conversion or exercise of any Convertible Securities or Options), plus the number of shares of Common Stock which the aggregate consideration received by the Corporation (as determined pursuant to subparagraph (viii) below) for the total number of shares of Common Stock so issued would purchase at the Series C Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (together with the number of shares of Common Stock then issuable upon conversion of the outstanding shares of Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock and the conversion or exercise of any Convertible Securities or Options) plus the number of shares so issued. No adjustment of the Series C Conversion Price, however, shall be made in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more. Any adjustments to the Series C Conversion Price shall be rounded to the nearest $.01 per share. (v) Adjustment of Series B-1 Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series B-1 Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to subparagraph (iii) above, but excluding shares issued as a dividend or distribution as provided in paragraph (h) below or upon a stock split or combination as provided in paragraph (g) below), for a consideration per share (determined pursuant to subparagraph (viii) below) less than the Series B-1 Conversion Price in effect on the date of and immediately prior to such issuance, then and in each such case, such Series B-1 Conversion Price shall be reduced, concurrently with such issuance, to a Series B-1 Conversion 19 20 Price equal to the price (calculated to the nearest cent) determined by multiplying such Series B-1 Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (together with the number of shares of Common Stock then issuable upon conversion of the outstanding shares of Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock and the conversion or exercise of any Convertible Securities or Options), plus the number of shares of Common Stock which the aggregate consideration received by the Corporation (as determined pursuant to subparagraph (viii) below) for the total number of shares of Common Stock so issued would purchase at the Series B-1 Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (together with the number of shares of Common Stock then issuable upon conversion of the outstanding shares of Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock and the conversion or exercise of any Convertible Securities or Options) plus the number of shares so issued. No adjustment of the Series B-1 Conversion Price, however, shall be made in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more. Any adjustments to the Series B-1 Conversion Price shall be rounded to the nearest $.01 per share. (vi) Adjustment of Series B-2 Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series B-2 Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to subparagraph (iii) above, but excluding shares issued as a dividend or distribution as provided in paragraph (h) below or upon a stock split or combination as provided in paragraph (g) below), for a consideration per share (determined pursuant to subparagraph (viii) below) less than the Series B-2 Conversion Price in effect on the date of and immediately prior to such issuance, then and in each such case, such Series B-2 Conversion Price shall be reduced, concurrently with such issuance, to a Series B-2 Conversion Price equal to the price (calculated to the nearest cent) determined by multiplying such Series B-2 Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (together with the number of shares of Common Stock then issuable upon conversion of the outstanding shares of Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock and the conversion or exercise of any Convertible Securities or Options), plus the number of shares of Common Stock which the aggregate consideration received by the Corporation (as determined pursuant to subparagraph (viii) below) for the total number of shares of Common Stock so issued would purchase at the Series B-2 Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (together with the number of shares of Common Stock then issuable upon conversion of the outstanding shares of Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock and the conversion or exercise of any Convertible Securities or Options) plus the number of shares so issued. No adjustment of the Series B-2 Conversion Price, however, shall be made in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be 20 21 made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more. Any adjustments to the Series B-2 Conversion Price shall be rounded to the nearest $.01 per share. (vii) Adjustment of Series B-3 Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series B-3 Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to subparagraph (iii) above, but excluding shares issued as a dividend or distribution as provided in paragraph (h) below or upon a stock split or combination as provided in paragraph (g) below), for a consideration per share (determined pursuant to subparagraph (viii) below) less than the Series B-3 Conversion Price in effect on the date of and immediately prior to such issuance, then and in each such case, such Series B-3 Conversion Price shall be reduced, concurrently with such issuance, to a Series B-1 Conversion Price equal to the price (calculated to the nearest cent) determined by multiplying such Series B-3 Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (together with the number of shares of Common Stock then issuable upon conversion of the outstanding shares of Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock and the conversion or exercise of any Convertible Securities or Options), plus the number of shares of Common Stock which the aggregate consideration received by the Corporation (as determined pursuant to subparagraph (viii) below) for the total number of shares of Common Stock so issued would purchase at the Series B-3 Conversion Price in effect immediately prior to such issuance, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issuance (together with the number of shares of Common Stock then issuable upon conversion of the outstanding shares of Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock and the conversion or exercise of any Convertible Securities or Options) plus the number of shares so issued. No adjustment of the Series B-3 Conversion Price, however, shall be made in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more. Any adjustments to the Series B-3 Conversion Price shall be rounded to the nearest $.01 per share. (viii) Determination of Consideration. For purposes of this Section 4(f), the consideration received by the Corporation for the issuance of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property. Such consideration shall: (I) insofar as it consists of cash, be computed at the aggregate of cash received by the Corporation, excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issuance, as is reasonably determined in good faith by the Board; and 21 22 (III) in the event Additional Shares of Common Stock are issued together with other shares of securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as is reasonably determined in good faith by the Board. (B) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to subparagraph (iii) above, relating to Options and Convertible Securities, shall be determined by dividing: (I) the total amount, if any, received or receivable by the Corporation as consideration for the issuance of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (II) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (g) Adjustment for Stock Splits and Combinations. (i) If the Corporation shall at any time or from time to time after the Series C Original Issue Date for the Series C Preferred Stock effect a subdivision of the outstanding Common Stock, the Series C Conversion Price then in effect immediately before that subdivision shall be proportionately decreased. If the Corporation shall at any time or from time to time after the Series C Original Issue Date for the Series C Preferred Stock combine the outstanding shares of Common Stock, the Series C Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. (ii) If the Corporation shall at any time or from time to time after the Series B-1 Original Issue Date for the Series B-1 Preferred Stock effect a subdivision of the outstanding Common Stock, the Series B-1 Conversion Price then in effect immediately before that subdivision shall be proportionately decreased. If the Corporation shall at any time or from time to time after the Series B-1 Original Issue Date for the Series B-1 Preferred Stock combine the outstanding shares of Common Stock, the Series B-1 Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. 22 23 (iii) If the Corporation shall at any time or from time to time after the Series B-2 Original Issue Date for the Series B-2 Preferred Stock effect a subdivision of the outstanding Common Stock, the Series B-2 Conversion Price then in effect immediately before that subdivision shall be proportionately decreased. If the Corporation shall at any time or from time to time after the Series B-2 Original Issue Date for the Series B-2 Preferred Stock combine the outstanding shares of Common Stock, the Series B-2 Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. (iv) If the Corporation shall at any time or from time to time after the Series B-3 Original Issue Date for the Series B-3 Preferred Stock effect a subdivision of the outstanding Common Stock, the Series B-3 Conversion Price then in effect immediately before that subdivision shall be proportionately decreased. If the Corporation shall at any time or from time to time after the Series B-3 Original Issue Date for the Series B-3 Preferred Stock combine the outstanding shares of Common Stock, the Series B-3 Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. (v) If the Corporation shall at any time or from time to time after any Series A Original Issue Date for the Series A Preferred Stock effect a subdivision of the outstanding Common Stock, the Series A Conversion Amount then in effect immediately before that subdivision shall be proportionately increased. If the Corporation shall at any time or from time to time after any Series A Original Issue Date for the Series A Preferred Stock combine the outstanding shares of Common Stock, the Series A Conversion Amount then in effect immediately before the combination shall be proportionately decreased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. (h) Adjustment for Certain Dividends and Distributions. (i) In the event the Corporation at any time after the Series C Original Issue Date for the Series C Preferred Stock, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Series C Conversion Price for the Series C Preferred Stock then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Series C Conversion Price for the Series C Preferred Stock then in effect by a fraction: (A) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the 23 24 close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series C Conversion Price for the Series C Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Series C Conversion Price for the Series C Preferred Stock shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions. (ii) In the event the Corporation at any time after the Series B-1 Original Issue Date for the Series B-1 Preferred Stock, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Series B-1 Conversion Price for the Series B-1 Preferred Stock then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Series B-1 Conversion Price for the Series B-1 Preferred Stock then in effect by a fraction: (A) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series B-1 Conversion Price for the Series B-1 Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Series B-1 Conversion Price for the Series B-1 Preferred Stock shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions. (iii) In the event the Corporation at any time after, the Series B-2 Original Issue Date for the Series B-2 Preferred Stock, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Series B-2 Conversion Price for the Series B-2 Preferred Stock then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Series B-2 Conversion Price for the Series B-2 Preferred Stock then in effect by a fraction: (A) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in 24 25 payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series B-2 Conversion Price for the Series B-2 Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Series B-2 Conversion Price for the Series B-2 Preferred Stock shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions. (iv) In the event the Corporation at any time, or from time after the Series B-3 Original Issue Date for the Series B-3 Preferred Stock, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Series B-3 Conversion Price for the Series B-3 Preferred Stock then in effect shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Series B-3 Conversion Price for the Series B-3 Preferred Stock then in effect by a fraction: (A) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series B-3 Conversion Price for the Series B-3 Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Series B-3 Conversion Price for the Series B-3 Preferred Stock shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions. (v) In the event the Corporation at any time, or from time after any Series A Original Issue Date for the Series A Preferred Stock, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Series A Conversion Amount for the Series A Preferred Stock then in effect shall be increased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, to the amount equal to the fraction: (A) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Series A Conversion Amount for the Series A Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the Series A Conversion Amount for the Series A Preferred Stock shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions, and 25 26 (B) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date. (i) Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after (i) the Series C Original Issue Date for the Series C Preferred Stock (ii) the Series B-1 Original Issue Date for the Series B-1 Preferred Stock (iii) the Series B-2 Original Issue Date for the Series B-2 Preferred Stock (iv) the Series B-3 Original Issue Date for the Series B-3 Preferred Stock, or (v) any Series A Original Issue Date for the Series A Preferred Stock, shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation other than shares of Common Stock, then and in each such event provision shall be made so that the holders of the Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock, or Series A Preferred Stock, as the case may be, shall receive upon conversion thereof in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Corporation that they would have received had their Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock, or Series A Preferred Stock, as the case may be, been converted into Common Stock on the date of such event and had thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period giving application to all adjustments called for during such period, under this paragraph with respect to the rights of the holders of the Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock or Series A Preferred Stock, as the case may be. (j) Adjustment for Reclassification, Exchange, or Substitution. If the Common Stock issuable upon the conversion of the Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, shall be changed into the same or a different number of shares of any class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares of stock dividend provided for above, or a reorganization, merger, consolidation, or sale of assets provided for below), then and in each such event the holder of each such share of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, shall have the right thereafter to convert such share into the kind and amount of shares of stock and other securities and property receivable upon such reorganization, reclassification, or other change, by holders of the number of shares of Common Stock into which such shares of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, might have been converted immediately prior to such reorganization, reclassification, or change, all subject to further adjustment as provided herein. (k) Adjustment for Merger or Reorganization. In case of any consolidation or merger of the Corporation with or into another corporation, each share of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, shall thereafter be convertible into the kind and amount of shares of stock or other securities or property to which a holder of the number of shares of Common Stock of the Corporation deliverable upon conversion of such Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, would have been entitled if it had converted its shares immediately 26 27 prior to such consolidation or merger; and, in such case, appropriate adjustment (as determined in good faith by the Board) shall be made in the application of the provisions in this Section 4 set forth with respect to the rights and interest thereafter of the holders of the Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the Series C Conversion Price, Series B Conversion Price and the Series A Conversion Amount) shall thereafter be applicable, as nearly as reasonably may be, in relation to any shares of stock or other property thereafter deliverable upon the conversion of the Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be. (l) Adjustment of Common Stock Issuable Upon Conversion of Series C Preferred Stock Upon Public Offering. In connection with a firm commitment underwritten public offering of Common Stock pursuant to an effective registration statement under the Securities Act and in the event that sixty percent (60%) of the holders of the Series C Preferred Stock vote or consent to modify the definition of "Series C Qualified Public Offering" set forth in paragraph (e) of Section 1 or waive the Series C Qualified Public Offering requirement for mandatory conversion of Series C Preferred Stock set forth in Section 5A herein and the per share offering price to the public is below $17.94, subject to Recapitalization Events, then immediately prior to the conversion required by Section 5A herein, the number of shares of Common Stock otherwise issuable upon the conversion of the Series C Preferred Stock shall be increased by multiplying such number of shares of Common Stock by a fraction, the numerator of which shall be $17.94 and the denominator of which shall be the per share offering price of the Common Stock sold to the public. (m) No Impairment. The Corporation will not, by amendment of its Certificate of Incorporation or through any 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 hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the respective Conversion Rights of the holders of the Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock against impairment. (n) Notice of Record Date. In the event: (i) that the Corporation shall propose to declare a dividend (or any other distribution) on its Common Stock, whether payable in cash, property, Common Stock or other securities of the Corporation, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) that the Corporation shall propose to subdivide or combine its outstanding shares of Common Stock; (iii) that the Corporation shall propose to effect any reclassification or recapitalization of the Common Stock of the Corporation outstanding (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock 27 28 distribution thereon), or of any consolidation or merger of the Corporation into or with another corporation; or (iv) of the Liquidation of the Corporation; then in connection with each such event, the Corporation shall cause to be filed at its principal office or at the office of the transfer agent of the Series C Preferred Stock, Series B Preferred Stock and the Series A Preferred Stock, and shall cause to be mailed to each of the holders of the Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock at their last addresses as shown on the records of the Corporation or such transfer agent, at least ten (10) days prior to the record date specified in (A) below or at least twenty (20) days before the date specified in (B) below, a notice stating: (A) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or (B) the date on which such reclassification, consolidation, merger, or Liquidation is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, or Liquidation. (o) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock, as the case may be, furnish or cause to be furnished to such holder a similar certificate setting forth (i) such adjustments and readjustments; (ii) Series C Conversion Price, the Series B-1 Conversion Price, the Series B-2 Conversion Price, Series B-3 Conversion Price, or Series A Conversion Amount, as the case may be, then in effect; and (iii) the number of shares of Common Stock and the amount, if any, of other property which then would be received upon the conversion of Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock or Series A Preferred Stock, as the case may be. (p) Stock to be Reserved. The Corporation will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon the conversion of Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Series C Preferred Stock, Series B Preferred Stock and Series A Preferred Stock. The Corporation covenants that all shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, and, without limiting the generality 28 29 of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the Series C Conversion Price, Series B-1 Conversion Price, the Series B-2 Conversion Price or the Series B-3 Conversion Price, respectively, in effect at the time. The Corporation will take all such action as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirement of any national securities exchange upon which the Common Stock may be listed. The Corporation will not take any action which results in any adjustment of the Series C Conversion Price, Series B-1 Conversion Price, the Series B-2 Conversion Price or the Series B-3 Conversion Price, or the Series A Conversion Amount if the total number of shares of Common Stock issued and issuable after such action upon conversion of the Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock or Series A Preferred Stock, as the case may be, would exceed the total number of shares of Common Stock then authorized by this Restated Certificate of Incorporation. (q) Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of the Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock, Series A Preferred Stock, or Series A-2 Preferred Stock, as the case may be, shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Series C Preferred Stock, Series B Preferred Stock or Series A Preferred Stock which is being converted. Section 5A. Conversion at a Series C Qualified Public Offering. (a) Upon the Closing of a Series C Qualified Public Offering, all of the Series C Preferred Stock then outstanding shall automatically be converted into shares of Common Stock in accordance with Section 4. (b) On the date fixed for conversion in accordance with paragraph (a) of this Section 5A, all rights with respect to the Series C Preferred Stock so converted will terminate. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his or its attorney duly authorized in writing. As soon as practicable after the date of such conversion and the surrender of the certificate or certificates for Series C Preferred Stock, the Corporation shall cause to be issued and delivered to such holder, or on his or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Section 4(d) in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion. Upon any such conversion, no adjustment to the Conversion Price shall be made for any accrued and unpaid dividends on the Series C Preferred Stock converted. (c) All certificates evidencing shares of Series C Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the date such certificates are so required to be surrendered, be deemed to have been 29 30 retired and canceled and the shares of Series C Preferred Stock represented thereby converted into Common Stock for all purposes as of the date of conversion set forth in paragraph (a) above, notwithstanding the failure of the holder or holders thereof to surrender such certificates. Section 5B. Conversion Upon Failure to Obtain Certain Share Thresholds. (a) In the event that less than twenty percent of the Series C Preferred Stock outstanding on the Series C Original Issue Date remains outstanding at a subsequent date, then upon such subsequent date, each share of Series C Preferred Stock outstanding on such subsequent date shall automatically be converted into shares of Common Stock in accordance with Section 4 and all rights with respect to the Series C Preferred Stock so converted shall terminate. (b) In the event that all of the holders of Series B-2 Preferred Stock shall elect to convert their shares into shares of Common Stock in accordance with Section 4 herein, then all shares of Series B-3 Preferred Stock shall convert into shares of Common Stock in accordance with Section 4 herein and all rights with respect to the Series B-2 Preferred Stock and Series B-3 Preferred Stock shall terminate. Section 5C. Conversion at a Series B Qualified Public Offering. (a) Upon the Closing of a Series B Qualified Public Offering, all of the Series B Preferred Stock then outstanding shall automatically be converted into shares of Common Stock in accordance with Section 4. (b) On the date fixed for conversion in accordance with paragraph (a) of this Section 5C, all rights with respect to the Series B Preferred Stock so converted will terminate. If so required by the Corporation, certificates surrendered for conversion shall be endorsed or accompanied by written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his or its attorney duly authorized in writing. As soon as practicable after the date of such conversion and the surrender of the certificate or certificates for Series B Preferred Stock, the Corporation shall cause to be issued and delivered to such holder, or on his or its written order, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and cash as provided in Section 4(d) in respect of any fraction of a share of Common Stock otherwise issuable upon such conversion. Upon any such conversion, no adjustment to the Conversion Price shall be made for any accrued and unpaid dividends on the Series B Preferred Stock converted. (c) All certificates evidencing shares of Series B Preferred Stock which are required to be surrendered for conversion in accordance with the provisions hereof shall, from and after the date such certificates are so required to be surrendered, be deemed to have been retired and canceled and the shares of Series B Preferred Stock represented thereby converted into Common Stock for all purposes as of the date of conversion set forth in paragraph (a) above, notwithstanding the failure of the holder or holders thereof to surrender such certificates. Section 6. Conversion at a Series A Required Conversion Event. 30 31 Each share of Series A Preferred Stock shall be converted automatically into one (1) share of Common Stock upon the earlier to occur of each of the following events (each, a "Series A Required Conversion Event"): (i) immediately upon the closing of a Series A Qualified Public Offering; and (ii) immediately upon the closing of the acquisition of a majority of the then outstanding shares of the Common Stock by the holders of a majority of the then outstanding shares of the Series A Preferred Stock. Section 7A. Mandatory Redemption of Series C Preferred Stock and Series B Preferred Stock. (a) The Corporation's redemption of the shares of Series B-1 Preferred Stock, the shares of Series B-2 Preferred Stock, the shares of Series B-3 Preferred Stock and the shares of Series C Preferred Stock shall be pari passu and the Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock and Series C Preferred Stock shall be equal in priority. (b) At any time on or after the fifth anniversary of the Series C Original Issue Date, the Corporation shall be required to redeem all of the shares of Series C Preferred Stock out of funds legally available therefor upon the request of the majority of the holders of the Series C Preferred Stock. (c) The redemption price shall be paid by the Corporation in cash and shall be in an amount equal to (i) $10.25 per share of Series C Preferred Stock (subject to appropriate adjustment for any Recapitalization Events), plus (ii) an amount equal to all declared and unpaid dividends on such share since the Series C Original Issue Date thereof as of such time of determination, whether or not there are any unrestricted funds of the Corporation legally available for the payment of dividends (the "Redemption Price for the Series C Preferred Stock"). (d) The Corporation shall provide each holder of Series C Preferred Stock with a written notice of redemption (addressed to the holder at its address as it appears on the stock transfer books of the Corporation), not earlier than sixty (60) nor later than twenty (20) days before the date fixed for redemption. The notice of redemption shall specify (i) the class or part of the class of shares to be redeemed; (ii) the date fixed for redemption; (iii) the Redemption Price for the Series C Preferred Stock; and (iv) the place the holders of Series C Preferred Stock may obtain payment of the Redemption Price for the Series C Preferred Stock upon surrender of their certificates. If funds are available on the date fixed for redemption, then whether or not shares are surrendered for payment of the Redemption Price for the Series C Preferred Stock, the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders of the Corporation with respect to the shares redeemed on and after the date fixed for redemption and shall be entitled to receive the Redemption Price for the Series C Preferred Stock without interest upon the surrender of the share certificate. If less than all the shares represented by a share certificate are to be redeemed, the Corporation shall issue a new share certificate for the shares not redeemed. 31 32 (e) If on the date fixed for redemption, funds of the Corporation legally available therefor shall be insufficient to redeem all the shares of Series C Preferred Stock required to be redeemed as provided herein, funds to the extent legally available shall be used for such purpose and the Corporation shall effect such redemption pro rata according to the number of shares of Series C Preferred Stock held by each holder subject to the redemption (a "Partial Redemption for the Series C Preferred Stock"). The Corporation shall make additional Partial Redemptions for the Series C Preferred Stock to the extent that funds are legally available therefor beginning thirty (30) days after the Redemption Date and each thirty (30) days thereafter until all outstanding shares of Series C Preferred Stock have been redeemed. (f) The Corporation shall be required to redeem all of the shares of Series B Preferred Stock upon the occurrence of and simultaneously with the redemption of all outstanding shares of Series C Preferred Stock. (g) The redemption price for the Series B-1 Preferred Stock shall be paid by the Corporation in cash and shall be in an amount equal to (i) $6.20 per share of Series B-1 Preferred Stock (subject to appropriate adjustment for any Recapitalization Events), plus (ii) an amount equal to all declared and unpaid dividends on such share since the Series B-1 Original Issue Date thereof as of such time of determination, whether or not there are any unrestricted funds of the Corporation legally available for the payment of dividends (the "Redemption Price for the Series B-1 Preferred Stock"). (h) The Corporation shall provide each holder of Series B-1 Preferred Stock with a written notice of redemption (addressed to the holder at its address as it appears on the stock transfer books of the Corporation), not earlier than sixty (60) nor later than twenty (20) days before the date fixed for redemption. The notice of redemption shall specify (i) the class or part of the class of shares to be redeemed; (ii) the date fixed for redemption; (iii) the Redemption Price for the Series B-1 Preferred Stock; and (iv) the place the holders of Series B-1 Preferred Stock may obtain payment of the Redemption Price for the Series B-1 Preferred Stock upon surrender of their certificates. If funds are available on the date fixed for redemption, then whether or not shares are surrendered for payment of the Redemption Price for the Series B-1 Preferred Stock, the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders of the Corporation with respect to the shares redeemed on and after the date fixed for redemption and shall be entitled to receive the Redemption Price for the Series B-1 Preferred Stock without interest upon the surrender of the share certificate. If less than all the shares represented by a share certificate are to be redeemed, the Corporation shall issue a new share certificate for the shares not redeemed. (i) If on the date fixed for redemption funds of the Corporation legally available therefor shall be insufficient to redeem all the shares of Series B-1 Preferred Stock required to be redeemed as provided herein, funds to the extent legally available shall be used for such purpose and the Corporation shall effect such redemption pro rata according to the number of shares of Series B-1 Preferred Stock held by each holder subject to the redemption (a "Partial Redemption for the Series B-1 Preferred Stock"). The Corporation shall make additional Partial Redemptions for the Series B-1 Preferred Stock to the extent that funds are legally available therefor beginning thirty (30) days after the Redemption Date and each thirty (30) days thereafter until all outstanding shares of Series B-1 Preferred Stock have been redeemed. 32 33 (j) The redemption price for the Series B-2 Preferred Stock shall be paid by the Corporation in cash and shall be in an amount equal to (i) $7.44 per share of Series B-2 Preferred Stock (subject to appropriate adjustment for any Recapitalization Events), plus (ii) an amount equal to all declared and unpaid dividends on such share since the Series B-2 Original Issue Date thereof as of such time of determination, whether or not there are any unrestricted funds of the Corporation legally available for the payment of dividends (the "Redemption Price for the Series B-2 Preferred Stock for the Series B-2 Preferred Stock"). (k) The Corporation shall provide each holder of Series B-2 Preferred Stock with a written notice of redemption (addressed to the holder at its address as it appears on the stock transfer books of the Corporation), not earlier than sixty (60) nor later than twenty (20) days before the date fixed for redemption. The notice of redemption shall specify (i) the class or part of the class of shares to be redeemed; (ii) the date fixed for redemption; (iii) the Redemption Price for the Series B-2 Preferred Stock; and (iv) the place the holders of Series B-2 Preferred Stock may obtain payment of the Redemption Price for the Series B-2 Preferred Stock upon surrender of their certificates. If funds are available on the date fixed for redemption, then whether or not shares are surrendered for payment of the Redemption Price for the Series B-2 Preferred Stock, the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders of the Corporation with respect to the shares redeemed on and after the date fixed for redemption and shall be entitled to receive the Redemption Price for the Series B-2 Preferred Stock without interest upon the surrender of the share certificate. If less than all the shares represented by a share certificate are to be redeemed, the Corporation shall issue a new share certificate for the shares not redeemed. (l) If on the date fixed for redemption funds of the Corporation legally available therefor shall be insufficient to redeem all the shares of Series B-2 Preferred Stock required to be redeemed as provided herein, funds to the extent legally available shall be used for such purpose and the Corporation shall effect such redemption pro rata according to the number of shares of Series B-2 Preferred Stock held by each holder subject to the redemption (a "Partial Redemption for the Series B-2 Preferred Stock"). The Corporation shall make additional Partial Redemptions for the Series B-2 Preferred Stock to the extent that funds are legally available therefor beginning thirty (30) days after the Redemption Date and each thirty (30) days thereafter until all outstanding shares of Series B-2 Preferred Stock have been redeemed. (m) The redemption price for the Series B-3 Preferred Stock shall be paid by the Corporation in cash and shall be in an amount equal to (i) $30.37 per share of Series B-3 Preferred Stock (subject to appropriate adjustment for any Recapitalization Events), plus (ii) an amount equal to all declared and unpaid dividends on such share since the Series B-3 Original Issue Date thereof as of such time of determination, whether or not there are any unrestricted funds of the Corporation legally available for the payment of dividends (the "Redemption Price for the Series B-3 Preferred Stock"). (n) The Corporation shall provide each holder of Series B-3 Preferred Stock with a written notice of redemption (addressed to the holder at its address as it appears on the stock transfer books of the Corporation), not earlier than sixty (60) nor later than twenty (20) days before the date fixed for redemption. The notice of redemption shall specify (i) the class or part of the class of shares to be redeemed; (ii) the date fixed for redemption; (iii) the Redemption 33 34 Price for the Series B-3 Preferred Stock; and (iv) the place the holders of Series B-3 Preferred Stock may obtain payment of the Redemption Price for the Series B-3 Preferred Stock upon surrender of their certificates. If funds are available on the date fixed for redemption, then whether or not shares are surrendered for payment of the Redemption Price for the Series B-3 Preferred Stock, the shares shall no longer be outstanding and the holders thereof shall cease to be shareholders of the Corporation with respect to the shares redeemed on and after the date fixed for redemption and shall be entitled to receive the Redemption Price for the Series B-3 Preferred Stock without interest upon the surrender of the share certificate. If less than all the shares represented by a share certificate are to be redeemed, the Corporation shall issue a new share certificate for the shares not redeemed. (o) If on the date fixed for redemption, funds of the Corporation legally available therefor shall be insufficient to redeem all the shares of Series B-3 Preferred Stock required to be redeemed as provided herein, funds to the extent legally available shall be used for such purpose and the Corporation shall effect such redemption pro rata according to the number of shares of Series B-3 Preferred Stock held by each holder subject to the redemption (a "Partial Redemption for the Series B-3 Preferred Stock"). The Corporation shall make additional Partial Redemptions for the Series B-3 Preferred Stock to the extent that funds are legally available therefor beginning thirty (30) days after the Redemption Date and each thirty (30) days thereafter until all outstanding shares of Series B-3 Preferred Stock have been redeemed. Section 7B. Pro Rata Redemption of Series C Preferred Stock and Series B Preferred Stock. Notwithstanding the provisions contained in Section 7A, if on the date fixed for redemption, funds of the Corporation legally available therefor shall be insufficient to redeem all of the Series C Preferred Stock, the Series B-1 Preferred Stock, the Series B-2 Preferred Stock, and the Series B-3 Preferred Stock, as the case may be, as provided herein, funds to the extent legally available shall be used for such purpose and the Corporation shall effect such redemption pro rata according to the aggregate number of shares of Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock and Series B-3 Preferred Stock, as the case may be, held by such holders. The Corporation shall make additional redemptions pursuant to this Section 7B to the extent that funds are legally available therefor beginning thirty (30) days after the Redemption Date for the Series C Preferred Stock, the Series B-1 Preferred Stock, the Series B-2 Preferred Stock, and the Series B-3 Preferred Stock, as the case may be, and each thirty (30) days thereafter until all outstanding shares of Series C Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock, Series B-3 Preferred Stock have been redeemed. C. Upon the effectiveness of this Restated Certificate of Incorporation, every share of Common Stock outstanding or held by the Corporation in its treasury shall be changed and reclassified into four shares of Common Stock, $0.001 par value per share, which shares shall be fully paid and nonassessable shares of Common Stock of the Corporation. FIFTH. In furtherance and not in limitation of the powers conferred by statute, the Board of Directors of the Corporation shall have the power to adopt, alter, amend or repeal the Bylaws of the Corporation and to fix the amount to be reserved as working capital of the Corporation. 34 35 SIXTH. The stockholders and directors shall have the power to hold their respective meetings and keep the books, documents and papers of the Corporation within or outside the State of Delaware and at such place or places as may be from time to time designated by the Bylaws or by resolution of the stockholders or directors, except as otherwise required by the laws of the State of Delaware. Elections of directors need not be by written ballot except and to the extent provided in the Bylaws of the Corporation. SEVENTH. The objects, purposes and powers specified in any clause or paragraph of this Amended and Restated Certificate of Incorporation shall be in no way limited or restricted by reference to or inference from the terms of any other clause or paragraph of this Amended and Restated Certificate of Incorporation. The objects, purposes and powers in each of the clauses and paragraphs of this Amended and Restated Certificate of Incorporation shall be regarded as independent objects, purposes and powers. The objects, purposes and powers specified in this Amended and Restated Certificate of Incorporation are in furtherance and not in limitation of the objects, purposes and powers conferred by statute. EIGHTH. The Corporation shall have the power to indemnify its officers, directors, employees and agents, and such other persons as may be designated as set forth in the Bylaws (the "Indemnitee"), to the full extent permitted by the Delaware General Corporation Law ("DGCL") from and against any and all of the expenses, liabilities or other matters referred to in or covered by the Bylaws or the DGCL, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation shall pay in advance of the final disposition of such Indemnitee upon the receipt of an undertaking by or on behalf of such Indemnitee to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this ARTICLE EIGHTH. A director shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, provided that the liability of a director (i) for any breach of the director's loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit shall not be eliminated or limited hereby. Any repeal or modification of this ARTICLE EIGHTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. NINTH. The Corporation shall have perpetual existence. TENTH. The Corporation reserves the right at any time and from time to time to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation (including provisions as may hereafter be added or inserted in this Amended and Restated Certificate of Incorporation as authorized by the laws of the State of Delaware) in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of 35 36 whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Amended and Restated Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this ARTICLE TENTH. ELEVENTH. Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the DGCL or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title I of the DGCL order a meeting of the creditors or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all of the creditors or class of creditors, and/or on all of the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation. TWELFTH. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against such expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the DGCL. THIRTEENTH. The Amended and Restated Certificate of Incorporation of the Corporation as herein amended shall constitute a restatement of and shall supersede the Restated Certificate of Incorporation, as amended, of the Corporation as previously filed. 36 37 IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of Incorporation to be signed by its President this 17th day of November, 1999. BOLT MEDIA, INC. By:/s/ Daniel Pelson ----------------- Name: Daniel Pelson Title: President EX-3.3 3 AMENDED AND RESTATED BYLAWS 1 EXHIBIT 3.3 AS OF NOVEMBER 17, 1999 AMENDED AND RESTATED BY-LAWS OF BOLT, INC. (FORMERLY KNOWN AS BOLT MEDIA, INC.) ARTICLE I OFFICES 1.1 Registered Office: The registered office shall be established and maintained at and shall be the registered agent of the Corporation in charge hereof. 1.2 Other Offices: The corporation may have other offices, either within or without the State of Delaware, at such place or places as the Board of Directors may from time to time appoint or the business of the corporation may require, provided, however, that the corporation's books and records shall be maintained at such place within the continental United States as the Board of Directors shall from time to time designate. ARTICLE II STOCKHOLDERS 2.1 Place of Stockholders' Meetings: All meetings of the stockholders of the corporation shall be held at such place or places, within or outside the State of Delaware as may be fixed by the Board of Directors from time to time or as shall be specified in the respective notices thereof. 2.2 Date of Hour of Annual Meetings of Stockholders: An annual meeting of stockholders shall be held each year within five months after the close of the fiscal year of the Corporation. 2.3 Purpose of Annual Meetings: At each annual meeting, the stockholders shall elect the members of the Board of Directors for the succeeding year. At any such annual meeting any further proper business may be transacted. 2.4 Special Meetings of Stockholders: Special meetings of the stockholders or of any class or series thereof entitled to vote may be called the President or by the Chairman of the Board of Directors, or at the request in writing by stockholders of record owning at least fifty (50%) percent of the issued and outstanding voting shares of common stock of the corporation. 2.9 Proxies: Any stockholder entitled to vote at any meeting of stockholders may vote either in person or by proxy. Every proxy shall be in writing, subscribed by the stockholder or his duly authorized attorney-in-fact, but need not be dated, sealed, witnessed or acknowledged. 2 2.10 Inspectors: The election of directors and any other vote by ballot at any meeting of the stockholders shall be supervised by at least two inspectors. Such inspectors may be appointed by the presiding officer before or at the meeting; or if one or both inspectors so appointed shall refuse to serve or shall not be present, such appointment shall be made by the officer presiding at the meeting. 2.11 List of Stockholders: (a) At least ten days before every meeting of stockholders, the Secretary shall prepare and make 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. (b) During ordinary business hours, for a period of at least ten days prior to the meeting, such list shall be open to examination by any stockholder for any purpose germane 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. (c) The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and it may be inspected by any stockholder who is present. (d) The stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by this Section 2.11 or the books of the corporation, or to vote in person or by proxy at any meeting of stockholders. 2.12 Procedure at Stockholders' Meetings: Except as otherwise provided by these by-laws or any resolutions adopted by the stockholders or Board of Directors, the order of business and all other matters of procedure at every meeting of stockholders shall be determined by the presiding officer. 2.13 Action By Consent Without Meeting: Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS 3.1 Powers of Directors: The property, business and affairs of the corporation shall be managed by its Board of Directors which may exercise all the powers of the corporation except such as are by the law of the State of Delaware of the Certificate of Incorporation of these by-laws required to be exercised or done by the stockholders. 2 3 3.2 Composition of Board of Directors. The Board of Directors of the Corporation shall consist of at least five (5) members and no more than seven (7) members. Directors need not be stockholders. 3.3 Removal. Except as provided for in Section 3.4 below, each director nominated by any stockholder or group of stockholders and duly nominated and elected to the Board shall be subject to removal only at the request of the stockholder or group of stockholders which nominated such director. 3.4 Election of Directors; Vacancies. The directors shall be elected at the annual meeting or at any special meeting of the stockholders, except as provided in this Section 3.4 of this Article, and each director elected shall hold office until his or her successor is elected and qualified, unless sooner displaced. Subject to the rights of the holders of any class or series of preferred stock of the Corporation to elect directors, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause may be filled only by a majority vote of the directors then in office, though less than a quorum, or the sole remaining director. No decrease in the number of authorized directors constituting the Board of Directors shall shorten the term of any incumbent director. 3.5 Committees. The Board of Directors shall, by resolution, establish a Compensation Committee and an Audit Committee with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committees. The Board of Directors, by a vote of a majority of the Board of Directors, may from time to time designate other committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. 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 which 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 these By-laws. Along with the customary duties and powers afforded a compensation committee, the Compensation Committee shall have the sole authority to: (i) approve all grants or awards under the Corporation's equity compensation plan(s); (ii) approve the hiring or dismissal of Chairman of the Board of Directors, the Chief Executive Officer and Chief Financial Officer of the Corporation; (iii) determine the terms and compensation and other terms of employment of the 3 4 executive officers of the Corporation; and (iv) approve the adoption or amendment of any equity compensation plan. Along with the customary duties and powers afforded an audit committee, the Audit Committee shall have the sole authority to approve the engagement or change of the Corporation's auditors or the selection of any appraiser for any of the assets or securities of the Corporation. 3.6 Resignation: Any director may resign his or her office at any time by delivering his resignation in writing to the Chairman of the Board or to the President. It will take effect at the time specified therein or, if no time is specified, it will be effective at the time of its receipt by the corporation. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. 3.7 Meetings of the Board of Directors: (a) The Board of Directors may hold their meetings, both regular and special, either within or outside the State of Delaware. (b) Regular meetings of the Board of Directors may be held at such time and place as shall from time to time be determined by resolution of the Board of Directors. No notice of such regular meetings shall be required. If the date designated for any regular meeting be a legal holiday, then the meeting shall be held on the next day which is not a legal holiday. (c) The first meeting of each newly elected Board of Directors shall be held immediately following the annual meeting of the stockholders for the election of officers and the transaction of such other business as may come before it. If such meeting is held at the place of the stockholders' meeting, no notice thereof shall be required. (d) Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman of the Board or the President or at the written request of any one director. (e) The Secretary shall give notice to each director of any special meeting of the Board of Directors by mailing the same at least three days before the meeting or by telegraphing, telexing, or delivering the same not later than the date before the meeting. Unless required by law, such notice need not include a statement of the business to be transacted at, or the purpose of, any such meeting. Any and all business may be transacted at any meeting of the Board of Directors. No notice of any adjourned meeting need by given. No notice to or waiver by any director shall be required with respect to any meeting at which the director is present. 3.8 Quorum and Action: Unless provided otherwise by law or by the Certificate of Incorporation or these by-laws, a majority of the Directors shall constitute a quorum for the transaction of business; but if there shall be less than a quorum at any meeting of the Board, a majority of those present may adjourn the meeting from time to time. The vote of a majority of the Directors of the Directors present at any meeting at which a quorum is present shall be necessary to constitute the act of the Board of Directors. 4 5 3.9 Presiding Office and Secretary of the Meeting: The President, or, in his absence a member of the Board of Directors selected by the members present, shall preside at meetings of the Board. The Secretary shall act as secretary of the meeting, but in his absence the presiding officer may appoint a secretary of the meeting. 3.10 Action by Consent Without Meeting: 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 or proceedings of the Board or committee. 3.11 Action by Telephonic Conference: Members of the Board of Directors, or any committee designated by such board, may participate in a meeting of such board or 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 participation in such a meeting shall constitute presence in person at such meeting. 3.12 Compensation of Directors: Directors shall receive such reasonable compensation for their service on the Board of Directors or any committees thereof, whether in the form of salary or a fixed fee for attendance at meetings, or both, with expenses, if any, as the Board of Directors may from time to time determine. Nothing herein contained shall be construed to preclude any Director from serving in any other capacity and receiving compensation therefor. ARTICLE IV OFFICERS 4.1 Officers, Title, Elections, Terms: (a) The elected officers of the corporation shall be a President, a Treasurer and a Secretary, and such other officers as the Board of Directors shall deem advisable. The officers shall be elected by the Board of Directors as its annual meeting following the annual meeting of the stockholders, to serve at the pleasure of the Board of otherwise as shall be specified by the Board at the time of such election and until their successors are elected and qualified. (b) The Board of Directors may elect or appoint at any time, and from time to time, additional officers or agents with such duties as it may deem necessary or desirable. Such additional officers shall serve at the pleasure of the Board or otherwise as shall be specified by the Board at the time of such election or appointment. Two or more offices may be held by the same person. (c) Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors. (d) Any officer may resign his office at any time. Such resignation shall be made in writing and shall take effect at the time specified therein or, if no time has been specified, at the time of its receipt of by the corporation. The acceptance of a resignation shall not be necessary to make it effective, unless expressly so provided in the resignation. 5 6 (e) The salaries of all officers of the corporation shall be fixed by the Board of Directors. 4.2 Removal of Elected Officers: Any elected officer may be removed at any time, either with or without cause, by resolution adopted at any regular or special meeting of the Board of Directors by a majority of the Directors then in office. 4.3 Duties: (a) President: The President shall be the principal executive officer of the corporation and, subject to the control of the Board of Directors, shall supervise and control all the business and affairs of the corporation. He shall, when present, preside at all meetings of the stockholders and of the Board of Directors. He shall see that all orders and resolutions of the Board of Directors are carried into effect (unless any such order or resolution shall provide otherwise), and in general shall perform all duties incident to the office of the president and such other duties as may be prescribed by the Board of Directors from time to time. (b) Treasurer: The Treasurer shall (1) have charge and custody of and be responsible for all funds and securities of the Corporation; (2) receive and give receipts for moneys due and payable to the corporation from any source whatsoever; (3) deposit all such moneys in the name of the corporation in such banks, trust companies, or other depositories as shall be selected by resolution of the Board of Directors; and (4) in general perform all duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. He shall, if required by the Board of Directors, give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors shall determine. (c) Secretary: The Secretary shall (1) keep the minutes of the meetings of the stockholders, the Board of Directors, and all committees, if any, of which a secretary shall not have been appointed, in one or more books provided for that purpose; (2) see that all notices are duly given in accordance with the provisions of these by-laws and as required by law; (3) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents, the execution of which on behalf of the corporation under its seal, duly authorized; (4) keep a register of the post office address of each stockholder which shall be furnished to the Secretary by such stockholder; (5) have general charge of stock transfer books of the Corporation; and (6) in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the President or by the Board of Directors. ARTICLE V CAPITAL STOCK 5.1 Stock Certificates: (a) 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 President and by the Treasurer or the Secretary, certifying the number of shares owned by him. (b) If such certificate is countersigned by a transfer agent other than the corporation or its employee, or by a registrar other than the corporation or its employee, the signatures of the officers of the corporation may be facsimiles, and, if permitted by law, any other signature may be a facsimile. 6 7 (c) In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall be ceased to be such officer before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer at the date of issue. (d) Certificates of stock shall be issued in such form not inconsistent with the Certificate of Incorporated as shall be approved by the Board of Directors, and shall be numbered and registered in the order in which they were issued. (e) All certificates surrendered to the corporation shall be canceled with the date of cancellation, and shall be retained by the Secretary, together with the powers of attorney to transfer and the assignments of the shares represented by such certificates, for such period of time as shall be prescribed from time to time by resolution of the Board of Directors. 5.2 Record Ownership: A record of the name and address of the holder of such certificate, the number of shares represented thereby and the date of issue thereof shall be made on the corporation's books. The corporation shall be entitled to treat the holder of any share of stock as the holder in fact thereof, and accordingly shall not be bound to recognize any equitable or other claim to or interest in any share on the part of any other person, whether or not it shall have express or other notice thereof, thereof, except as required by law. 5.3 Transfer of Record Ownership: Transfers of stock shall be made on the books of the corporation only by direction of the person named in the certificate or his attorney, lawfully constituted in writing, and only upon the surrender of the certificate therefor and a written assignment of the shares evidenced thereby. Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer if, when the certificates are presented to the corporation for transfer, both the transferor and the transferee request the corporation to do so. 5.4 Lost, Stolen or Destroyed Certificates: Certificates representing shares of the stock of the corporation shall be issued in place of any certificate alleged to have been lost, stolen or destroyed in such manner and on such terms and conditions as the Board of Directors from time to time may authorize. 5.5 Transfer Agent, Registrar, Rules Respecting Certificates: The corporation may maintain one or more transfer offices or agencies where stock of the corporation shall be transferable. The corporation may also maintain one or more registry offices where such stock shall be registered. The Board of Directors may make such rules and regulations as it may deem expedient concerning the issue, transfer and registration of stock certificates. 5.6 Fixing Record Date for Determination of Stockholders of Record: The Board of Directors may fix, in advance, a date as the record date for the purpose of determining stockholders entitled to notice of, or to vote at, any meeting of the stockholders or any adjournment thereof, or the stockholders entitled to receive payment of any dividend or other distribution or the allotment of any rights, or entitled to exercise any rights in respect of an change, conversion or exchange of stock, or to express consent to corporate action in writing without a meeting, or in order to make a determination of the stockholders for the purpose of any other lawful action. Such record date in any case shall be not more than sixty days nor less than ten days before the date of a meeting of the stockholders, nor more than sixty days prior to any 7 8 other action requiring such determination of the stockholders. A determination of stockholders of record entitled to notice 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. 5.7 Dividends: Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the Board of Directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the Board of Directors shall deem conducive to the interests of the corporation. ARTICLE VI SECURITIES HELD BY THE CORPORATION 6.1 Voting: Unless the Board of Directors shall otherwise order, the President, the Secretary or the Treasurer shall have full power and authority, on behalf of the corporation, to attend, act and vote at any meeting of the stockholders of any corporation in which the corporation may hold stock, and at such meeting to exercise any or all rights and powers incident to the ownership of such stock, and to execute on behalf of the corporation a proxy or proxies empowering another or others to act as aforesaid. The Board of Directors from time to time may confer like powers upon any other person or persons. 6.2 General Authorization to Transfer Securities Held by the Corporation (a) Any of the following officers, to wit: the President and the Treasurer shall be, and they hereby are, authorized and empowered to transfer, convert, endorse, sell, assign, set over and deliver any and all shares of stock, bonds, debentures, notes, subscription warrants, stock purchase warrants, evidence of indebtedness, or other securities now or hereafter standing in the name of or owned by the corporation, and to make, execute and deliver, under the seal of the corporation, any and all written instruments of assignment and transfer necessary or proper to effectuate the authority hereby conferred. (b) Whenever there shall be annexed to any instrument of assignment and transfer executed pursuant to and in accordance with the foregoing paragraph (a), a certificate of the Secretary of the corporation in office at the date of such certificate setting forth the provisions of this Section 6.2 and stating that they are in full force and effect and setting forth the names of persons who are then officers of the corporation, then all persons to whom such instrument and annexed certificate shall thereafter come, shall be entitled, without further inquiry or investigation and regardless of the date of such certificate, to assume and to act in reliance upon the assumption that the shares of stock or other securities named in such instrument were theretofore duly and properly transferred, endorsed, sold, assigned, set over and delivered by the corporation, and that with respect to such securities the authority of these provisions of the by-laws and of such officers is still in full force and effect. 8 9 ARTICLE VII MISCELLANEOUS 7.1 Signatories: All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name 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. 7.2 Seal: The seal of the corporation shall be in such form and shall have such content as the Board of Directors shall from time to time determine. 7.3 Notice and Waiver of Notice: Whenever any notice of the time, place or purpose of any meeting of the stockholders, directors or a committee is required to be given under the law of the State of Delaware, the Certificate of Incorporation or these by-laws, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the holding thereof, or actual attendance at the meeting in person or, in the case of any stockholder, by his attorney-in-fact, shall be deemed equivalent to the giving of such notice to such persons. 7.4 Indemnity: The Corporation shall indemnify its directors, officers and employees (the "Indemnitee") to the fullest extent permitted by the Delaware General Corporation Law (the "DGCL"), from and against any and all of the expenses, liabilities or other matters referred to in or covered by these Bylaws or the DGCL, and such indemnification shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any these Bylaws, any agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. The Corporation shall pay in advance of the final disposition of such Indemnitee upon the receipt of an undertaking by or on behalf of such Indemnitee to repay such amount if it shall ultimately be determined that he or she is no not entitled to be indemnified by the Corporation. A director shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duties as a director, provided that the liability of a director (i) for any breach of the director's loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit shall not be eliminated or limited hereby. Any repeal or modification of these Bylaws shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. 7.5 Fiscal Year: Except as from time to time otherwise determined by the Board of Directors, the fiscal year of the corporation shall end on December 31. 9 EX-10.1 4 1999 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK PLAN 1 EXHIBIT 10.1 AMENDED AS OF NOVEMBER 17, 1999 BOLT, INC. 1999 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN 1. DEFINITIONS. Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this BOLT, INC. 1999 EMPLOYEE, DIRECTOR AND CONSULTANT STOCK OPTION PLAN, have the following meanings: Administrator means the Board of Directors, unless it has delegated power to act on its behalf to the Committee, in which case the Administrator means the Committee. Affiliate means a corporation which, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect. Board of Directors means the Board of Directors of the Company. Change in Control means (i) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of the Company's common stock would be converted into cash, securities or other property, other than a merger or consolidation of the Company in which the holders of the Company's common stock immediately prior to the merger or consolidation hold more than fifty percent (50%) of the common stock of the surviving company immediately after the merger, or (ii) any sale, lease, exchange or other transfer (in one or more transaction or series of related transactions) of all, or substantially all, the assets of the Company to a nonaffiliate of the Company, or (iii) the stockholders of the Company shall approve any plan or proposal for liquidation or dissolution of the Company. Code means the United States Internal Revenue Code of 1986, as amended. Committee means the committee of the Board of Directors to which the Board of Directors has delegated power to act under or pursuant to the provisions of the Plan, or in the absence of such delegation, the full Board of Directors. Common Stock means shares of the Company's common stock, $.01 par value per share. 2 Company means Bolt, Inc., a Delaware corporation formerly known as Concrete Media Inc. Disability or Disabled means permanent and total disability as defined in Section 22(e)(3) of the Code. Fair Market Value of a Share of Common Stock means: (1) If the Common Stock is listed on a national securities exchange or traded in the over-the-counter market and sales prices are regularly reported for the Common Stock, the closing or last price of the Common Stock on the Composite Tape or other comparable reporting system for the trading day immediately preceding the applicable date; (2) If the Common Stock is not traded on a national securities exchange but is traded on the over-the-counter market, if sales prices are not regularly reported for the Common Stock for the trading day referred to in clause (1), and if bid and asked prices for the Common Stock are regularly reported, the mean between the bid and the asked price for the Common Stock at the close of trading in the over-the-counter market for the trading day on which Common Stock was traded immediately preceding the applicable date; and (3) If the Common Stock is neither listed on a national securities exchange nor traded in the over-the-counter market, such value as the Administrator, in good faith, shall determine. ISO means an option meant to qualify as an incentive stock option under Section 422 of the Code. Key Employee means an employee of the Company or of an Affiliate (including, without limitation, an employee who is also serving as an officer or director of the Company or of an Affiliate), designated by the Administrator to be eligible to be granted one or more Options under the Plan. Non-Qualified Option means an option which is not intended to qualify as an ISO. Option means an ISO or Non-Qualified Option granted under the Plan. Option Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan, in such form as the Administrator shall approve. Participant means a Key Employee, director or consultant to whom one or more Options are granted under the Plan. As used herein, "Participant" shall include "Participant's Survivors" where the context requires. 2 3 Plan means this Bolt, Inc. 1999 Employee, Director and Consultant Stock Option Plan. Shares means shares of the Common Stock as to which Options have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of Paragraph 3 of the Plan. The Shares issued upon exercise of Options granted under the Plan may be authorized and unissued shares or shares held by the Company in its treasury, or both. Survivors means a deceased Participant's legal representatives and/or any person or persons who acquired the Participant's rights to an Option by will or by the laws of descent and distribution. 2. PURPOSES OF THE PLAN. The Plan is intended to encourage ownership of Shares by Key Employees and directors of and certain consultants to the Company in order to attract such people, to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote the success of the Company or of an Affiliate. The Plan provides for the granting of ISOs and Non-Qualified Options. 3. SHARES SUBJECT TO THE PLAN. The number of Shares which may be issued from time to time pursuant to this Plan shall be 3,077,948, or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 16 of the Plan. If an Option ceases to be "outstanding", in whole or in part, the Shares which were subject to such Option shall be available for the granting of other Options under the Plan. Any Option shall be treated as "outstanding" until such Option is exercised in full, or terminates or expires under the provisions of the Plan, or by agreement of the parties to the pertinent Option Agreement. 4. ADMINISTRATION OF THE PLAN. The Administrator of the Plan will be the Board of Directors, except to the extent the Board of Directors delegates its authority to the Committee, in which case the Committee shall be the Administrator. Subject to the provisions of the Plan, the Administrator is authorized to: 3 4 a. Interpret the provisions of the Plan or of any Option or Option Agreement and to make all rules and determinations which it deems necessary or advisable for the administration of the Plan; b. Determine which employees of the Company or of an Affiliate shall be designated as Key Employees and which of the Key Employees, directors and consultants shall be granted Options; c. Determine the number of shares for which an Option or Options shall be granted; and d. Specify the terms and conditions upon which an Option or Options may be granted; provided, however, that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the context of preserving the tax status under Section 422 of the Code of those Options which are designated as ISOs. Subject to the foregoing, the interpretation and construction by the Administrator of any provisions of the Plan or of any Option granted under it shall be final, unless otherwise determined by the Board of Directors, if the Administrator is the Committee. 5. ELIGIBILITY FOR PARTICIPATION. The Administrator will, in its sole discretion, name the Participants in the Plan, provided, however, that each Participant must be a Key Employee, director or consultant of the Company or of an Affiliate at the time an Option is granted. Notwithstanding the foregoing, the Administrator may authorize the grant of an Option to a person not then an employee, director or consultant of the Company or of an Affiliate; provided, however, that the actual grant of such Option shall be conditioned upon such person becoming eligible to become a Participant at or prior to the time of the delivery of the Option Agreement evidencing such Option. ISOs may be granted only to Key Employees. Non-Qualified Options may be granted to any Key Employee, director or consultant of the Company or an Affiliate. The granting of any Option to any individual shall neither entitle that individual to, nor disqualify him or her from, participation in any other grant of Options. 6. TERMS AND CONDITIONS OF OPTIONS. Each Option shall be set forth in writing in an Option Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Administrator may provide that Options be granted subject to such terms and conditions, consistent with the terms and conditions specifically required under this Plan, as the Administrator may deem appropriate including, without limitation, subsequent approval by the shareholders of the Company of this Plan or any amendments thereto. 4 5 A. Non-Qualified Options: Each Option intended to be a Non-Qualified Option shall be subject to the terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards for any such Non-Qualified Option: a. Option Price: Each Option Agreement shall state the option price (per share) of the Shares covered by each Option, which option price shall be determined by the Administrator but shall not be less than the par value per share of Common Stock. b. Each Option Agreement shall state the number of Shares to which it pertains; c. Each Option Agreement shall state the date or dates on which it first is exercisable and the date after which it may no longer be exercised, and may provide that the Option rights accrue or become exercisable in installments over a period of months or years, or upon the occurrence of certain conditions or the attainment of stated goals or events; and d. Exercise of any Option may be conditioned upon the Participant's execution of a Share purchase agreement in form satisfactory to the Administrator providing for certain protections for the Company and its other shareholders, including requirements that: i. The Participant's or the Participant's Survivors' right to sell or transfer the Shares may be restricted; and ii. The Participant or the Participant's Survivors may be required to execute letters of investment intent and must also acknowledge that the Shares will bear legends noting any applicable restrictions. B. ISOs: Each Option intended to be an ISO shall be issued only to a Key Employee and be subject to the following terms and conditions, with such additional restrictions or changes as the Administrator determines are appropriate but not in conflict with Section 422 of the Code and relevant regulations and rulings of the Internal Revenue Service: a. Minimum standards: The ISO shall meet the minimum standards required of Non-Qualified Options, as described in Paragraph 6(A) above, except clause (a) thereunder. b. Option Price: Immediately before the Option is granted, if the Participant owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code: 5 6 i. Ten percent (10%) or less of the total combined voting power of all classes of share capital of the Company or an Affiliate, the Option price per share of the Shares covered by each Option shall not be less than one hundred percent (100%) of the Fair Market Value per share of the Shares on the date of the grant of the Option. ii. More than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate, the Option price per share of the Shares covered by each Option shall not be less than one hundred ten percent (110%) of the said Fair Market Value on the date of grant. c. Term of Option: For Participants who own i. Ten percent (10%) or less of the total combined voting power of all classes of share capital of the Company or an Affiliate, each Option shall terminate not more than ten (10) years from the date of the grant or at such earlier time as the Option Agreement may provide. ii. More than ten percent (10%) of the total combined voting power of all classes of stock of the Company or an Affiliate, each Option shall terminate not more than five (5) years from the date of the grant or at such earlier time as the Option Agreement may provide. d. Limitation on Yearly Exercise: The Option Agreements shall restrict the amount of Options which may be exercisable in any calendar year (under this or any other ISO plan of the Company or an Affiliate) so that the aggregate Fair Market Value (determined at the time each ISO is granted) of the stock with respect to which ISOs are exercisable for the first time by the Participant in any calendar year does not exceed one hundred thousand dollars ($100,000), provided that this subparagraph (d) shall have no force or effect if its inclusion in the Plan is not necessary for Options issued as ISOs to qualify as ISOs pursuant to Section 422(d) of the Code. 7. EXERCISE OF OPTIONS AND ISSUE OF SHARES. An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company at its principal executive office address, together with provision for payment of the full purchase price in accordance with this Paragraph for the Shares as to which the Option is being exercised, and upon compliance with any other condition(s) set forth in the Option Agreement. Such written notice shall be signed by the person exercising the Option, shall state the number of Shares with respect to which the Option is being exercised and shall contain any representation required by the Plan or the Option Agreement. Payment of the purchase price for the Shares as to which such Option is being exercised shall be made (a) in United States dollars 6 7 in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock having a Fair Market Value equal as of the date of the exercise to the cash exercise price of the Option, or (c) at the discretion of the Administrator, by having the Company retain from the shares otherwise issuable upon exercise of the Option, a number of shares having a Fair Market Value equal as of the date of exercise to the exercise price of the Option, or (d) at the discretion of the Administrator, by delivery of the grantee's personal recourse note bearing interest payable not less than annually at no less than 100% of the applicable Federal rate, as defined in Section 1274(d) of the Code, or (e) at the discretion of the Administrator, in accordance with a cashless exercise program established with a securities brokerage firm, and approved by the Administrator, or (f) at the discretion of the Administrator, by any combination of (a), (b), (c), (d) and (e) above. Notwithstanding the foregoing, the Administrator shall accept only such payment on exercise of an ISO as is permitted by Section 422 of the Code. The Company shall then reasonably promptly deliver the Shares as to which such Option was exercised to the Participant (or to the Participant's Survivors, as the case may be). In determining what constitutes "reasonably promptly," it is expressly understood that the delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or "blue sky" laws) which requires the Company to take any action with respect to the Shares prior to their issuance. The Shares shall, upon delivery, be evidenced by an appropriate certificate or certificates for fully paid, non-assessable Shares. The Administrator shall have the right to accelerate the date of exercise of any installment of any Option; provided that the Administrator shall not accelerate the exercise date of any installment of any Option granted to any Key Employee as an ISO (and not previously converted into a Non-Qualified Option pursuant to Paragraph 19) if such acceleration would violate the annual vesting limitation contained in Section 422(d) of the Code, as described in Paragraph 6.B.d. The Administrator may, in its discretion, amend any term or condition of an outstanding Option provided (i) such term or condition as amended is permitted by the Plan, (ii) any such amendment shall be made only with the consent of the Participant to whom the Option was granted, or in the event of the death of the Participant, the Participant's Survivors, if the amendment is adverse to the Participant, and (iii) any such amendment of any ISO shall be made only after the Administrator, after consulting the counsel for the Company, determines whether such amendment would constitute a "modification" of any Option which is an ISO (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holder of such ISO. 8. RIGHTS AS A SHAREHOLDER. No Participant to whom an Option has been granted shall have rights as a shareholder with respect to any Shares covered by such Option, except after due exercise of the Option and tender of the full purchase price for the Shares being purchased pursuant to such exercise and registration of the Shares in the Company's share register in the name of the Participant. 7 8 9. ASSIGNABILITY AND TRANSFERABILITY OF OPTIONS. By its terms, an Option granted to a Participant shall not be transferable by the Participant other than (i) by will or by the laws of descent and distribution, or (ii) as otherwise determined by the Administrator and set forth in the applicable Option Agreement. The designation of a beneficiary of an Option by a Participant shall not be deemed a transfer prohibited by this Paragraph. Except as provided above, an Option shall be exercisable, during the Participant's lifetime, only by such Participant (or by his or her legal representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Option or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon an Option, shall be null and void. 10. EFFECT OF TERMINATION OF SERVICE OTHER THAN "FOR CAUSE" OR DEATH OR DISABILITY. Except as otherwise provided in the pertinent Option Agreement, in the event of a termination of service (whether as an employee, director or consultant) with the Company or an Affiliate before the Participant has exercised all Options, the following rules apply: a. A Participant who ceases to be an employee, director or consultant of the Company or of an Affiliate (for any reason other than termination "for cause", Disability, or death for which events there are special rules in Paragraphs 11, 12, and 13, respectively), may exercise any Option granted to him or her to the extent that the Option is exercisable on the date of such termination of service, but only within such term as the Administrator has designated in the pertinent Option Agreement. b. Except as provided in Subparagraph (c) below, or Paragraph 12 or 13, in no event may an Option Agreement provide, if the Option is intended to be an ISO, that the time for exercise be later than three (3) months after the Participant's termination of employment. c. The provisions of this Paragraph, and not the provisions of Paragraph 12 or 13, shall apply to a Participant who subsequently becomes Disabled or dies after the termination of employment, director status or consultancy, provided, however, in the case of a Participant's Disability or death within three (3) months after the termination of employment, director status or consultancy, the Participant or the Participant's Survivors may exercise the Option within one (1) year after the date of the Participant's termination of employment, but in no event after the date of expiration of the term of the Option. 8 9 d. Notwithstanding anything herein to the contrary, if subsequent to a Participant's termination of employment, termination of director status or termination of consultancy, but prior to the exercise of an Option, the Board of Directors determines that, either prior or subsequent to the Participant's termination, the Participant engaged in conduct which would constitute "cause", then such Participant shall forthwith cease to have any right to exercise any Option. e. A Participant to whom an Option has been granted under the Plan who is absent from work with the Company or with an Affiliate because of temporary disability (any disability other than a permanent and total Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant's employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide. f. Except as required by law or as set forth in the pertinent Option Agreement, Options granted under the Plan shall not be affected by any change of a Participant's status within or among the Company and any Affiliates, so long as the Participant continues to be an employee, director or consultant of the Company or any Affiliate. 11. EFFECT OF TERMINATION OF SERVICE "FOR CAUSE". Except as otherwise provided in the pertinent Option Agreement, the following rules apply if the Participant's service (whether as an employee, director or consultant) with the Company or an Affiliate is terminated "for cause" prior to the time that all his or her outstanding Options have been exercised: a. All outstanding and unexercised Options as of the time the Participant is notified his or her service is terminated "for cause" will immediately be forfeited. b. For purposes of this Plan, "cause" shall include (and is not limited to) dishonesty with respect to the Company or any Affiliate, insubordination, substantial malfeasance or non-feasance of duty, unauthorized and intentional disclosure of confidential information, and conduct substantially prejudicial to the business of the Company or any Affiliate. The determination of the Administrator as to the existence of "cause" will be conclusive on the Participant and the Company. c. "Cause" is not limited to events which have occurred prior to a Participant's termination of service, nor is it necessary that the Administrator's finding of "cause" occur prior to termination. If the Administrator determines, subsequent to a Participant's termination of service but prior to the exercise of an Option, that either prior or subsequent to the Participant's termination the Participant engaged in conduct which would constitute "cause," then the right to exercise any Option is forfeited. 9 10 d. Any definition in an agreement between the Participant and the Company or an Affiliate, which contains a conflicting definition of "cause" for termination and which is in effect at the time of such termination, shall supersede the definition in this Plan with respect to such Participant. 12. EFFECT OF TERMINATION OF SERVICE FOR DISABILITY. Except as otherwise provided in the pertinent Option Agreement, a Participant who ceases to be an employee, director or consultant of the Company or of an Affiliate by reason of Disability may exercise any Option granted to such Participant: a. To the extent exercisable but not exercised on the date of Disability; and b. In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion of any additional rights as would have accrued had the Participant not become Disabled prior to the end of the accrual period which next ends following the date of Disability. The proration shall be based upon the number of days of such accrual period prior to the date of Disability. A Disabled Participant may exercise such rights only within the period ending one (1) year after the date of the Participant's termination of employment, directorship or consultancy, as the case may be, notwithstanding that the Participant might have been able to exercise the Option as to some or all of the Shares on a later date if the Participant had not become disabled and had continued to be an employee, director or consultant or, if earlier, within the originally prescribed term of the Option. The Administrator shall make the determination both of whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company. 13. EFFECT OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT. Except as otherwise provided in the pertinent Option Agreement, in the event of the death of a Participant while the Participant is an employee, director or consultant of the Company or of an Affiliate, such Option may be exercised by the Participant's Survivors: a. To the extent exercisable but not exercised on the date of death; and b. In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion of any additional rights which would have accrued had the Participant 10 11 not died prior to the end of the accrual period which next ends following the date of death. The proration shall be based upon the number of days of such accrual period prior to the Participant's death. If the Participant's Survivors wish to exercise the Option, they must take all necessary steps to exercise the Option within one (1) year after the date of death of such Participant, notwithstanding that the decedent might have been able to exercise the Option as to some or all of the Shares on a later date if he or she had not died and had continued to be an employee, director or consultant or, if earlier, within the originally prescribed term of the Option. 14. PURCHASE FOR INVESTMENT. Unless the offering and sale of the Shares to be issued upon the particular exercise of an Option shall have been effectively registered under the Securities Act of 1933, as now in force or hereafter amended (the "1933 Act"), the Company shall be under no obligation to issue the Shares covered by such exercise unless and until the following conditions have been fulfilled: a. The person(s) who exercise(s) such Option shall warrant to the Company, prior to the receipt of such Shares, that such person(s) are acquiring such Shares for their own respective accounts, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person(s) acquiring such Shares shall be bound by the provisions of the following legend which shall be endorsed upon the certificate(s) evidencing their Shares issued pursuant to such exercise or such grant: "The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws." b. At the discretion of the Administrator, the Company shall have received an opinion of its counsel that the Shares may be issued upon such particular exercise in compliance with the 1933 Act without registration thereunder. 11 12 15. DISSOLUTION OR LIQUIDATION OF THE COMPANY. Upon the dissolution or liquidation of the Company, all Options granted under this Plan which as of such date shall not have been exercised will terminate and become null and void; provided, however, that if the rights of a Participant or a Participant's Survivors have not otherwise terminated and expired, the Participant or the Participant's Survivors will have the right immediately prior to such dissolution or liquidation to exercise any Option to the extent that the Option is exercisable as of the date immediately prior to such dissolution or liquidation. 16. ADJUSTMENTS. Upon the occurrence of any of the following events, a Participant's rights with respect to any Option granted to him or her hereunder which has not previously been exercised in full shall be adjusted as hereinafter provided, unless otherwise specifically provided in the pertinent Option Agreement: A. Stock Dividends and Stock Splits. If (i) the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, or (ii) additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Common Stock, the number of shares of Common Stock deliverable upon the exercise of such Option may be appropriately increased or decreased proportionately, and appropriate adjustments may be made in the purchase price per share to reflect such events. B. Change of Control. If there shall be a Change of Control (as defined in Section 1 hereof), the Administrator or the board of directors of any entity assuming the obligations of the Company hereunder (the "Successor Board"), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the Shares then subject to such Options either the consideration payable with respect to the outstanding shares of Common Stock in connection with the Change of Control or securities of any successor or acquiring entity; or (ii) upon written notice to the Participants, provide that all Options must be exercised (either to the extent then exercisable or, at the discretion of the Administrator, all Options being made fully exercisable for purposes of this Subparagraph), within a specified number of days of the date of such notice, at the end of which period the Options shall terminate; or (iii) terminate all Options in exchange for a cash payment equal to the excess of the Fair Market Value of the shares subject to such Options (either to the extent then exercisable or, at the discretion of the Administrator, all Options being made fully exercisable for purposes of this Subparagraph) over the exercise price thereof. C. Recapitalization or Reorganization. In the event of a recapitalization or reorganization of the Company (other than a transaction described in Subparagraph B above) pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, a Participant upon exercising an Option shall be 12 13 entitled to receive for the purchase price paid upon such exercise the securities which would have been received if such Option had been exercised prior to such recapitalization or reorganization. D. Modification of ISOs. Notwithstanding the foregoing, any adjustments made pursuant to Subparagraph A, B or C with respect to ISOs shall be made only after the Administrator, after consulting with counsel for the Company, determines whether such adjustments would constitute a "modification" of such ISOs (as that term is defined in Section 424(h) of the Code) or would cause any adverse tax consequences for the holders of such ISOs. If the Administrator determines that such adjustments made with respect to ISOs would constitute a modification of such ISOs, it may refrain from making such adjustments, unless the holder of an ISO specifically requests in writing that such adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such "modification" on his or her income tax treatment with respect to the ISO. 17. ISSUANCES OF SECURITIES. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Options. Except as expressly provided herein, no adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company. 18. FRACTIONAL SHARES. No fractional shares shall be issued under the Plan and the person exercising such right shall receive from the Company cash in lieu of such fractional shares equal to the Fair Market Value thereof. 19. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs. The Administrator, at the written request of any Participant, may in its discretion take such actions as may be necessary to convert such Participant's ISOs (or any portions thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the Participant is an employee of the Company or an Affiliate at the time of such conversion. Such actions may include, but not be limited to, extending the exercise period or reducing the exercise price of the appropriate installments of such Options. At the time of such conversion, the Administrator (with the consent of the Participant) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Administrator in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any Participant the right to have such Participant's ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Administrator takes appropriate action. 14 14 The Administrator, with the consent of the Participant, may also terminate any portion of any ISO that has not been exercised at the time of such conversion. 20. WITHHOLDING. In the event that any federal, state, or local income taxes, employment taxes, Federal Insurance Contributions Act ("F.I.C.A.") withholdings or other amounts are required by applicable law or governmental regulation to be withheld from the Participant's salary, wages or other remuneration in connection with the exercise of an Option or a Disqualifying Disposition (as defined in Paragraph 21), the Company may withhold from the Participant's compensation, if any, or may require that the Participant advance in cash to the Company, or to any Affiliate of the Company which employs or employed the Participant, the amount of such withholdings unless a different withholding arrangement, including the use of shares of the Company's Common Stock or a promissory note, is authorized by the Administrator (and permitted by law). For purposes hereof, the fair market value of the shares withheld for purposes of payroll withholding shall be determined in the manner provided in Paragraph 1 above, as of the most recent practicable date prior to the date of exercise. If the fair market value of the shares withheld is less than the amount of payroll withholdings required, the Participant may be required to advance the difference in cash to the Company or the Affiliate employer. The Administrator in its discretion may condition the exercise of an Option for less than the then Fair Market Value on the Participant's payment of such additional withholding. 21. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each Key Employee who receives an ISO must agree to notify the Company in writing immediately after the Key Employee makes a Disqualifying Disposition of any shares acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is any disposition (including any sale) of such shares before the later of (a) two years after the date the Key Employee was granted the ISO, or (b) one year after the date the Key Employee acquired Shares by exercising the ISO. If the Key Employee has died before such stock is sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter. 22. TERMINATION OF THE PLAN. The Plan will terminate on February 15, 2010, the date which is ten (10) years from the earlier of the date of its adoption and the date of its approval by the shareholders of the Company. The Plan may be terminated at an earlier date by vote of the shareholders of the Company; provided, however, that any such earlier termination shall not affect any Option Agreements executed prior to the effective date of such termination. 14 15 23. AMENDMENT OF THE PLAN AND AGREEMENTS. The Plan may be amended by the shareholders of the Company. The Plan may also be amended by the Administrator, including, without limitation, to the extent necessary to qualify any or all outstanding Options granted under the Plan or Options to be granted under the Plan for favorable federal income tax treatment (including deferral of taxation upon exercise) as may be afforded incentive stock options under Section 422 of the Code, and to the extent necessary to qualify the shares issuable upon exercise of any outstanding Options granted, or Options to be granted, under the Plan for listing on any national securities exchange or quotation in any national automated quotation system of securities dealers. Any amendment approved by the Administrator which the Administrator determines is of a scope that requires shareholder approval shall be subject to obtaining such shareholder approval. Any modification or amendment of the Plan shall not, without the consent of a Participant, adversely affect his or her rights under an Option previously granted to him or her. With the consent of the Participant affected, the Administrator may amend outstanding Option Agreements in a manner which may be adverse to the Participant but which is not inconsistent with the Plan. In the discretion of the Administrator, outstanding Option Agreements may be amended by the Administrator in a manner which is not adverse to the Participant. 24. EMPLOYMENT OR OTHER RELATIONSHIP. Nothing in this Plan or any Option Agreement shall be deemed to prevent the Company or an Affiliate from terminating the employment, consultancy or director status of a Participant, nor to prevent a Participant from terminating his or her own employment, consultancy or director status or to give any Participant a right to be retained in employment or other service by the Company or any Affiliate for any period of time. 25. GOVERNING LAW. This Plan shall be construed and enforced in accordance with the law of the State of Delaware. 15 EX-10.2 5 1996 EMPLOYEE STOCK OPTION PLAN 1 EXHIBIT 10.2 CONCRETE MEDIA, INC. EMPLOYEE STOCK OPTION PLAN 1. PURPOSE The purpose of the 1996 Employee Stock Option Plan (the "Plan") is to provide a method whereby selected key employees of Concrete Media, Inc. (the "Corporation"), may have the opportunity to invest in shares of Common Stock (the "Stock") of the Corporation, thereby giving them a proprietary and vested interest in the growth and performance of the Corporation, and in general, generating an increased incentive to contribute to the Corporation's future success and prosperity, thus enhancing the value of the Corporation for the benefit of shareholders. Further, the Plan is designed to enhance the Corporation's ability to attract and retain individuals of exceptional managerial talent upon whom, in large measure, the sustained progress, growth, and profitability of the Corporation depends. 2. ADMINISTRATION The Plan shall be administered by the Corporation's Board of Directors ("the Board") or if so designated by resolution of the Board, by a Committee composed of not less than three individuals ("Committee"). From time to time the Board, or if so designated the Committee, may grant stock options ("Options") to such eligible parties and for such number of shares as it in its sole discretion may determine. A grant in any year to an eligible Employee, (as defined in Section 3 below) shall neither guarantee nor preclude a grant to such Employee in subsequent years. Subject to the provisions of the Plan, the Board, or if so designated the Committee, shall be authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of the Option Agreements described in Section 5(h) thereof to make all other determinations necessary or advisable for the administration of the Plan. The Board, or if so designated the Committee, may correct any defect, supply any omissions or reconcile any inconsistency in the Plan or in any Option in the manner and to the extent it shall deem desirable. The determinations of the Board, of if so designated the Committee, in the administration of the Plan, as described herein, shall be final and conclusive. The validity, construction, and effect of Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware. 3. ELIGIBILITY The employees eligible to participate in the Plan (the "Employees") shall consist of the Corporation's executive officers who may be hired by the Corporation in the future, employees, directors, and consultants. Nothing in the Plan or in any agreement thereunder shall confer any right on an Employee to continue in the employ of the Corporation or shall interfere in any way with the right of the Corporation or its subsidiaries, as the case may be, to terminate his or her employment at any time. 2 4. SHARES SUBJECT TO THE PLAN The shares of Stock available for issuance under the Plan are subject to adjustment as provided in Section 7. The shares of Stock deliverable upon the exercise of Options may be made available from authorized but unissued shares or shares reacquired by the Corporation, including shares purchased in the open market or in private transactions. If any Option granted under the Plan shall terminate for any reason without having been exercised or settled in stock or in cash pursuant to related stock appreciation rights, the shares subject to, but not delivered under, such Option shall be available for other Options. 5. GRANT TERM AND CONDITIONS OF OPTIONS The Board or if so designated the Committee, may from time to time after consultation with management select employees to whom Options shall be granted. The Options granted shall be "Incentive Stock Options" within the meaning of Section 422 of the Internal Revenue Code, as amended (the "Code"), or nonstatutory stock options whichever the Board, or if so designated the Committee, shall determine, subject to the following terms and conditions: (a) Price. The purchase price per share of Stock deliverable upon exercise of each Incentive Stock Option shall not be less than 100 percent of the Fair Market Value of the Stock on the date such the Option is granted. Provided, however, that if an Incentive Stock Option is issued to an individual who owns, at the time of grant, more than ten percent (10%) of the total combined voting power of all classes of the Corporation's Stock, the Exercise price of such Option shall be at least 110% of the Fair Market Value of the Stock on the date of grant. The Option price of shares subject to non-statutory Stock Options shall be determined by the Board of Directors or Committee, in its absolute discretion at the time of grant of such Option. For purposes of this plan, Fair Market Value shall be: (i) the average of the closing Bid and Ask prices for the Stock on the date in question or (ii) if the stock is not publicly traded in accordance with applicable procedure set forth in the Code. (b) Payment. Options may be exercised only upon payment of the purchase price thereof in full. Such payment shall be made in such form of consideration as the Board or Committee determines and may vary for each Option. Payment may consist, subject to approval by the Board, of cash, check, notes, delivery of shares of common stock having a fair market value on the date of surrender equal to the aggregate exercise price, or any combination of such methods or other means of payment permitted under the Delaware General Corporation Law. (c) Term of Options. The term during which each Option may be exercised shall be determined by the Board, or if so designated the Committee, provided that (i) a nonstatutory Option shall not be exercisable in whole or in part more than 10 years from the date it is granted except as provided in paragraph (e), below, with respect to the death of the Employee, and (ii) an Incentive Stock Option shall not be exercisable in whole or in part more than 5 years from the date it is granted. All rights to purchase Stock pursuant to an Option shall, unless sooner terminated, expire at the date designated by the Board or, if so designated the Committee. 2 3 The Board, or if so designated the Committee, shall determine the date on which each Option shall become exercisable and may provide that an Option shall become exercisable in installments. The shares comprising each installment may be purchased in whole or in part at any time after such installment becomes purchasable, except that the exercise of Incentive Stock Options shall be further restricted as set forth herein. The Board, or if so designated the Committee, may in its sole discretion, accelerate the time at which any Option may be exercised in whole or in part, provided that no Option shall be exercisable until one year after grant. (d) Limitations on Grants. For Incentive Stock Options, the aggregate Fair Market Value (determined at the time the Option is granted) of the stock with respect to which the Investment Stock Option is exercisable for the first time by an Optionee during any calendar year (under all plans of the Corporation and its parent or any subsidiary of the Corporation) shall not exceed $100,000. The foregoing limitations shall be modified from time to time to reflect any changes in Section 422 of the Code and any regulations promulgated thereunder setting forth such limitations. There shall be no limitations on nonstatutory stock options. (e) Termination of Employment. (i) If the employment of an Employee by the Corporation or a subsidiary corporation of the Corporation shall be terminated voluntarily by the Employee or for cause by the Corporation, then his or her Option shall expire forthwith. Except as provided in subparagraphs (ii) and (iii) of this Paragraph (e), if such employment shall terminate for any other reason, then such Option may be exercised at any time within one (1) month after such termination, subject to the provisions of subparagraph (iv) of this Paragraph (e). For purposes of this subparagraph, an employee who leaves the employ of the Corporation to become an employee of a subsidiary corporation of the Corporation or a corporation (or subsidiary or parent corporation of the corporation) which has assumed the Option of the Corporation as a result of a corporate reorganization, etc., shall not be considered to have terminated his or her employment. The Board may, in its sole discretion, extend the time period for exercise of any particular option after termination or allow the employee who terminates their employment voluntarily the right to exercise their option on terms and conditions determined by the Board. (ii) If the holder of an Option under the Plan dies (a) while employed by, or while serving as a non-employee Director for, the Corporation or a subsidiary corporation of the Corporation, or (b) within one (1) month after the termination of his employment or services other than voluntarily by the Employee, or for cause, then such Option may, subject to the provisions of subparagraph (iv) of this Paragraph (e), be exercised by the estate of the Employee or by a person who acquired the right to exercise such Option by bequest or inheritance or by reason of the death of such Employee at any time within six (6) months (iii) If the holder of the Option under the Plan ceases employment because of permanent or total disability (within the meaning of Section 22 (e) (3) of the Code) while employed by the Corporation or a subsidiary corporation of the Corporation, then such Option may, 3 4 subject to the provisions of subparagraph (iv) of this paragraph (e), be exercised at any time within one year after his termination of employment due to disability. (iv) An Option may not be exercised pursuant to this Paragraph (e) except to the extent that the holder was entitled to exercise the Option at the time of termination of employment, or death, and in any event may not be exercised after the expiration of the Option. For purpose of this Paragraph (e), the employment relationship of an employee of the Corporation or of a subsidiary corporation of the company will be treated as continuing intact while he or she is on military or sick leave or other bona fide leave of absence (such as temporary employment by the Government) if such leave does not exceed ninety (90) days, or, if longer, so long as his or her right to reemployment is guaranteed either by statute or by contract. (f) Nontransferability of Options. No Option shall be transferable by a Holder otherwise than by will or the laws of descent and distribution, and during the lifetime of the Employee to whom an Option is granted, it may be exercised only by the employee, his guardian or legal representative if permitted by Section 422 and related sections of the Code and any regulations promulgated thereunder. (g) Listing and Registration. Each Option shall be subject to the requirement that if at any time the Board, or if so designated the Committee, shall determine, in its discretion, the listing, registration or qualification of the Stock subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issue or purchase of shares thereunder, no such Option may be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board, or if so designated the Committee. (h) Option Agreement. Each Employee to whom an Option is granted shall enter into an agreement with the Corporation which shall contain such provisions, consistent with the provisions of the Plan, as may be established by the Board, or if so designated the Committee. (i) Withholding. Prior to the delivery of certificates for shares of Stock, the Corporation or a subsidiary shall have the right to require a payment from an Employee to cover any applicable withholding or other employment taxes due upon the exercise of an Option. 6. STOCK APPRECIATION RIGHTS The Board or Committee may grant stock appreciation rights (SARs) in connection with all or any part of an Option granted under the Plan, either concurrently with the grant of the Option or at any time thereafter, and may also grant SARs independently of Options. (a) SARs Granted in Connection with an Option. An SAR granted in connection with an Option entitles the Optionee to exercise the SAR by surrendering to the Corporation, unexercised, the underlying Option. The Optionee receives in exchange from the Corporation an 4 5 amount equal to the excess of (x) the Fair Market Value on the date of surrender of the underlying Option over (y) the exercise price of the Common Stock covered by the surrendered portion of the Option. When an SAR is exercised, the underlying Option, to the extent surrendered, ceases to be exercisable, and the number of shares available for issuance under the Plan is reduced correspondingly. An SAR is exercisable only when and to the extent the underlying Option is exercisable and expires no later than the date on which the underlying Option expires. Notwithstanding the foregoing, neither an SAR nor a related Option may be exercised during the first six (6) months of its respective term: provided, however, that this limitation will not apply if the Optionee dies or is disabled within such six (6) month period. (b) Independent SARs. The Board or the Committee may grant SARs without related Options. Such an SAR will entitle the Optionee to receive from the Corporation on exercise of the SAR an amount equal to the excess of (x) the fair market value of the Common Stock covered by the exercised portion of the SAR, as of the date of such exercise, over (y) the fair market value of the Common Stock covered by the exercised portion of the SAR as of the date on which the SAR was granted. SARs shall be exercisable in whole or in part at such times as the Board or the Committee shall specify in the Optionee's SAR grant or agreement. Notwithstanding the foregoing, an SAR may not be exercised during the first six (6) months of its term: provided, however, that this limitation will not apply if the Optionee dies or is disabled within such six (6) month period. (c) Payment on Exercise. The Corporation's obligations arising upon the exercise of an SAR may be paid in cash or Common Stock, or any combination of the same, as the Board or the Committee may determine. Shares issued on the exercise of an SAR are valued at their Fair Market Value as of the date of exercise. (d) Limitation on Amount paid on SAR Exercise. The Board or the Committee may in its discretion impose a limit on the amount to be paid on exercise of an SAR. In the event such a limit is imposed on an SAR granted in connection with an Option, the limit will not restrict the exercisability of the underlying Option. (e) Persons Subject to 16(b). An Optionee subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, may only exercise an SAR during the period beginning on the third and ending on the twelfth business day following the Corporation's public release of quarterly or annual summary statements of sales and earnings and in accordance with all other provisions of Section 16(b). (f) Non-Transferability of SARs. An SAR is non-transferable by the Optionee other than by will or the laws of descent and distribution, and is exercisable during the Optionee's lifetime only by the Optionee, or, in the event of death, by the Optionee's estate or by a person who acquires the right to exercise the Option by bequest or inheritance. 5 6 (g) Effect on Shares in Plan. When an SAR is exercised, the aggregate number of shares of Common Stock available for issuance under the Plan will be reduced by the number of underlying shares of Common Stock as to which the SAR is exercised. 7. ADJUSTMENT OF AND CHANGES IN STOCK In the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, or distribution of substantially all or all of the assets of the Corporation, the Board, or if so designated the Committee, shall make such adjustments as it deems appropriate in the number and kind of shares and SARs authorized by the Plan, in the number and kind of shares covered by the Options granted and in the exercise price of outstanding Options and SARs. 8. MERGERS, SALES AND CHANGE OF CONTROL In the case of (i) any merger, consolidation or combination of the Corporation with or into another corporation (other than a merger, consolidation or combination in which the Corporation is the continuing corporation and which does not result in its outstanding stock being converted into or exchanged for different securities, cash or other property, or any combination thereof or a sale of all or substantially all of the business or assets of the Corporation or (ii) a Change in Control (as defined below) of the Corporation, each Option or SAR then outstanding for one year or more shall (unless the Board, or if so designated the Committee, determines otherwise), receive upon exercise of such Option or SAR an amount equal to the excess of the Fair Market Value on the date of such exercise of (a) the securities, cash or other property, or combination thereof, receivable upon such merger, consolidation or combination in respect of a share of Stock, in the cases covered by clause (i) above, or (b) the final tender offer price in the case of a tender offer resulting in a Change in Control or (c) the value of the Stock covered by the Option or SAR as determined by the Board, or if so designated the Committee, in the case of a Change in Control by reason of any other event, over the exercise price of such Option, multiplied by the number of shares of Stock with respect to which such Option or SAR shall have been exercised provided that, in each event the amount payable in the case of an incentive stock Option shall be limited to the maximum permissible amount necessary to preserve the Option incentive stock Option status. Such amount may be payable fully in cash, fully in one or more of the kind or kinds or property payable in such merger, consolidation or combination, or partly in cash and partly in one or more such kind or kinds of property, all in the discretion of the Board or if so designated the Committee. Any determination by the Board, or if so designated the Committee, made pursuant to this Section 7 may be made as to all outstanding Options and SARs or only as to certain Options and SARs specified by the Board, or if so designated the Committee and any such determination shall be made (a) in cases covered by clause (i) above, prior to the occurrence of such event, (b) in the event of a tender or exchange offer, prior to the purchase of any Stock pursuant thereto by the offeror and (c) in the case of a Change in Control by reason of any other event, just prior to or as soon as practicable after such Change in Control. A "Change in Control" shall be deemed to have occurred if (a) any person, or any two or more persons acting as a group, and all affiliates of such person or persons, shall own 6 7 beneficially 40% or more of the Stock outstanding, or (b) if following (i) a tender or exchange offer for voting securities of the Corporation, or (ii) a proxy contest for the election of directors of the Corporation, the persons who were directors of the Corporation immediately before the initiation of such event cease to constitute a majority of the Board of Directors of the Corporation upon the completion of such tender or exchange offer or proxy contest or within one year after such completion. Notwithstanding the provisions of this Agreement, (i) the Board shall have the right to amend or modify this definition of a "Change in Control" and (ii) a "Change in Control" shall not be deemed to occur in the event BEn sells, assigns, transfers, pledges, hypothecates, or otherwise encumbers or disposes of in any way, all or any part of or any interest in the its shares now or hereafter owned or held to any subsidiary or affiliate of BEn or to Freemont Group Inc. 9. NO RIGHTS OF SHAREHOLDERS Neither an Employee nor the Employee's legal representative shall be, or have any of the rights and privileges of, a shareholder of the Corporation in respect of any shares purchasable upon the exercise of any Option, in whole or in part, unless and until certificates for such shares shall have been issued. 10. PLAN AMENDMENTS The plan may be amended by the Board, as it shall deem advisable or to conform, to any change in any law or regulation applicable thereto; provided, that the Board may not, without the authorization and approval of shareholders: (i) increase the aggregate number of shares available for Options except as permitted by Section 7, (ii) change the requirement of Section 5(a) that Option grants be priced at Fair Market value, (iii) extend the maximum period during which an Option may be exercised, or (iv) change the Plan's eligibility requirements. 11. TERM OF PLAN The Plan shall become effective upon its approval by a majority of the Corporation's shareholders. No Options or SARs shall be granted under the Plan after January 10, 2000. 7 EX-10.3 6 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.3 SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT by and among BOLT, INC., SANDLER CAPITAL PARTNERS IV, L.P., SANDLER CAPITAL PARTNERS IV FTE, L.P., BECHTEL ENTERPRISES HOLDINGS, INC., HIGHLAND CAPITAL PARTNERS IV LIMITED PARTNERSHIP, HIGHLAND ENTREPRENEURS FUND IV LIMITED PARTNERSHIP OAK INVESTMENT PARTNERS VIII, LIMITED PARTNERSHIP OAK VIII AFFILIATES FUND, LIMITED PARTNERSHIP MOORE GLOBAL INVESTMENTS, LTD. REMINGTON INVESTMENTS STRATEGIES, L.P. AND THE OTHER INVESTORS Dated as of November 17, 1999 2 SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of November 17, 1999, by and among BOLT, INC., a Delaware corporation (the "Company"), SANDLER CAPITAL PARTNERS IV, L.P.; a Delaware limited partnership ("SCP IV"), SANDLER CAPITAL PARTNERS IV FTE, L.P., a Delaware limited partnership ("SCP IV FTE" and, collectively with SCP IV, "Sandler"), BECHTEL ENTERPRISES HOLDINGS, INC. a Delaware corporation (formerly known as BECHTEL ENTERPRISES, INC.) ("Bechtel"), HIGHLAND CAPITAL PARTNERS IV LIMITED PARTNERSHIP, a Delaware limited partnership ("HCP IV") HIGHLAND ENTREPRENEURS FUND IV LIMITED PARTNERSHIP ("HEF IV" and, collectively with HCP IV, "Highland"), OAK INVESTMENT PARTNERS VIII, LIMITED PARTNERSHIP, a Delaware limited partnership ("Oak VIII"), OAK VIII AFFILIATES FUND, LIMITED PARTNERSHIP, a Delaware limited partnership ("Oak Affiliates" and, collectively with Oak VIII, "Oak"), MOORE GLOBAL INVESTMENTS, LTD., a Bahamian limited company ("Moore"), REMINGTON INVESTMENTS STRATEGIES, L.P., a Delaware limited partnership ("Remington", and together with Moore, the "Moore Parties") and the parties listed on Schedules 1 and 2 hereto (the "Other Investors"). WITNESSETH: WHEREAS, the Company has entered into that certain Stock Purchase Agreement (the "Stock Purchase Agreement"), dated as of the date hereof with the Moore Parties and the parties listed on Schedule 1 thereto (the "Series C Investors"), pursuant to which the Company has agreed to issue and sell to the Series C Investors shares of the Company's Series C Convertible Preferred Stock, par value $0.001 per share, (the "Series C Stock"); WHEREAS, the Company has agreed to grant certain registration rights with respect to shares of the Company's Common Stock, par value $0.001 per share (the "Common Stock") issuable upon conversion of the Series C Stock issued to the Series C Investors pursuant to the Stock Purchase Agreement; WHEREAS, the Company has entered into that certain Stock Purchase Agreement (the "Oak Stock Purchase Agreement"), dated as of March 1, 1999, with Oak pursuant to which the Company issued and sold to Oak shares of the Company's Series B-2 Convertible Preferred Stock, par value $0.001 per share (the "Series B-2 Stock"); WHEREAS, the Company granted certain registration rights with respect to the shares of the Company's Common Stock, par value $0.001 per share, (the "Common Stock") issuable upon conversion of the Series B-2 Stock issued to Oak pursuant to the Oak Stock Purchase Agreement; WHEREAS, the Company has entered into that certain Stock Purchase Agreement (the "Sandler Stock Purchase Agreement"), dated as of February 23, 1999, with Sandler, Highland 3 and the parties listed on Schedule 2 thereto (the "Sandler Investors") pursuant to which the Company issued and sold to Sandler, Highland and the Sandler Investors shares of the Company's Series B-1 Convertible Preferred Stock, par value $0.001 per share (the "Series B-1 Stock"); WHEREAS, the Company has granted certain registration rights with respect to the shares of the Company's Common Stock issuable upon conversion of the Series B-1 Stock issued to Sandler, Highland and the Sandler Investors pursuant to the Sandler Stock Purchase Agreement; WHEREAS, the Company has entered into those certain Bolt Media, Inc. Series B-1 Convertible Preferred Stock Subscription Agreements (the "Subscription Agreements"), dated as of February 23, 1999, with the Other Investors which are not the Sandler Investors (the "Providence Investors") pursuant to which the Company issued and sold to the Providence Investors shares of the Series B-1 Stock; WHEREAS, the Company has granted certain registration rights with respect to the Common Stock issuable upon conversion of the Series B-1 Stock issued to the Providence Investors; WHEREAS, as of the date hereof, Bechtel owns (i) 600,000 shares of the Company's Series A-1 Convertible Preferred Stock, par value $0.001 per share, and (ii) 125,000 shares of the Company's Series A-2 Convertible Preferred Stock, par value $0.001 per share (collectively, the "Series A Stock"); WHEREAS, the Company and Bechtel have terminated, among other things, the registration rights granted to Bechtel pursuant to Section 6 of that certain Series A Convertible Preferred Stock Purchase Agreement dated as of January 10, 1997, between the Company and Bechtel; WHEREAS, the Company has granted Bechtel certain registration rights with respect to the shares of Common Stock issuable upon conversion of the Series A Stock as contemplated herein; WHEREAS, pursuant to the Registration Rights Agreement, dated February 23, 1999 (the "Original Registration Rights Agreement"), by and among the Company and the stockholders named therein, which included the Sandler Investors and Bechtel, the Company granted certain registration rights to stockholders; WHEREAS, the Original Registration Rights Agreement was amended and restated as of March 1, 1999 to grant Oak the same registration rights granted to the parties to the Original Registration Rights Agreement (the "Amended and Restated Registration Rights Agreement"); WHEREAS, the Company issued a Preferred Stock Purchase Warrant to Lighthouse Capital Partners III, L.P. ("Lighthouse") on August 23, 1999, which warrant was amended as of November 17, 1999 (the "Warrant") to provide, among other things, for the purchase of shares of Series B-3 Convertible Preferred Stock, par value $.001 per share (the "Series B-3 Stock" and -2- 4 collectively with the Series B-1 Stock and Series B-2 Stock, the "Series B Stock") in lieu of Series B-2 Stock; WHEREAS, the Company and the parties to the Amended and Restated Registration Rights Agreement agree to further amend and restate in its entirely the Amended and Restated Registration Rights Agreement in order to grant the Series C Investors the same registration rights granted to the other parties to the Amended and Restated Registration Rights Agreement. NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to further amend and restate in its entirely the Amended and Restated Registration Rights Agreement, the parties, intending to be legally bound, hereby agree as follows: ARTICLE 1 DEFINITIONS As used herein, the following terms shall have the following respective meanings: 1.1 "Commission" shall mean the Securities and Exchange Commission, or any other successor federal agency at the time administering the Securities Act. 1.2 "Common Stock" shall mean the Company's common stock, par value $0.001 per share. 1.3 "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 1.4 "Holders" shall mean and include each of Bechtel, Sandler, Highland, the Other Investors, Oak, the Series C Investors and any person or entity that shall have executed this Agreement and whose name appears on the Schedule of Registration Rights Holders attached hereto as Exhibit A or who shall, pursuant to Section 11.3 hereof, become a party hereto, and any permitted transferee under Article 9 hereof which holds Registrable Securities. 1.5 "Initiating Holders" shall mean any Holder or Holders other than the Series C Investors who in the aggregate own not less than forty percent (40%) of the Registrable Securities; provided, however, that after the date on which the Company has closed its Initial Public Offering, "Initiating Holders" shall mean any Holders who in the aggregate own not less than twenty percent (20%) of the Registrable Securities. 1.6 "Initial Public Offering" shall mean the closing of the first firm commitment underwritten public offering pursuant to an effective registration statement under the Securities Act, covering the offer and sale of Common Stock to the public that raises gross proceeds for the Company of at least $20,000,000 and at an aggregate offering price to the public that reflects a value of the Company, on a Fully-Diluted Basis, of (i) at least $25,000,000 if such offering is commenced on or before the first anniversary (on a pre-money equity valuation) of the date -3- 5 March 1, 1999 or (ii) at least $31,250,000 (on a pre-money equity valuation) if such offering is commenced after the first anniversary of March 1, 1999. 1.7 Reserved. 1.8 The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing with the Commission a registration statement in compliance with the Securities Act, and the declaration or ordering by the Commission of the effectiveness of such registration statement. 1.9 "Registrable Securities" means any and all shares of Common Stock: (i) issued or issuable upon conversion of the Series A Stock, the Series B Stock and the Series C Stock; (ii) issued or issuable with respect to the Series A Stock, the Series B Stock or the Series C Stock upon any stock split, stock dividend, combination, recapitalization, reclassification, merger, consolidation or other similar event; and (iii) otherwise held or acquired by any of Bechtel, Sandler, Highland, Oak, or the Series C Investors or the Other Investors excluding in all cases, however, Registrable Securities sold by a Holder to the public or pursuant to Rule 144 promulgated under the Securities Act (or any similar or analogous rule promulgated under the Securities Act). For purposes of this Agreement, a person will be deemed to be a Holder of Registrable Securities whenever such person has the right to acquire directly or indirectly such Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected. 1.10 "Registration Expenses" shall mean all expenses incurred by the Company in complying with Articles 2 and 3 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, messenger and delivery expenses, escrow fees, fees and disbursements of legal counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and persons retained by the Company (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company), fees and disbursements of one legal counsel for the selling Holders, blue sky fees and expenses, and the expenses of any special audits incident to or required by any such registration by the Company. 1.11 "S-3 Registration Expenses" shall mean all expenses incurred by the Company in complying with Article 4 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, messenger and delivery expenses, escrow fees, fees and disbursements of legal counsel for the Company and all independent certified public accountants, underwriters (excluding discounts and commissions) and persons retained by the Company (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company), fees and disbursements of one legal counsel for the selling Holders, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration. 1.12 "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. -4- 6 1.13 "Selling Expenses" shall mean all underwriting fees, discounts, selling commissions and stock transfer taxes applicable to the Registrable Securities registered by the Holders. 1.14 "Series C Investors" shall mean the purchasers of Series C Convertible Preferred Stock, par value $0.001 per share, of the Company (the "Series C Stock") set forth on Schedule 2 attached hereto. 1.15 "Series C Qualified Public Offering" means the closing of a firm commitment underwritten public offering pursuant to an effective registration under the Securities Act covering the offer and sale of Common Stock to the public that raises proceeds to the Company of at least twenty-five million dollar ($25,000,000), after underwriters discounts and expenses, at an offering price of at least seventeen dollars and ninety-four cents, $17.94, subject to adjustment for dividends, distributions, stock splits, combinations, recapitalizations, reclassifications, mergers or consolidations and similar other types of events. ARTICLE 2 REQUESTED REGISTRATION 2.1 Request by Holders for Registration. Beginning on the earlier of (i) the date which is 180 days after the effective date of an Initial Public Offering or (ii) March 1, 2001, Initiating Holders may request registration in accordance with this Article 2; provided that, Initiating Holders may not request registration pursuant to this Article 2 prior to the effective date of an Initial Public Offering unless such requested registration is for a public offering of shares reasonably anticipated to have an aggregate offering price to the public of at least $5,000,000. In the event the Company shall receive from any one or more of the Initiating Holders a written request that the Company effect any such registration, qualification or compliance with respect to Registrable Securities, the Company will: (a) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (b) use its best efforts to effect such registration, qualification or compliance as soon as practicable (including, without limitation, undertaking to file post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with applicable regulations issued under the Securities Act, and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 15 days after the receipt of the written notice from the Company described in Section 2.1(a); provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 2.1: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification -5- 7 or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) within one hundred and eighty (180) days immediately following the effective date of any registration statement pertaining to a firm commitment underwritten offering of securities of the Company for its own account; (iii) after the Company has effected three (3) such requested registrations pursuant to this Section 2.1 (not including registrations on Form S-3), each such registration has been declared or ordered effective, and the Registrable Securities offered pursuant to each such registration have been sold, or if the Company has effected any requested registration (other than a registration for the Company's Initial Public Offering) pursuant to this Agreement during the previous six-month period; (iv) if the Company then meets the eligibility requirements applicable to the use of Form S-3 in connection with such registration and is able to effect such requested registration pursuant to Article 4 hereof; or (v) if the Company, within ten (10) days of the receipt of the request of the Holder or Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within forty-five (45) days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction or an offering solely to employees). (c) Subject to the foregoing clauses (i) through (v), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request of the Initiating Holders and provide notice to the other Holders as required by Section 2.1(a); provided, however, that if the Company shall furnish to such Holders a certificate signed by the Chairman or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company and its stockholders for such registration statement to be filed, the Company shall have the right to defer such filing for a period of not more than 180 days after receipt of the request of the Initiating Holders; provided, further, that the Company shall not be permitted to exercise such deferral right under this Section 2.1(c) or Section 4.1(c) hereof more than once in any 365-day period. 2.2 Request by Series C Investors for Registration. Beginning on the earlier of (i) the date which is 180 days after the effective date of Series C Qualified Public Offering or (ii) the date which is after the second anniversary of the date of this Agreement, upon the request of one or more of the Series C Investors who own in the aggregate not less than forty percent of the Series C Stock (the "Series C Initiating Holders"), such Series C Initiating Holders may request registration in accordance with this Article 2; provided that, the Series C Initiating Holders may not request registration pursuant to this Article 2 prior to the effective date of Series C Qualified Public Offering unless such requested registration is for a public offering of shares reasonably anticipated to have an aggregate offering price to the public of at least $5,000,000. In the event the Company shall receive from the Series C Initiating Holders a written request that the -6- 8 Company effect any such registration, qualification or compliance with respect to Registrable Securities, the Company will: (a) promptly give written notice of the proposed registration, qualification or compliance to all other Holders; and (b) use its best efforts to effect such registration, qualification or compliance as soon as practicable (including, without limitation, undertaking to file post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with applicable regulations issued under the Securities Act, and any other governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 15 days after the receipt of the written notice from the Company described in Section 2.2(a); provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 2.2: (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) within one hundred and eighty (180) days immediately following the effective date of any registration statement pertaining to a firm commitment underwritten offering of securities of the Company for its own account; (iii) after the Company has effected one (1) such requested registration pursuant to this Section 2.2 (not including registrations on Form S-3), each such registration has been declared or ordered effective, and the Registrable Securities offered pursuant to each such registration have been sold, or if the Company has effected any requested registration (other than a registration for the Company's Initial Public Offering) pursuant to this Agreement during the previous six-month period; (iv) if the Company then meets the eligibility requirements applicable to the use of Form S-3 in connection with such registration and is able to effect such requested registration pursuant to Article 4 hereof; or (v) if the Company, within ten (10) days of the receipt of the request of the Holder or Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within forty-five (45) days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction or an offering solely to employees). (c) Subject to the foregoing clauses (i) through (v), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request of the Series C Initiating Holders and provide notice to the -7- 9 other Holders as required by Section 2.2(a); provided, however, that if the Company shall furnish to such Holders a certificate signed by the Chairman or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company and its stockholders for such registration statement to be filed, the Company shall have the right to defer such filing for a period of not more than 180 days after receipt of the request of such Series C Initiating Holders; provided, further, that the Company shall not be permitted to exercise such deferral right under this Section 2.2(c) or Section 4.1(c) hereof more than once in any 365-day period. 2.3 Underwriting. (a) With respect to registrations initiated pursuant to Section 2.1 herein, the distribution of the Registrable Securities covered by the request of the Holders shall be effected by means of the method of distribution selected by the Holders holding a majority of the Registrable Securities covered by such registration. With respect to registrations initiated pursuant to Section 2.2 herein, the distribution of Registrable Securities covered by such request shall be effected by means of the method selection by the holders of a majority of the Series C Investors holding Registrable Securities. If such distribution is effected by means of an underwriting, the right of any Holder to registration pursuant to this Article 2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. (b) If such distribution is effected by means of an underwriting, the Company (together with all Holders proposing to distribute their securities through such underwriting (the "Participating Holders")) shall enter into an underwriting agreement in customary form with a managing underwriter of nationally recognized standing selected for such underwriting by the Company and approved by a majority in interest of the Participating Holders, which approval shall not be unreasonably withheld. Notwithstanding any other provision of this Article 2, if the managing underwriter advises the Participating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the underwriters may exclude shares requested to be included in such registration. The number of shares of Registrable Securities to be included in the registration and underwriting shall be allocated among the Participating Holders in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Participating Holders at the time of filing the registration statement. In addition, if the managing underwriter further determines that marketing factors require a further limitation on the number of shares proposed to be registered by each of Daniel Pelson ("Pelson"), and Jane Mount ("Mount"), then the underwriters may exclude such shares as may be necessary to effect such registration in proportion as nearly as practicable, to the respective amounts of Registrable Securities held by each of Pelson and Mount at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the managing underwriter's marketing limitation shall be included in such registration. (c) If any Participating Holder disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the other Participating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration; provided, however, that if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by -8- 10 other Participating Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Participating Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 2.3. 2.4 Inclusion of Shares by Company. If the distribution of Registrable Securities is being effected by means of an underwriting and if the managing underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account or for the account of others in such registration if the managing underwriter so agrees. The inclusion of such shares shall be on the same terms as the registration of shares held by the Participating Holders. In the event that the underwriters exclude some of the securities to be registered, the securities to be sold for the account of the Company and any other holders shall be excluded in their entirety prior to the exclusion of any Registrable Securities. 2.5 Cancellation of Registration. A majority in interest of the Participating Holders shall have the right to cancel a proposed registration of Registrable Securities pursuant to Article 2 when, in their discretion, market conditions are so unfavorable as to be seriously detrimental to an offering pursuant to such registration. Such cancellation of a registration shall not be counted as one of the three (3) such requested registrations pursuant to Section 2.1(b)(iii) or the one (1) such requested registration pursuant to Section 2.2; provided, however, that the Holders canceling such registration shall pay expenses attributable to such registration. ARTICLE 3 COMPANY REGISTRATION 3.1 Notice of Registration to Holders. If at any time or from time to time the Company shall determine to register any of its securities, either for its own account or the account of a security holder or holders, other than (i) a registration qualifying as an Initial Public Offering (ii) a registration relating solely to employee benefit plans on Form S-8 (or any successor form) or (iii) a registration relating solely to a Commission Rule 145 transaction on Form S-4 (or any successor form or other form not available for registering the Registrable Securities to the public), the Company will: (a) promptly give to each Holder written notice thereof, and (b) include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made within 30 days after receipt of such written notice from the Company described in Section 3.1(a), by any Holder or Holders. 3.2 Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3.1(a). In such event, the right of any Holder to registration pursuant to this Article 3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their -9- 11 securities through such underwriting shall (together with the Company) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company. (a) Notwithstanding any other provision of this Article 3, if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the underwriter may exclude some or all Registrable Securities from such registration and underwriting. The Company shall so advise all Holders of Registrable Securities, and the number of shares of Common Stock to be included in such registration shall be allocated as follows: first, for the account of the Company, all shares of Common Stock proposed to be sold by the Company, and second, for the account of any other stockholders of the Company participating in such registration, the number of shares of Common Stock requested to be included in the registration by such other stockholders in proportion, as nearly as practicable, to the respective amounts of securities that are proposed to be offered and sold by such other stockholders of such securities at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the underwriters' marketing limitation shall be included in such registration. (b) The Company shall so advise all Holders and the other holders distributing their securities through such underwriting of any such limitation, and the number of shares of Registrable Securities held by Holders that may be included in the registration. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, but the Holder shall continue to be bound by Article 8 hereof. (c) The Company shall have the right to terminate or withdraw any registration initiated by it under this Article 3 prior to the effectiveness of such registration, whether or not a Holder has elected to include Registrable Securities in such registration, without thereby incurring any liability to the Holders of the Registrable Securities. ARTICLE 4 REGISTRATION ON FORM S-3 4.1 Request for Registration. (a) In addition to the rights set forth in Articles 2 and 3 hereof, if a Holder or Holders request that the Company file a registration statement on Form S-3 (or any successor to Form S-3) for a public offering of shares of Registrable Securities having an aggregate offering price of at least $1,000,000 (based on the then current market price) and the Company is a registrant entitled to use Form S-3 (or any successor form to Form S-3) to register such shares for such an offering, the Company shall use its best efforts to cause such shares to be registered for the offering as soon as practicable on Form S-3 (or any such successor form to Form S-3) and shall promptly give written notice of the proposed registration to all other Holders. (b) Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to this Article 4: -10- 12 (i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (ii) if the Company, within ten (10) days of the receipt of the request of the Holder or Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within forty-five (45) days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction or an offering solely to employees); (iii) during the period starting with the date of filing of, and ending on a date which is 180 days following the effective date of, a registration statement described in (ii) above or filed pursuant to this Article 4 or Articles 2 or 3 hereof (or such shorter period as the managing underwriter of the Company's most recent public offering may agree), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective and provided, further, that no other person or entity could require the Company to file a registration statement in such period; (c) Subject to the foregoing clauses (b) (i) through (iii), the Company shall file a registration statement on Form S-3 covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request of the Holders; provided, however, that if the Company shall furnish to such Holders a certificate signed by the Chairman or Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company and its stockholders for such registration statement to be filed on or before the date filing would be required, and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than 90 days after receipt of the request of the Holders; provided, further, that the Company shall not be permitted to exercise such deferral right under this Section 4.1(c) or Section 2.1(c) or 2.2(c) hereof more than once in any 365-day period. 4.2 Underwriting. (a) The distribution of the Registrable Securities covered by the registration on Form S-3 shall be effected by means of the method of distribution selected by the Holders holding a majority of the Registrable Securities covered by such registration. If such distribution is effected by means of an underwriting, the right of any Holder to registration pursuant to this Article 4 shall be conditioned upon such Holder's participation in such underwriting, if any, and the inclusion of such Holder's Registrable Securities in such underwriting. (b) If the distribution of the Registrable Securities pursuant to this Section 4.2 is effected by means of an underwriting, the Company (together with all Holders proposing to distribute their securities through such underwriting) shall enter into an underwriting agreement in customary form with a managing underwriter of nationally recognized standing selected for such underwriting by the Company and approved by a majority in interest of the Holders requesting registration on Form S-3, which approval shall not be unreasonably withheld. -11- 13 Notwithstanding any other provision of this Article 4, if the managing underwriter advises the Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the underwriters may exclude some or all of the shares requested to be included in such registration, and the number of shares of Registrable Securities that may be included in the registration and underwriting shall be allocated among all Holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities held by such Holders at the time of filing the registration statement. No Registrable Securities excluded from the underwriting by reason of the managing underwriter's marketing limitation shall be included in such registration. (c) If the distribution of the Registrable Securities pursuant to this Section 4.2 is effected by means of an underwriting and if any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration; provided, however, that if by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the underwriters), then the Company shall offer to all Holders who have included Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 4.2. 4.3 Inclusion of Shares by Company. If the distribution of the Registrable Securities pursuant to this Article 4 is effected by means of an underwriting and if the managing underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account or for the account of others in such registration if the managing underwriter so agrees and if the number of Registrable Securities held by Holders requesting registration on Form S-3 which would otherwise have been included in such registration and underwriting will not thereby be limited. The inclusion of such shares shall be on the same terms as the registration of shares held by the Holders requesting such registration. In the event that the underwriters exclude some of the securities to be registered on Form S-3, the securities to be sold for the account of the Company and any other holders shall be excluded in their entirety prior to the exclusion of any Registrable Securities. ARTICLE 5 EXPENSES OF REGISTRATION All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Article 2 (but only with respect to four (4) registrations effected pursuant to such Article) and Article 3 hereof and all S-3 Registration Expenses shall be borne by the Company. All Selling Expenses relating to Registrable Securities registered by the Holders shall be borne by the Holders of such Registrable Securities pro rata on the basis of the number of shares so registered. -12- 14 ARTICLE 6 REGISTRATION PROCEDURES (a) In the case of each registration effected by the Company pursuant to this Agreement, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. The Company agrees to use its best efforts to effect or cause such registration to permit the sale of the Registrable Securities covered thereby by the Holders thereof in accordance with the intended method or methods of distribution thereof described in such registration statement. In connection with any registration of any Registrable Securities pursuant to Article 2, 3 or 4 hereof, the Company shall, as soon as reasonably possible: (i) prepare and file with the Commission a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement filed to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, the Company comply with subparagraph (iii) of this paragraph (a)) as soon as reasonably possible thereafter; (ii) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such registration statement as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such registration statement, and furnish to the holders of the Registrable Securities covered thereby copies of any such supplement or amendment prior to this being used and/or filed with the Commission; and comply with the provisions of the Securities Act with respect to the disposition of all the Registrable Securities to be included in such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (iii) provide (A) the Holders of the Registrable Securities to be included in such registration statement, (B) the underwriters (which term, for purposes of this Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(11) of the Securities Act), if any, thereof, (C) the sales or placement agent, if any, therefor, (D) one counsel for such underwriters or agent, and (E) not more than one counsel for all the Holders of such Registrable Securities, the opportunity to participate in the preparation of such registration statement, each prospectus included therein or filed with the Commission, and each amendment or supplement thereto; (iv) for a reasonable period prior to the filing of such registration statement, and throughout the period specified above, make available for inspection by the parties referred to in Section 6(a)(iii) above such financial and other information and books and records of the Company, and cause the officers, directors, employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be reasonably necessary, in the judgment of the respective counsel referred to in such Section 6(a)(iii), to conduct a reasonable investigation within the meaning of the Securities Act; provided, however, that each such party shall be required to maintain in -13- 15 confidence and not disclose to any other person or entity any information or records reasonably designated by the Company in writing as being confidential, until such time as (a) such information becomes a matter of public record (whether by virtue of its inclusion in such registration statement or otherwise), or (b) such party shall be required so to disclose such information pursuant to the subpoena or order of any court or other governmental agency or body having jurisdiction over the matter, or (c) such information is required to be set forth in such registration statement or the prospectus included therein or in an amendment to such registration statement or an amendment or supplement to such prospectus in order that such registration statement, prospectus, amendment or supplement, as the case may be, does not include an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and provided, further, that the Company need not make such information available, nor need it cause any officer, director or employee to respond to such inquiry, unless each such Holder of Registrable Securities to be included in a registration statement hereunder and such counsel, upon the Company's request, execute and deliver to the Company an undertaking to substantially the same effect contained in the second preceding proviso; (v) promptly notify the Holders of Registrable Securities to be included in a registration statement hereunder, the sales or placement agent, if any, therefor and the managing underwriter of the securities being sold and confirm such advice in writing, (A) when such registration statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such registration statement or any post-effective amendment, when the same has become effective, (B) of any comments by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such registration statement or the prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose, (D) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (E) if it shall be the case, at any time when a prospectus is required to be delivered under the Securities Act, that such registration statement, prospectus, or any document incorporated by reference, in any of the foregoing contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (vi) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any Registrable Securities included in such registration statement for sale in any jurisdiction at the earliest practicable date; (vii) if requested by any managing underwriter or underwriter, any placement or sales agent or any Holder of Registrable Securities to be included in a registration statement, promptly incorporate in a prospectus, prospectus supplement or post-effective -14- 16 amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such Holder may reasonably specify should be included therein relating to the terms of the sale of the Registrable Securities included thereunder, including, without limitation, information with respect to the number of Registrable Securities being sold by such Holder or agent or to such underwriters, the name and description of such Holder, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold in such offering; and make all required filings of such prospectus; prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus, prospectus supplement or post-effective amendment; (viii) furnish to each Holder of Registrable Securities to be included in such registration statement hereunder, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the counsel referred to in Section 6(a)(iii) an executed copy of such registration statement, each such amendment and supplement thereto (in each case excluding all exhibits and documents incorporated by reference) and such number of copies of the registration statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such holder, agent or underwriter, as the case may be) and of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, as such Holder, agent, if any, and underwriter, if any, may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder sold by such agent or underwritten by such underwriter and to permit such Holder, agent and underwriter to satisfy the prospectus delivery requirements of the Securities Act; and the Company hereby consents to the use of such prospectus and any amendment or supplement thereto by each such Holder and by any such agent and underwriter, in each case in the form most recently provided to such party by the Company, in connection with the offering and sale of the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto or of the issuance by the Commission of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for that purpose; (ix) use its best efforts to (A) register or qualify the Registrable Securities to be included in such registration statement under such other securities laws or blue sky laws of such jurisdictions to be designated by the Holders of a majority of such Registrable Securities participating in such registration and each placement or sales agent, if any, therefor and underwriter, if any, thereof, as any Holder and each underwriter, if any, of the securities being sold shall reasonably request, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions for so long as may be necessary to enable such Holder, agent or underwriter to complete its distribution of the Registrable Securities pursuant to such registration statement and (C) take any and all such actions as may be reasonably necessary or advisable to enable such Holder, agent, if -15- 17 any, and underwriter to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any such purpose to (1) take any action to effect any such registration, qualification or compliance in any particular jurisdiction in which it would not otherwise be required to execute a general consent to service of process in effectuating such registration, qualification or compliance, but for the requirements of this Section 6(a)(ix), or (2) subject itself to taxation in any such jurisdiction; (x) cooperate with the Holders of the Registrable Securities to be included in a registration statement hereunder and the managing underwriters to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates shall be printed, lithographed or engraved, or produced by any combination of such methods, on steel engraved borders and which shall not bear any restrictive legends; and enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of the Registrable Securities; (xi) provide a CUSIP number for all Registrable Securities, not later than the effective date of the registration statement; (xii) enter into one or more underwriting agreements, engagement letters, agency agreements, "best efforts" underwriting agreements or similar agreements, as appropriate, and take such other actions in connection therewith as the Holders of at least a majority of the Registrable Securities being sold shall reasonably request in order to expedite or facilitate the disposition of such Registrable Securities; (xiii) whether or not an agreement of the type referred to in the preceding subsection if entered into and whether or not any portion of the offering contemplated by such registration statement is an underwritten offering or is made though a placement or sales agent or any other entity, (A) make such representations and warranties to the Holders of such Registrable Securities and the placement or sales agent, if any, therefor and the underwriters, if any, thereof in form, substance and scope as are customarily made in connection with any offering of equity securities pursuant to any appropriate agreement and/or to a registration statement filed on the form applicable to such registration statement; (B) obtain an opinion of counsel to the Company in customary form and covering such matters, of the type customarily covered by such an opinion, as the managing underwriters, if any, and as the Holders of at least a majority of such Registrable Securities may reasonably request, addressed to such Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof and dated the effective date of such registration statement (and if such registration statement contemplates an underwritten offering of a part of or all of the Registrable Securities, dated the date of the closing under the underwriting agreement relating thereto) (it being agreed that the matters to be covered by such opinion shall include, without limitation, the due organization of the Company, and its subsidiaries, if any; the qualification of the Company, and its subsidiaries, if any, to transact business as foreign companies; the due authorization, execution and delivery of this agreement and of any agreement of the typed referred to in Section 6(a)(xii) hereof; the due authorization, valid issuance, and the fully -16- 18 paid status of the capital stock of the Company; the absence of material legal or governmental proceedings involving the Company; the absence to the knowledge of such counsel of a breach by the Company or its subsidiaries of, or a default under, agreements binding the Company or any subsidiary; the absence of governmental approvals required to be obtained in connection with the registration statement, the offering and sale of the Registrable Securities, this Agreement or any agreement of the type referred to in Section 6(a)(xii) hereof; the compliance as to form of such registration statement and any documents incorporated by reference therein with the requirements of the Securities Act; the effectiveness of such registration statement under the Securities Act; and, as of the date of the opinion and of the registration statement or most recent post-effective amendment thereto, as the case may be, the absence, to the knowledge of such counsel, from such registration statement and the prospectus included therein, as then amendment or supplemented, and from the documents incorporated by reference therein of an untrue statement of a material fact or the omission to state therein a material fact necessary to make the statements therein not misleading (in case of such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act)); (C) obtain a "cold" comfort letter or letters from the independent certified public accountants of the Company addressed to the Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof, dated (I) the effective date of such registration statement and (II) the effective date of any prospectus supplement to the prospectus included in such registration statement or post-effective amendment to such registration statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus (and, if such registration statement contemplates an underwritten offering pursuant to any prospectus supplement to the prospectus included in such registration statement or post-effective amendment to such registration statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus, dated the date of the closing under the underwriting agreement relating thereto), such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type; (D) deliver such documents and certificates, including officers' certificates, as may be reasonably requested by Holders of at least a majority of the Registrable Securities being sold and the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof to evidence the accuracy of the representations and warranties made pursuant to clause (A) above and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by the Company; and (E) undertake such obligations relating to expense reimbursement, indemnification and contribution as are provided in Sections 5 and 7 hereof; (xiv) notify in writing each Holder of Registrable Securities of any proposal by the Company to amend or waive any provision of this Agreement and of any amendment or waiver effected pursuant thereto, each of which notices shall contain the text of the amendment or waiver proposed or effected, as the case may be; (xv) engage to act on behalf of the Company with respect to the Registrable Securities to be so registered a registrar and transfer agent having such duties and -17- 19 responsibilities (including, without limitation, registration of transfers and maintenance of stock registers) as are customarily discharged by such an agent, and to enter into such agreements and to offer such indemnities as are customary in respect thereof; (xvi) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make available to its Holders, as soon as practicable, but in any event not later than 18 months after the effective date of such registration statement, an earnings statement covering a period of at least twelve months which shall satisfy the provisions of Section 6(a) of the Securities Act (including, at the option of the Company, pursuant to Rule 158 thereunder); and (xvii) cause all such Registrable Securities to be listed on each securities exchange or on the Nasdaq National Market ("Nasdaq Market") on which similar securities issued by the Company are then listed and, if not so listed, to be listed and, if listed on the Nasdaq Market, use its best efforts to secure designation of all such Registrable Securities covered by such registration statement as a Nasdaq "National Market System Security" within the meaning of Rule 11Aa2-1 of the Commission or, failing that, to secure Nasdaq Market authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two market makers to register as such with respect to such Registrable Securities with the National Association of Securities Dealers. (b) In the event that the Company would be required, pursuant to Section 6(a)(v)(F) above, to notify the Holders of Registrable Securities included in a registration statement hereunder, the sales or placement agent, if any, and the managing underwriters, if any, of the securities being sold, the Company shall prepare and furnish to each such Holder, to each such agent, if any, and to each underwriter, if any, a reasonable number of copies of a prospectus supplement or amendment so that, as thereafter delivered to the purchasers of Registrable Securities, such prospectus shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each Holder agrees that upon receipt of any notice from the Company pursuant to Section 6(a)(v)(F) hereof, such Holder shall forthwith discontinue the distribution of Registrable Securities until such Holder shall have received copies of such amended or supplemented registration statement or prospectus, and if so directed by the Company, such Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. (c) The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder's method of distribution of such Registrable Securities as the Company may from time to time reasonably request in writing but only to the extent that such information is required in order to comply with the Securities Act. Each such Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or the distribution of such Registrable -18- 20 Securities or omits to state any material fact regarding such Holder or the distribution of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Holder or the distribution of such Registrable Securities, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. ARTICLE 7 INDEMNIFICATION 7.1 The Company will indemnify each Holder, each of its officers and directors and partners, and such Holder's legal counsel and independent accountants, if any, and each person controlling any such persons within the meaning of Section 15 of the Securities Act, with respect to which registration of any of the Registrable Securities under the Securities Act has been effected pursuant to this Agreement, and each underwriter, if any, and each person who controls any underwriter within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereof, incident to any such registration of any of the Registrable Securities under the Securities Act which has been effected pursuant to this Agreement, or based on any 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 any violation by the Company of any rule or regulation promulgated under the Securities Act, Exchange Act or any state securities laws applicable to the Company and relating to action or inaction by the Company in connection with any such registration, qualification or compliance, and will reimburse each such Holder, each of its officers and directors and partners and such Holder's legal counsel and independent accountants, and each person controlling any such persons, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission (or alleged untrue statement) or omission (or alleged omission), made in reliance upon and in conformity with written information furnished to the Company by such Holder or underwriter and expressly intended for use in such registration statement, prospectus, offering circular or other document, or any amendment or supplement thereof. 7.2 Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration is being effected, severally and not jointly, indemnify and hold harmless the Company, each of its directors and officers, its legal counsel and independent accountants, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers, directors, partners, legal counsel and independent accountants, if any, and each person controlling such -19- 21 Holder within the meaning of Section 15 of the Securities Act, against all expenses, claims, losses, damages and liabilities (or actions in respect thereof), to which the Company or such officer, director, underwriter or person who controls the Company or such underwriter or such legal counsel and independent accountants, within the meaning of Section 15 of the Securities Act, including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, qualification or compliance or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers, partners, legal counsel, independent accountants, underwriters or control persons for any legal or any other expenses reasonably incurred in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, other document or amendment or supplement in reliance upon and in conformity with written information furnished to the Company by such Holder and expressly intended for use in such registration statement, prospectus, offering circular or other document, or any amendment or supplement thereof; provided, however, that the obligations of each Holder hereunder shall be limited to an amount equal to the proceeds to such Holder of Registrable Securities sold as contemplated herein. 7.3 Each party entitled to indemnification under this Section 7 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld). The Indemnified Party may participate in such defense at such party's expense; provided, however, that the Indemnifying Party shall bear the expense of such defense of the Indemnified Party if representation of both parties by the same counsel would be inappropriate due to actual or potential conflicts of interest. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, unless such failure is prejudicial to the ability of the Indemnifying Party to defend the action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. 7.4 If the indemnification provided for in Section 7.1 or 7.2 is unavailable or insufficient to hold harmless an Indemnified Party, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of the expenses, claims, losses, damages or liabilities (or actions or proceedings in respect thereof) referred to in Section 7.1 or 7.2, in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the sellers of Registrable Securities on the other hand in connection with statements or omissions which resulted in such losses, claims, damages or liabilities (or actions -20- 22 or proceedings in respect thereof) or expenses, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the sellers of Registrable Securities and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Holders agree that it would not be just and equitable if contributions pursuant to this Section 7.4 were to be determined by pro rata allocation (even if all Sellers of Registrable Securities were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the first sentence of this Section 7.4. The amount paid by an Indemnified Party as a result of the expenses, claims, losses, damages or liabilities (or actions or proceedings in respect thereof) referred to in the first sentence of this Section 7.4 shall be deemed to include any legal or other expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any claim, action or proceeding which is the subject of this Section 7.4. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of sellers of Registrable Securities to contribute pursuant to this Section 7.4 shall be several in proportion to the respective amount of Registrable Securities sold by them pursuant to a registration statement. ARTICLE 8 RULE 144 REPORTING With a view to making available the benefits of certain rules and regulations of the Commission which may at any time permit the sale of securities of the Company to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to: 8.1 Make and keep public information available as those terms are understood and defined in Rule 144 under the Securities Act (or any similar or analogous rule promulgated under the Securities Act) at all times after the effective date of the first registration under the Securities Act filed by the Company for an offering of its securities to the general public; and 8.2 File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements) and make available the benefits of Rule 144; and 8.3 So long as any Holder owns any Registrable Securities, furnish to such Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company filed by the Company, and such other reports and documents of the Company as such Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing it to sell any such securities without registration. -21- 23 ARTICLE 9 TRANSFER OF REGISTRATION RIGHTS The rights to cause the Company to register Registrable Securities granted Holders under Articles 2, 3 and 4 hereof may be assigned in connection with any permitted transfer or assignment of the Holder's Registrable Securities. All transferees and assignees of the rights to cause the Company to register Registrable Securities granted Holders under Articles 2, 3 and 4 hereof, as a condition to the transfer of such rights, shall agree in writing to be bound by the agreements set forth herein. ARTICLE 10 LIMITATIONS ON REGISTRATION RIGHTS GRANTED TO OTHER SECURITIES 10.1 The parties hereto agree that additional holders may, with the consent of the Company and the Holders of a majority of the Registrable Securities then outstanding, be added as parties to this Agreement with respect to any or all securities of the Company held by them; provided, however, that from and after the date of this Agreement, the Company shall not without the prior written consent of the Holders of a majority of the Registrable Securities then outstanding, enter into any agreement with any holder or prospective holder of any securities of the Company providing for the grant to such holder of registration rights superior to, or pari passu with, those granted herein. Any additional parties shall execute a counterpart of this Agreement, and upon execution by such additional parties and by the Company, shall be considered Holders for purposes of this Agreement, and shall be added to the Schedule of Registration Rights Holders. 10.2 In connection with the grant of registration rights to the holders of the Series C Stock pursuant to this Agreement, each of Sandler, Bechtel, Highland, Oak and the Other Investors agree and consent to waive the provisions of Article 10 relating to limitations on registration rights granted to other securities holders set forth in the Amended and Restated Registration Rights Agreement. ARTICLE 11 MISCELLANEOUS 11.1 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN THE STATE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 11.2 WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION (I) ARISING UNDER THIS AGREEMENT OR (II) IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS RELATED -22- 24 HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY, OR OTHERWISE. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES AND CONSENTS THAT ANY CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT THE PARTIES TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 11.3 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto. 11.4 Entire Agreement. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subject matter hereof. Subject to Sections 11.11, 11.12 and 11.13 herein, any provision of this Agreement may be amended, waived or modified, and this Agreement may be terminated, if, but only if, such amendment, waiver or modification or termination is in writing and is signed by the holders of a majority of the Series A Stock, Series B Stock and Series C Stock provided, however, that no amendment, waiver, modification or termination may treat any holder that does not consent thereto differently than a holder that does consent thereto; whenever any provision of this Agreement requires action or approval by the holders of a specified number of Series A Stock, Series B Stock or Series C Stock, such action or approval may be evidenced by a written consent executed by the requisite holders of Series A Stock Series B Stock or Series C Stock, without any requirement of a meeting or prior notice to the other holders of such shares. 11.5 Notices. Any notice required or permitted by this Agreement shall be in writing and shall be deemed given upon delivery, when delivered personally or by overnight courier or sent by telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, addressed to the party to be notified at such party's address as set forth below or on Schedules 1 and 2 hereto, or as subsequently modified by written notice: if to the Company: Bolt, Inc. 104 Hudson Street - 7th Floor North New York, NY 10013 Attention: Daniel A. Pelson Telephone: (212) 620-5900 Facsimile: (212) 620-4315 -23- 25 with a copy to (which shall not constitute notice): Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. One Financial Center Boston, MA 02111 Attention: John R. Pomerance, Esq. Telephone: (617) 542-6000 Facsimile: (617) 542-2241 if to Sandler: c/o Sandler Capital Management 767 Fifth Avenue - 45th Floor New York, NY 10153 Attention: Michael J. Marocco Telephone: (212) 754-8100 Facsimile: (212) 826-0280 with copy to (which shall not constitute notice): Dow, Lohnes & Albertson, PLLC 1200 New Hampshire Avenue, N.W. Washington, DC 20036 Attention: Edward J. O'Connell, Esq. Telephone: (202) 776-2000 Facsimile: (202) 776-2222 if to Bechtel: Bechtel Enterprises Holdings, Inc. 50 California Street - Suite 2200 San Francisco, CA 94111 Attention: Kevin Kendrick Telephone: (415) 768-2312 Facsimile: (415) 951-0847 with copy to (which shall not constitute notice): Bechtel Enterprises Holdings, Inc. 50 California Street - Suite 2200 San Francisco, CA 94111 Attention: Chief Counsel Telephone: (415) 768-5721 Facsimile: (415) 951-2233 -24- 26 if to Highland: c/o Highland Capital Partners 2 International Place - 22nd Floor Boston, MA 02110 Attention: Stephen J. Harrick Telephone: (617) 261-6694 Facsimile: (617) 531-1550 with copy to (which shall not constitute notice): Hale and Dorr, LLP 60 State Street Boston, MA 02109 Attention: Peter Tarr, Esq. Telephone: (617) 526-6000 Facsimile: (617) 526-5000 if to Oak: Oak Investment Partners One Gorham Island Westport, CT 06889 Attention: Ann H. Lamont Telephone: (203) 226-8346 Facsimile: (203) 226-4203 with copy to (which shall not constitute notice): Finn Dixon & Herling LLP 1 Landmark Square Stamford, CT 06901 Attention: Michael Herling, Esq. Telephone: (203) 964-8000 Facsimile: (203) 348-57777 If to Moore: c/o Moore Capital Management, Inc. 1251 Avenue of the Americas New York, NY 10020 Attn: David Lee Telephone: (212) 782-7033 Facsimile: (212) 782-7550 -25- 27 With a copy to (which shall not constitute notice): Akin, Gump, Strauss, Hauer and Feld, LLP 590 Madison Avenue New York, NY 10022 Attention: Jim Kaye Telephone: (212) 872-1000 Facsimile: (212) 872-1002 If to Remington: c/o Moore Capital Management, Inc. 1251 Avenue of the Americas New York, NY 10020 Attn: David Lee Telephone: (212) 782-7033 Facsimile: (212) 782-7550 With a copy to (which shall not constitute notice): Akin, Gump, Strauss, Hauer and Feld, LLP 590 Madison Avenue New York, NY 10022 Attention: Jim Kaye Telephone: (212) 872-1000 Facsimile: (212) 872-1002 or, in any such case, at such other address or addresses as shall have been furnished in writing by such party to the others. 11.6 Severability. In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby. 11.7 Titles and Subtitles. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 11.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together constitute one instrument. 11.9 "Market Hold-Off" Agreement. Each Holder agrees, if requested by the Company and underwriter of Common Stock (or other securities) of the Company in connection with an Initial Public Offering not to sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by such Holder during the one hundred eighty (180) day period following the effective date of a registration statement of the Company filed under the Securities Act without the prior consent of such underwriter, provided, however, that all Holders and officers and directors of the Company enter into similar agreements. -26- 28 Such agreement shall be in writing in a form satisfactory to the Company and such underwriter. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. 11.10 Termination. The obligations of the Company to register Registrable Securities under this Agreement shall terminate on the date upon which any such Registrable Securities may be freely tradable pursuant to Rule 144 under the Securities Act, but only with respect to such freely tradable Registrable Securities. 11.11 Warrant Exercise. Upon the exercise of the Warrant, and upon the execution and delivery of a counterpart signature page hereto, Lighthouse shall become a party hereto, be deemed an Other Investor and be bound by the provisions of this Agreement and Exhibit A hereto shall be automatically amended, accordingly. 11.12 Option Exercise. Upon each exercise of options to purchase Common Stock held by Mount and Cohen, respectively, and upon the execution and delivery of a counterpart signature page hereto by Mount or Cohen, as applicable, each of Mount and Cohen shall become a party hereto with respect to the shares of Common Stock issued pursuant to such option exercises, as applicable, each of them shall be deemed an Other Investor, as applicable, and each of them shall be bound by the provisions of this Agreement, as applicable, without any further action by the Company or each of Mount and Cohen, respectively, and Exhibit A hereto shall be automatically amended, accordingly. 11.13 Other Investors. Upon the sale of any Additional Shares (as defined in the Stock Purchase Agreement) to Additional Purchasers (as defined in the Stock Purchase Agreement) in accordance with the Stock Purchase Agreement, each such Additional Purchaser shall become a party hereto, be deemed an Other Investor for all purposes hereunder and be bound by the provisions of this Agreement, without any further action by the Company or such Additional Purchaser and Exhibit A hereto shall be automatically amended, accordingly. Each Additional Purchaser (as defined in the Stock Purchase Agreement), shall, if requested by the Company, execute and deliver a counterpart signature page hereto, to further evidence such agreement. -27- 29 IN WITNESS WHEREOF, the parties have executed this Second Amended and Restated Registration Rights Agreement as of the ___ day of November, 1999. BOLT, INC. By: /s/ Daniel Pelson ---------------------------------- Name: Title: BECHTEL ENTERPRISES HOLDINGS, INC. By: /s/ Robert Dove ---------------------------------- Name: Title: SANDLER CAPITAL PARTNERS IV, L.P. By: Sandler Investment Partners, L.P., General Partner By: Sandler Capital Management, General Partner By: MJDM Media Corp., a General Partner By: /s/ Edward G. Grinacoff --------------------------------- Edward G. Grinacoff President SANDLER CAPITAL PARTNERS IV, FTE, L.P. By: Sandler Investment Partners, L.P., General Partner By: Sandler Capital Management, General Partner By: MJDM Media Corp., a General Partner By: /s/ Edward G. Grinacoff ---------------------------- Edward G. Grinacoff President 30 HIGHLAND CAPITAL PARTNERS IV LIMITED PARTNERSHIP By: Highland Management Partners IV LLC, its General Partner By: /s/ illegible ---------------------------------------- Name: Title: HIGHLAND ENTREPRENEURS FUND IV LIMITED PARTNERSHIP By: Highland Entrepreneurs Fund IV LLC, its General Partner By: /s/ illegible ---------------------------------------- Name: Title: MJM ASSOCIATES L.P. By: /s/ Michael J. Marocco ---------------------------------------- Name: Michael J. Marocco Title: General Partner /s/ Harvey Sandler ------------------------------------------- HARVEY SANDLER /s/ John Kornrech ------------------------------------------- JOHN KORNREICH /s/ Samantha McCuen ------------------------------------------- SAMANTHA MCCUEN 31 /s/ Jonathan M. Nelson ----------------------------------------- JONATHAN M. NELSON /s/ Glenn M. Creamer ----------------------------------------- GLENN M. CREAMER /s/ Paul J. Salem ----------------------------------------- PAUL J. SALEM /s/ Mark J. Masiello ----------------------------------------- MARK J. MASIELLO /s/ Mark A. Pelson ----------------------------------------- MARK A. PELSON /s/ Alexander D. Evans ----------------------------------------- ALEXANDER D. EVANS /s/ Raymond M. Mathieu ----------------------------------------- RAYMOND M. MATHIEU /s/ Michael J. Angelakis ----------------------------------------- MICHAEL J. ANGELAKIS /s/ Bo Peabody ----------------------------------------- BO PEABODY /s/ Frank Harrison ----------------------------------------- FRANK HARRISON /s/ Daniel Pelson ----------------------------------------- DANIEL PELSON 32 OAK INVESTMENT PARTNERS VIII, LIMITED PARTNERSHIP By: Oak Associates VIII, LLC, its General Partner By: /s/ Anne H. Lamont ----------------------------------------------- Name: Title: OAK VIII AFFILAITES FUND, LIMITED PARTNERSHIP By: Oak VIII Affiliates, LLC, its General Partner By: /s/ Anne H. Lamont ----------------------------------------------- Name: Title: MOORE GLOBAL INVESTMENTS, LTD. /s/ illegible -------------------------------------------------- By: Moore Capital Management, Inc. Its: Trading Advisor REMINGTON INVESTMENTS STRATEGIES, L.P. /s/ illegible -------------------------------------------------- By: Moore Capital Advisors, L.L.C. Its: General Partner 33 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: - ------------------------------------ Printed Name FORD MOTOR COMPANY - ------------------------------------ By: /s/ Phil Horlock Signature --------------------------- Name: Phil Horlock Title: Executive Director Strategy & New Business Development 34 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: Comcast Interactive Capital, L.P. - ------------------------------------ ------------------------------------ Printed Name By: c/c Partners Name By: c/c Venture Management, L.L.C. By: /s/ Illegible - ------------------------------------ --------------------------------- Signature Name: Illegible Title: Vice President 35 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: 1998 Kornreich Children's Trust - ------------------------------------ --------------------------------------- Printed Name Name Name By: /s/ John Konreich - ------------------------------------ ------------------------------------- Signature Name: John Konreich Title: 36 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: Andrew Sandler - ------------------------------------ ------------------------------------- Printed Name Name Name /s/ Andrew Sandler By: - ------------------------------------ ---------------------------------- Signature Name: Title: 37 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: Waterview Partners, L.P. - ------------------------------------ ---------------------------------------- Printed Name By: WaterView Advisors, LLC Name By: /s/ Augustus K. Oliver - ------------------------------------ ------------------------------------- Signature Name: Augustus K. Oliver Title: Senior Managing Director 38 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: Entercom Delaware Holdings Company, LLC - ------------------------------------ ---------------------------------------- Printed Name Name Name By: /s/ Stephen F. Fisher - ------------------------------------ ------------------------------------- Signature Name: Stephen F. Fisher Title: Senior VP & CFO 39 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: Time Warner Inc. - ------------------------------------ ---------------------------------------- Printed Name Name Name By: /s/ Robert Marcus - ------------------------------------ ------------------------------------- Signature Name: Robert Marcus Title: Vice President 40 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: Sandler Internet Partners, L.P. - ------------------------------------ ---------------------------------------- Printed Name By Sandler Investment Partners, L.P., General Partner By Sandler Capital Management, General Partner By MUDM Corp., a General Partner By: /s/ Edward Grinacoff - ------------------------------------ ------------------------------------ Signature Edward Grinacoff, President 41 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: ML/BI L.L.C. Mintz Levin Investments L.L.C., its Manager - ------------------------------------ ------------------------------------ Printed Name By By: /s/ Irwin Heller - ------------------------------------ --------------------------------- Signature Name: Irwin Heller Title: Manager 42 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: Invemed Associates, LLC - ------------------------------------ ------------------------------------ Printed Name By By: /s/ John Baran - ------------------------------------ --------------------------------- Signature Name: John Baran Title: C.F.O. 43 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: Caribou Ventures - ------------------------------------ --------------------------------------- Printed Name By By: /s/ William "Bo" Peabody - ------------------------------------ ------------------------------------ Signature Name: William Bo S. Peabody Title: General Partner 44 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: Peabody Sabot Ventures - ------------------------------------ ------------------------------------ Printed Name By By: /s/ William "Bo" Peabody - ------------------------------------ --------------------------------- Signature Name: William Bo S. Peabody Title: General Partner 45 Counterpart Signature Page For Other Investors The undersigned hereby agrees to become a party to that certain Second Amended and Restated Registration Rights Agreement dated as of November 17, 1999 (the "Agreement") among Bolt, Inc. (the "Company") and others. From and after all the undersigned's execution and delivery of this Counterpart Signature Page, the undersigned shall be a party to the Agreement. For Individuals: For entities: Peabody Family Ventures - ------------------------------------ ------------------------------------ Printed Name By: By: /s/ William "Bo" Peabody - ------------------------------------ --------------------------------- Signature Name: William Bo S. Peabody Title: General Partner 46 Exhibit A Schedule of Registration Rights Holders 1. Sandler Capital IV Partners, L.P. 2. Sandler Capital IV Partners FTE, L.P. 3. Sandler Internet Partners, L.P. 4. Bechtel Enterprises Holdings, Inc. 5. Highland Capital Partners IV Limited Partnership 6. Highland Entrepreneurs Fund IV Limited Partnership 7. MJM Associates L.P. 8. Harvey Sandler 9. 1998 Kornreich Children's Trust 10. Andrew Sandler 11. Samantha McCuen 12. Jonathan M. Nelson 13. Glenn M. Creamer 14. Paul J. Salem 15. Mark J. Masiello 16. Mark A. Pelson 17. Alexander D. Evans 18. Raymond M. Mathieu 19. Michael J. Angelakis 20. Peabody Family Ventures 21. Peabody Sabot Ventures 22. William "Bo" S. Peabody 23. Frank Harrison 24. Oak Investment Partners VIII, Limited Partnership 25 Oak VIII Affiliates Fund, Limited Partnership 26. Daniel Pelson 47 27. Moore Global Investments, Ltd. 28. Remington Investments Strategies, L.P. 29. Comcast Interactive Capital, L.P. 30. Ford Motor Company 31. WaterView Partnres, L.P. 32. Entercom Delaware Holdings Company, LLC 33. Time Warner, Inc. 34. Caribou Ventures 35. Al Pastino 36. Justin T. Nesci 37. Juan Patino 38. Endevour 39. ML/BI L.L.C. 40. Lawrence V. Calcano 41. Blue Ridge Capital 42. Invemed Associates, LLC 43. Thomas D. Menard 44. Concrete Media, Inc. 45. America Online, Inc. 48 Schedule 1 1. MJM Associates L.P. 2. Harvey Sandler 3. 1998 Kornreich Children's Trust 4. Andrew Sandler 5. Samantha McCuen 6. Jonathan M. Nelson 7. Glenn M. Creamer 8. Paul J. Salem 9. Mark J. Masiello 10. Mark A. Pelson 11. Alexander D. Evans 12. Raymond M. Mathieu 13. Michael J. Angelakis 14. Peabody Family Ventures 15. Peabody Sabot Ventures 16. William "Bo" S. Peabody 17. Frank Harrison 49 Schedule 2 Purchasers of Series C Stock 1. Moore Global Investments, Ltd. 2. Remington Investments Strategies, L.P. 3. Comcast Interactive Capital, L.P. 4. Bechtel Enterprises Holdings, Inc. 5. Oak Investment Partners VIII, Limited Partnership 6. Oak VIII Affiliates Fund, Limited Partnership 7. Form Motor Company 8. WaterView Partners, L.P. 9. Entercom Delaware Holdings Company, LLC 10. Sandler Capital IV Partners, L.P. 11. Sandler Capital IV Partners FTE, L.P. 12. Sandler Internet Partners, L.P. 13. Time Warner, Inc. 14. Peabody Sabot Ventures 15. Peabody Family Ventures 16. Caribou Ventures 17. Al Pastino 18. Justin T. Nesci 19. Frank M. Harrison 20. Daniel Pelson 21. Juan Patino 50 22. Endevour 23. Thomas D. Menard 24. ML/BI L.L.C. 25. Highland Capital Partners IV, Limited Partnership 26. Highland Entrepreneurs Fund IV, Limited Partnership 27. Lawrence V. Calcano 28. Blue Ridge Capital 29. Invemed Associates, LLC 30. Sigurd C. Kirk 31. Concrete Media, Inc. 32. America Online, Inc. EX-10.4 7 AGREEMENT OF SUBLEASE 1 EXHIBIT 10.4 AGREEMENT OF SUBLEASE, dated as of the 15th day of August, 1998, by and between AVALANCHE SOLUTIONS, INC., having offices at 304 Hudson Street, New York, New York ("Sublessor"), and CONCRETE MEDIA, INC., a Delaware corporation, having offices at 580 Broadway, Suite 500, New York, New York 10012 ("Sublessee"). W I T N E S S E T H WHEREAS, Sublessor is a tenant of the portion of the seventh (7th) floor in the building known as 304 Hudson Street, New York, New York (the "Building") as shown cross-hatched on the floor plan annexed hereto as Exhibit A (the "demised premises"), and Sublessee is desirous of subletting the demised premises from Sublessor upon the terms and conditions hereinafter set forth: NOW, THEREFORE, in consideration of the rental payments to be made hereunder by Sublessee to Sublessor and the mutual terms, covenants, conditions, provisions and agreements hereinafter set forth, Sublessor does hereby sublet to Sublessee and Sublessee does hereby take and hire from Sublessor, the demised premises. This Sublease shall be expressly subject and subordinate to all of the terms, covenants, conditions, provisions and agreements contained in that certain Lease, dated January 6, 1998 entered into between The Rector, Church-Wardens and Vestrymen of Trinity Church in the City of New York, a religious corporation, as landlord ("Underlying Landlord"), and Avalanche Solutions, Inc., as tenant therein (which lease, as amended, is hereinafter referred to as the "Underlying Lease"). A true copy of the Underlying Lease, with certain of the Excluded Provisions deleted or redacted, has been delivered to, and reviewed by, Sublessee and is annexed hereto and made a part hereof as Exhibit B. The provisions of the Underlying Lease are 2 specifically incorporated herein by reference, except such terms, covenants, conditions, provisions and agreements as are specifically set forth in Paragraph 20 below (the "Excluded Provisions") and except that all references therein to "Landlord" shall mean Underlying Landlord, all references therein to "Tenant" shall mean Sublessee, all references to "Demised/Leased Premises" shall mean demised premises, and all references to "this Lease" shall mean this Sublease. All provisions which may, by incorporation herein, be inconsistent with the express provisions of this Sublease shall govern in all circumstances unless use of the demised premises or any action or inaction taken in accordance with said provisions may be the basis of a default under the Underlying Lease, in which case the inconsistency shall be resolved in favor of the provisions of the Underlying Lease. 1. Term. The term of this Sublease shall commence (the "Commencement Date") on the date that the Underlying Landlord shall consent hereto in writing pursuant to Paragraph 14 below. The term of this Sublease shall terminate at noon on February 27, 2007 (the "Expiration Date"). 2. Fixed Rent. Sublessee shall pay to Sublessor, during the term of this Sublease, the annual rental rate ("fixed rent"), commencing on the Commencement Date and continuing through and including February 27, 2007, of TWO HUNDRED SIXTY-FOUR THOUSAND NINE HUNDRED SIXTY ($264,960.00) DOLLARS per annum, payable in equal monthly installments of $22,080.00, and continuing through and including the expiration or sooner termination of this Sublease. Each monthly installment of fixed rent shall be paid on the first day of each and every calendar month during the term, except the first full monthly installment of fixed rent shall be paid upon execution of this Sublease. Provided that Sublessee is not then in default under this Sublease, it shall be entitled to an aggregate credit of $22,080.00 2 3 to be applied against the fixed rent due hereunder for the second full month following the month in which the Commencement Date occurs. The fixed rent for any month of the term of this Sublease which does not begin or end on the first or last day of a calendar month shall be prorated on a daily basis in accordance with the fixed rent due for the calendar month. Since the installment for the first full month's fixed rent is being paid by Sublessee upon the execution of this Sublease regardless of whether the term shall have commenced on the first day of a calendar month, any adjustment to which Sublessee is entitled on account of the immediately preceding sentence shall be made to the monthly installment of fixed rent due on the first day of the calendar month next following the month in which the Commencement Date occurs rent credit has been fully utilized. All fixed rent, additional rent and other sums and charges due to Sublessor under this Sublease shall be paid by Sublessee at the office of Sublessor set forth above, or at such other place as Sublessor may designate, without any notice, setoff or deduction whatsoever. Sublessee's obligation to make such payments shall survive the Expiration Date or sooner termination of this Sublease. All other costs and expenses which Sublessee assumes or agrees to pay pursuant to this Sublease shall be deemed additional rent and, in the event of non-Payment, Sublessor shall have all the rights and remedies herein provided for in case of non-Payment of fixed rent. If Sublessee shall fail to pay any installment of fixed rent or additional rent within a period of seven (7) days after the due date of the installment in question, Sublessee shall also pay to Sublessor a late charge equal to 2% per month of the overdue amount, such late charge to be payable as additional rent hereunder. The payment of such late charge shall be in addition to all other rights and remedies available to Sublessor in the case of non-payment of fixed rent. 3 4 3. Electricity Charge. Sublessee shall pay to Sublessor all of the charges incurred by Sublessor for electric service pursuant to the Underlying Lease, including, but not limited to, any charge in connection with taxes upon Underlying Landlord's sale or resale of electric energy to Sublessee by any federal, state or municipal authority. Such charges shall be paid within five (5) days of Sublessor's billings therefor. Any sums due and payable to Sublessor under this Paragraph 3 shall be deemed to be, and collectible as, additional rent. 4. Additional Rent. Sublessee shall pay to Sublessor, as additional rent, 100% of all amounts payable by Sublessor to Underlying Landlord pursuant to Articles 37 and 38 of the Underlying Lease, which are applicable to the term of this Sublease. For purposes of determining the amounts payable by Sublessee pursuant to this Paragraph 4: the Base Year for Taxes shall be the Tax Year July 1, 1998 - June 30, 1999, the Base Year for Operating Expenses shall be the calendar year 1999, the date to be inserted in the "Base Index" for the CPI in Article THIRTY-SEVENTH(b)6 shall be August 1, 1998, and the "Computation Date" in Article THIRTY-SEVENTH(b)10 shall be the first of March, 1999. The additional rent payable by Sublessee shall be paid to Sublessor in the manner and five (5) days before each such date as Sublessor shall be required to pay its corresponding share of such additional rent pursuant to the underlying Lease. Payments for the first and last years of the term shall be equitably prorated. In the event that the demised premises increase or decrease during the term of this Sublease or the premises demised pursuant to the Underlying Lease increase or decrease, then Sublessee's proportionate share of amounts payable pursuant to this Paragraph 4 shall be equitably adjusted. 5. Use. Sublessee shall use the demised premises only for the uses specified in the Underlying Lease. Sublessee shall use and occupy the demised premises in a manner not inconsistent with the terms of the Underlying Lease. 4 5 6. Compliance with Underlying Lease. Sublessee covenants and agrees to observe and perform all of the terms, covenants, conditions, provisions and agreements to be performed by Sublessor, as tenant pursuant to the Underlying Lease, except for any Excluded Provisions, and further covenants and agrees not to do or suffer or permit anything to be done which would result in a default under or cause the Underlying Lease to be terminated. All of the terms, covenants, conditions, provisions and agreements of the Underlying Lease, excepting any Excluded Provisions, are hereby incorporated herein with the same force and effect as if herein set forth in full and wherever the term "Tenant" in the Underlying Lease, the same shall be deemed to refer to Sublessee. However, all grace periods specified in the Underlying Lease shall, for purposes of determining compliance by Sublessee with the provisions hereof, be each reduced by five (5) days. In relation to Sublessee performing the obligations of Sublessor, as tenant pursuant tote Underlying Lease, said obligations shall be those of Sublessor in relation to the demised premises. Sublessee shall and hereby does indemnify, defend and hold Sublessor harmless from and against any and all actions, claims, demands, damages, liabilities and expenses asserted against, imposed upon or incurred by Sublessor by reason of (a) any violation caused, suffered or permitted by Sublessee, its agents, contractors, servants, licensees, employees or invitees, of any of the terms, covenants, conditions, provisions or agreements of the Underlying Lease, and (b) any damage or injury to persons or property occurring upon or in connection with the use or occupancy of the demised premises. 7. Non-Liability, Indemnity. Sublessee shall and hereby does indemnify, defend and hold Sublessor harmless from and against any and all actions, claims, demands, damages, liabilities and expenses asserted against, imposed upon or incurred by Sublessor by reason of (a) any violation caused, suffered or permitted by Sublessee, its agents, contractors, 5 6 servants, licensees, employees or invitees, of any of the terms, covenants, conditions, provisions or agreements of the Underlying Lease, and (b) any damage or injury to persons or property occurring upon or in connection with the use or occupancy of the demised premises. Neither Sublessor nor any agent, contractor, servant, licensee, employee or invitee of Sublessor shall be liable to Sublessee for any death of or injury or damage to Sublessee or any other person or for any damage to or loss (by theft or otherwise) of any property of Sublessee or any other person, except to the extent caused by or due to the gross negligence or willful act of Sublessor. Sublessee shall indemnify and hold harmless Sublessor, its agents, contractors, servants, licensees, employees or invitees from and against any and all claims, losses, liabilities, damages, costs and expenses (including, without limitation, reasonable attorney's fees) arising from (i) the use, conduct or maintenance of the demised premises or any business therein or any work or thing whatsoever done, or any condition created in or about the demised premises during the term (or any time prior to the Commencement Date that Sublessee may have been given access to the demised premises), (ii) any negligent or otherwise wrongful act or omission of Sublessee or any of its agents, contractors, servants, licensees, employees or invitees, (iii) any failure of Sublessee to perform or comply with all of the provisions of this Sublease hereof that are applicable to Sublessee, and (iv) any obligation Sublessor may have to indemnify Underlying Landlord under the Underlying Lease, to the extent related to the demised premises, other than Sublessor's obligation to pay rent under the Underlying Lease. In case any action or proceeding be brought against Sublessor or any agent, contractor, servant, licensee, employee or invitee of Sublessor by reason of any of the foregoing, Sublessee, upon notice from Sublessor, shall defend such action or proceeding by counsel chosen by Sublessee, who shall be reasonably satisfactory 6 7 to Sublessor. Sublessee or its counsel shall keep Sublessor fully apprised at all times of the status of such defense and shall not settle same without the written consent of Sublessor. 8. Performance by Underlying Landlord. Sublessor does not assume any obligation to perform the terms, covenants, conditions, provisions and agreements contained in the Underlying Lease on the part of Underlying Landlord to be performed. In the event Underlying Landlord shall fail to perform any of the terms, covenants, conditions, provisions and agreements contained in the Underlying Lease on its part to be performed, Sublessor shall be under no obligation or liability whatsoever to Sublessee. Sublessor shall cooperate with Sublessee, at no cost to Sublessor, in seeking to obtain the performance of Underlying Landlord under the Underlying Lease. In any event, Sublessee shall not be allowed any abatement or diminution of fixed rent or additional rent under this Sublease because of Underlying Landlord's failure to perform any of its obligations under the Underlying Lease. Notwithstanding the foregoing, in the event that Sublessor receives an abatement or diminution of fixed rent or additional rent from Underlying Landlord that relates to the demised premises, Sublessee shall be entitled to an equivalent abatement or diminution of fixed rent or additional rent. If Underlying Landlord shall default in any of its obligations with respect to the demised premises, or there shall exist a bona fide dispute with Underlying Landlord under the terms, covenants, conditions, provisions and agreements of this Sublease and/or the Underlying Lease and Sublessee notifies Sublessor in writing that Sublessee has previously notified Underlying Landlord of such dispute and that such default or notice has been disregarded or not reasonably satisfactorily acted upon, then Sublessor shall notify Underlying Landlord of such default or dispute in its name on Sublessee's behalf. Sublessee shall be entitled to participate with Sublessor in the enforcement of Sublessor's rights against Underlying Landlord, but 7 8 Sublessor shall have no obligation to bring any action or proceeding nor to take any steps to enforce Sublessor's rights against Underlying Landlord. If, after written request from Sublessee, Sublessor shall fail or refuse to take appropriate action for the enforcement of Sublessor's rights against Underlying Landlord with respect to the demised premises, Sublessee shall have the right to take such action in its own name, and for such purpose and only to such extent, all of the rights of Sublessor under the Underlying Lease (including Sublessor's arbitration rights) are hereby conferred upon and assigned to Sublessee and Sublessee hereby is subrogated to such rights to the extent that the same shall apply to the demised premises. If any such action against Underlying Landlord in Sublessee's name, shall be barred by reason of lack of privity, non-assignability or otherwise, Sublessee may take such action in Sublessor's name provided Sublessee has obtained the prior written consent of Sublessor, which consent shall not be unreasonably withheld or delayed (and if it is apparent that Sublessee must act promptly in order to preserve its rights, any failure on Sublessor's part to respond to Sublessee's request to take action in Sublessor's name within ten (10) business days after Sublessee's request shall be automatically deemed Sublessor's consent thereto), and in connection therewith, Sublessee does hereby agree to indemnify and hold Sublessor harmless from and against all liability, loss or damage, including, without limiting the foregoing, reasonable attorneys' fees and disbursements, which Sublessor shall suffer by reason of such action. In any event, Sublessee shall not be allowed any abatement or diminution of fixed rent or additional rent under this Sublease because of Underlying Landlord's failure to perform any of its obligations under the Underlying Lease. Notwithstanding the foregoing, in the event that Sublessor receives an abatement or diminution of fixed rent or additional rent from Underlying Landlord that relates to the demised premises, 8 9 Sublessee shall be entitled to an equivalent or proportionate abatement or diminution of fixed rent or additional rent. 9. Repairs; cleaning. Sublessee shall take good care of the demised premises and shall assume the entire responsibility for cleaning and janitorial services and for repairs which may be necessary during the term of this Sublease, excepting only those services and repairs, if any, which Underlying Landlord may be obligated to provide and to make under the terms, covenants, conditions, provisions and agreements of the Underlying Lease. 10. Alterations. Sublessee shall not make any changes, alterations, additions or improvements to the demised premises without first obtaining the written consent of the Underlying Landlord and Sublessor. Sublessor's consent shall not be unreasonably withheld if the written consent of the Underlying Landlord is first obtained. Simultaneously with the submission of documents to the Underlying Landlord, Sublessee shall send copies of all such documents regarding alterations to Sublessor. Sublessee shall pay all costs and expenses relating to any changes, alterations, additions or improvements and shall cause same to be completed in accordance with law and the terms, covenants, conditions, provisions and agreements of the Underlying Lease. Sublessee hereby agrees to indemnify, defend and hold Sublessor harmless from any and all loss, cost, and expense (including, without limitation, reasonable attorneys fees) incurred by Sublessor as a result of Sublessee's failure to comply with the aforesaid terms, covenants, conditions, provisions or agreements. 11. Initial Occupancy. Sublessee represents that it has inspected the demised premises and agrees to take the same in their present condition, and Sublessee acknowledges that no representations with respect to the condition thereof have been made. Any work required by Sublessee to prepare the demised premises for its occupancy shall be paid for by Sublessee and 9 10 shall be subject to all of the terms, covenants, conditions, provisions and agreements set forth in the Underlying Lease. 12. Assignment and Subletting. Sublessee shall not assign this Sublease or sublet the demised premises or otherwise transfer, mortgage or encumber this Sublease, the demised premises or any part thereof or permit the use thereof without first complying with the provisions of the Underlying Lease and obtaining Sublessor's consent. Sublessor's consent shall not be unreasonably withheld if the written consent of the Underlying Landlord is first obtained and said assignment or subletting of the entire demised premises is to one (1) assignee or subtenant for its undivided occupancy. Sublessor shall not be required to consent to any such assignment or further subletting or other event for which Sublessor's consent is required pursuant to the Underlying Lease if Sublessee is then in default under the Sublease of if such further subletting or assignment would cause Sublessor to be in default under the Underlying Lease. No such consent shall relieve Sublessee from the obligation to seek consent to a further subletting or assignment or another event for which Sublessor's consent is required pursuant to the Underlying Lease, and Sublessor may withhold its consent to same in its sole and absolute discretion. Copies of all materials required by the Underlying Lease shall be delivered simultaneously to Sublessor, together with Sublessee's request for consent. If Underlying Landlord and Sublessor shall give their consent to any assignment of this Sublease or any subsublease, Sublessee shall, in consideration therefor, pay to Sublessor, as additional rent: (i) In the case of an assignment, an amount equal to 50% of all sums and other consideration paid to Sublessee by the assignee for or by reason of such assignment. 10 11 (ii) In the case of a subsublease, 50% of any rents, additional rents or other consideration payable under the subsublease or otherwise to Sublessee by the subsubtenant which are in excess of the fixed annual rent and additional rent accruing during the term of this Sublease in respect of the subsubleased space (at the rate per square foot payable by Sublessee hereunder) pursuant to the terms hereof. The sums payable under this Paragraph 12 shall be paid to Sublessor as and when payable by the subsubtenant. If this Sublease be assigned, or if the demised premises or any portion thereof be underlet or occupied by anybody other than Sublessee, Sublessor may, after default by Sublessee, collect rent from the assignee, undertenant or occupant, and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy or collection shall be deemed a waiver of this covenant, or the acceptance of the assignee, undertenant or occupant as tenant, or a release of Sublessee from the further performance by Sublessee of the covenants on the part of Sublessee herein contained. Anything to the contrary contained in this Article 12 notwithstanding, Sublessee may assign this Sublease or sublease all or any portion of the Subleased Premises to an entity which is controlled by, or which controls, or which is under common control, with Sublessee or in connection with a restructuring of Sublessee or its business (including by merger or consolidation), or to any successor entity on or in connection with a sale of Sublessee 's business (by sale of stock or assets), all with the Sublessor's approval and consent, not to be unreasonably withheld or delayed, provided that the character and finances of the assignee or lessee are reasonably satisfactory to Sublessor and consistent with the first-class nature of the Building, and Sublessee provides Sublessor with a copy of the assignment or sublease prior to the effective date 11 12 thereof. Nothing herein contained shall be deemed to release Sublessee from liability under this Sublease and, in the case of an assignment, the assignee must assume, in writing, the Sublease and all of Sublessee's obligations thereunder. 13. Insurance. During the term of this Sublease, Sublessee, at its sole cost and expense, shall provide and maintain comprehensive public liability and property damage insurance in conformity with the provisions of the Underlying Lease which shall include, without limitation, coverage of replacement value of any and all existing leasehold improvements. Sublessee shall cause Sublessor and Underlying Landlord to be included as additional insureds in said policy or policies which shall contain provisions, if and to the extent available, that it or they will not be cancelable except upon at least twenty (20) days prior notice to all insureds and that the act or omission of one insured will not invalidate the policy as to the other insureds. Sublessee shall furnish to Sublessor reasonably satisfactory evidence that such insurance is in effect at or before the Commencement Date and, on request, at reasonable intervals thereafter. Sublessee agrees to use reasonable efforts to have included in all of its insurance policies, a waiver of the insurer's right of subrogation against Underlying Landlord, Sublessor and others required by the Underlying Lease, if any. If such waiver shall not be, or shall cease to be, obtainable (a) without additional charge, or (b) at all, then Sublessee shall so notify Sublessor promptly after learning thereof. In case such waiver can only be obtained at additional charge, if Sublessor shall so elect and shall pay the insurer's additional charge therefor, such waiver, agreement or permission shall be included in the policy. Provided that Sublessee's right of full recovery under the aforesaid policy or policies are not adversely affected or prejudiced thereby, Sublessee hereby waives any and all right of recovery it might otherwise have against Underlying Landlord, Sublessor and others, if any, required by the Underlying Lease, their 12 13 respective agents, contractors, servants, licensees, employees and invitees, for loss or damage to Sublessee's property, notwithstanding that such loss or damage may result from the negligence or fault of Underlying Landlord, Sublessor or such others as aforementioned, or their respective agents, contractors, servants, licensees, employees or invitees. If, notwithstanding the recovery of insurance proceeds by Sublessee for loss, damage or destruction of its property, Sublessor is liable to Sublessee with respect to such loss, damage or destruction or is obligated under this Sublease to make replacement, repair or restoration or payment for such loss, damage or destruction then, provided Sublessee's right of full recovery under its insurance policies is not thereby prejudiced or otherwise adversely affected, the amount of the net proceeds of Sublessee's insurance against such loss, damage or destruction shall be offset against Sublessor's liability to Sublessee therefor, or shall be made available to Sublessor to pay for replacement, repair or restoration, as the case maybe. 14. Default. In the event Sublessee defaults in the performance of any of the terms, covenants, conditions, provisions and agreements of this Sublease or of the Underlying Lease, Sublessor shall be entitled to exercise any and all of the rights and remedies to which it is entitled by law and also any and all of the rights and remedies specifically provided for in the Underlying Lease, which are hereby incorporated herein and made a part hereof with the same force and effect as if herein specifically set forth in full, and that wherever in the Underlying Lease rights and remedies are given to Underlying Landlord, the same shall be deemed to refer to Sublessor. 15. Sublease Consent. This Sublease shall become effective only if the written consent hereto of Underlying Landlord is obtained. If such written consent is not obtained, then this Sublease shall be void and of no force or effect and Sublessor shall return to 13 14 Sublessee the first month's rent and the security deposit, and thereupon neither party shall have any further obligation to the other. 16. Notice. Any notice to be given under this Sublease shall be in writing and shall be sent by registered or certified mail, return receipt requested, or by nationally-recognized overnight courier, addressed to (i) Sublessor at its (a) address herein stated prior to the Commencement Date, with copies to ________________________Attention: Legal Department; and (ii) Sublessee (a) at its address herein stated prior to the Commencement Date, (b) at the demised premises subsequent to the Commencement Date, and (c) with a copy to Silverman, Collura, Chernis & Balzano, 381 Park Avenue South, New York, New York, Attention : Ronald Balzano, Esq. No notice is effective unless given to all parties listed hereinabove. Each party shall have the right to designate, by notice in writing, any other address to which such party's notice is to be sent. Any notice to be given by Sublessor may be given by the attorneys for Sublessor. Any notice shall be deemed given three (3) days after being sent by certified or registered mail, return receipt requested and the next day, if sent by overnight courier. 17. Quiet Enjoyment. Sublessor covenants that Sublessee, on paying the fixed rent and additional rent and performing all the terms, covenants, conditions, provisions and agreements aforesaid, shall and may peacefully and quietly have, hold and enjoy the demised premises for the term aforesaid, free from any interference or hindrance by Sublessor, but subject to the exceptions, reservations and conditions hereof 18. Surrender of Demised Premises. On the date upon which the term hereof shall expire and come to an end, whether on the Expiration Date, by lapse of time or otherwise, Sublessee, at Sublessee's sole cost and expense, shall quit and surrender the demised premises to 14 15 Sublessor in the same good order and condition as Sublessor is delivering them to Sublessee, subject to the provisions of the Underlying Lease. 19. Brokers. Sublessee represents to Sublessor that Newmark & Company Real Estate, Inc. and WF Realty LLC (collectively, the "Brokers") are the only brokers with whom Sublessee dealt in relation to this transaction and that Sublessee has had no dealings, either direct or indirect, with any other real estate agent or broker in connection with this transaction. Sublessee agrees to indemnify, defend and hold Sublessor harmless from any loss, liability and expense incurred by Sublessor as a result of any claim made against Sublessor which is based upon a breach of said representation by Sublessee. Sublessee's indemnification obligation hereunder shall survive the Expiration Date or sooner termination of this Sublease. Sublessor hereby agrees to pay the Brokers a commission pursuant to a separate agreement. 20. Excluded Provisions. The following provisions of the Underlying Lease are deemed to be Excluded Provisions: TERM, RENT, Articles TWENTY-EIGHTH, FORTY-THIRD and FORTY-FIFTH. 21. Successors and Assigns. This Sublease shall be binding upon and, except as prohibited by Paragraph 12 hereof, inure to the benefit of the parties hereto and their respective successors and assigns. 22. No Modifications. This Sublease may not be modified except by written agreement signed by Sublessor and Sublessee. 23. Security Deposit. A. Subject to Paragraph 23B below, Sublessee has deposited with Sublessor, the sum of $220,800.00 ("Security Amount") as security for the faithful performance and observance by Sublessee of the terms, covenants, conditions, provisions and agreements of this Sublease. The security shall be deposited in a non-interest bearing 15 16 account in a bank selected by Sublessor. It is agreed that in the event Sublessee defaults in respect of any of the terms, covenants, conditions, provisions and agreements of this Sublease, including, but not limited to, the payment of fixed rent and additional rent, Sublessor may use, apply or retain the whole or any part of the security so deposited to the extent required for the payment of any fixed rent and additional rent or any other sum as to which Sublessee in default or for any sum which Sublessor may expend or may be required to expend by reason of Sublessee's default in respect of any of the terms, covenants, conditions, provisions and agreements of this Sublease, including but not limited to, any damages or deficiency in the reletting of the demised premises, whether such damages or deficiency accrued before or after summary proceedings or other re-entry by Sublessor. If Sublessor so applies or retains any part of the security, Sublessee shall, upon demand, promptly deposit with Sublessor the amount so applied or retained so that Sublessor shall have the full deposit on hand at all times during the term of this Sublease. In the event that Sublessee shall fully and faithfully comply with all of the terms, covenants, conditions, provisions and agreements of this Sublease, the security shall be returned to Sublessee after the Expiration Date and after delivery of entire possession of the demised premises to Sublessor. In the event of an assignment by Sublessor of its interest under the Underlying Lease, Sublessor shall have the right to transfer the security and Sublessee agrees to look to the new Sublessor solely for the return of said security and it is agreed that the provisions hereof shall apply to every transfer or assignment made of the security to a new Sublessor. Sublessee further covenants that it shall not assign or encumber or attempt to assign or encumber the monies deposited herein as security and that neither Sublessor nor its successors or assigns shall be bound by any such assignment, encumbrance, attempted assignment or attempted encumbrance. 16 17 B. In lieu of the cash security deposit referred to in Paragraph 23A above, Sublessee may deliver to Sublessor, and shall maintain in effect at all times during the term following delivery thereof, a clean, unconditional and irrevocable letter of credit, in form and substance satisfactory to Sublessor in the Security Amount, issued by a banking corporation ("Bank") reasonably satisfactory to Sublessor and having its principal place of business or its duly licensed branch in the City and County of New York at which the letter of credit may be presented for payment. Such letter of credit shall have an expiration date no earlier than the first anniversary of the date of issuance thereof and shall provide that it shall be automatically renewed from year to year unless terminated by the Bank by notice to Sublessor given not less than ninety (90) days prior to every transfer or assignment made of the security to a new Sublessor, provided the new Sublessor shall assume the obligations of the Sublessor hereunder. Sublessee shall have the right to substitute one letter of credit for another, provided that, at all times, the letter of credit shall meet the requirements of this Paragraph 23B. C. Provided Sublessee has duly kept and performed all of the terms, covenants, conditions, provisions and agreements to be kept and performed by Sublessee under this Sublease, the Security Amount shall be reduced on each of the first seven one year anniversary dates of the Commencement Date by the amount of $22,080.00 on each such anniversary date, thus leaving a Security Amount of $66,240.00 for the balance of the term of the Sublease. In the event Sublessee is in breach of the foregoing provision on any such anniversary date, the scheduled reduction shall not be effected, and Sublessee's right to such reduction and all future reductions shall be permanently and forever waived by Sublessee. 24. No Modifications. This Sublease may not be modified except by written agreement signed by Sublessor and Sublessee. 17 18 25. Representations and Covenants. A. Sublessor hereby represents to Sublessee that (i) the Underlying Lease is in full force and effect and Sublessor covenants that it will not amend, cancel or surrender the Underlying Lease during the term of the Sublease (including the exercise of the option contained in Article FORTY-FIFTH of the Lease) without advising Sublessee and receiving its consent thereto, which shall not be unreasonably withheld or delayed with respect to any such amendment, provided such amendment does not increase Sublessee's obligations or diminish Sublessee's services, rights or privileges; (ii) Sublessor has received no written notice of default from the Underlying Landlord which default remains uncured on the date hereof; (iii) to the best of Sublessor's knowledge, upon due inquiry, Sublessor is not in default under the Underlying Lease; and (iv) subject to the terms of this Sublease, Sublessor will continue to perform all of the terms, covenants, conditions, provisions and agreements of the Underlying Lease. B. Sublessor agrees that, in the event Sublessor defaults under the terms, covenants, conditions, provisions and agreements of the Underlying Lease (provided same was not caused by Sublessee or was the result of Sublessee's actions or inactions with respect to Sublessee's obligations hereunder), including, but not limited to actions or inactions occurring prior to the Commencement Date hereof, then in such event, Sublessor covenants and agrees to defend, indemnify and hold Sublessee harmless from any and all claims, causes of action against or damages to Sublessee resulting solely and directly therefrom. In addition to the foregoing, in the event Sublessor receives a notice of default from the Underlying Landlord, and Sublessor does not cure such default within the applicable grace period, Sublessee shall have the right, on behalf of Sublessor, to cure any such default. Sublessor agrees to give Sublessee written notice of any default notice received from Underlying Landlord within two (2) business days of 18 19 Sublessor' s receipt thereof. Upon the curing of such default, Sublessor hereby agrees to reimburse Sublessee, upon demand, for the amount of such default, and only in the event such default was a non-monetary default, for any additional costs or expenses incurred in curing such default, provided same was not caused by Sublessee or was the result of Sublessee's actions or inactions with respect to Sublessee's obligations hereunder. In the event Sublessor, within five (5) business days of demand, accompanied by reasonable proof of payment, shall fail to so reimburse Sublessee for any reason other than with respect to the payment of fixed rent under the Underlying Lease and Sublessor raises no reasonable objection with respect thereto, then, in such event, Sublessee, in addition to any other rights available to it, shall have the right to offset such costs or expenses incurred against the next installments of rent due under this Sublease. 26. Signage. Sublessor agrees to request that Underlying Landlord add Sublessee's name on the entrance doors and floor lobby, as well as on the Building lobby directory or provide Sublessee with Sublessor's existing directory lines. 27. Inability to Perform, Delays. If Sublessee shall be delayed in obtaining possession of the demised premises because of delays in obtaining consent or in construction or for any other reason beyond the reasonable control of Sublessor, Sublessor shall not be subject to any liability, the effectiveness of this Sublease shall not be affected and the term hereof shall not be extended, but the fixed rent shall be abated (provided Sublessee is not responsible for the delay in obtaining consent or possession and provided the delay is not due to delays in obtaining consent to, or in construction of, work required or permitted to be performed by Sublessee) until possession shall have been made available to Sublessee. The provisions hereof are intended to constitute "an express provision to the contrary" within the meaning of Section 223-a of the New York Real Property Law. 19 20 28. Notice of Accidents. Sublessee shall give Sublessor and Underlying Landlord notice of any fire, casualty or accident in or about the demised premises promptly after Sublessee becomes aware of such event. 29. Destruction by Fire or Other Cause. If the demised premises shall be partially or totally damaged or destroyed by fire, casualty or other cause as a consequence of which Sublessor shall, pursuant to the Underlying Lease, receive an abatement of rent with respect to the demised premises, there shall be a corresponding abatement of the fixed rent payable hereunder. This Sublease shall not be terminated as a consequence of any damage to, or destruction of the demised premises, unless, as a result thereof, the Underlying Lease is terminated in accordance with its terms. 30. Bankruptcy. In the event Sublessee becomes the subject of proceedings involving bankruptcy, insolvency or reorganization of Sublessee, or if Sublessee makes an assignment for the benefit of creditors, or petitions for, or enters into an arrangement with creditors, Sublessor shall have the same rights as to Sublessee as are afforded Underlying Landlord under the Underlying Lease under similar circumstances involving Sublessor. 31. No Waiver, etc. No agreement to accept a surrender of this Sublease shall be valid unless in writing and signed by Sublessor. The failure of Sublessor or Sublessee to enforce any terms, covenants, conditions, provisions or agreements of this Sublease shall not prevent the later enforcement thereof or a subsequent act which would have constituted a violation from having all the force and effect of an original violation. The receipt by Sublessor or payment by Sublessee of fixed rent or other rent or charges with knowledge of the breach of any covenant of this Sublease shall not be deemed a waiver of such breach. The parties hereto, to the fullest extent permitted by law, waive trial by jury in any action or proceeding relating 20 21 hereto and consent to the jurisdiction of the New York State Court System. Sublessee hereby waives any right to interpose any counterclaim in any action brought by Sublessor in connection herewith. The foregoing shall not be deemed a waiver by Sublessee of the right to interpose any counterclaim to the extent That the failure to interpose same would prohibit Sublessee from bringing the claim, which is the basis thereof, in a separate action. 32. Occupancy Tax. Sublessee shall pay directly to the City of New York, all occupancy and rent taxes which may be payable by Sublessee to the City of New York in respect of the rent reserved by this Sublease and will pay all other taxes, the payment of which shall be imposed directly upon any occupant of the demised premises. 33. Miscellaneous. A. Paragraph headings are for ease of reference only and are not part of the agreement of the parties. This Sublease shall be governed by New York law without giving affect to its conflict of laws rules. This Sublease may not be changed or terminated, or any provision hereof waived, orally. The rights and remedies of Sublessor hereunder shall survive the expiration of the term or sooner termination hereof. The submission of this Sublease for examination or for signature is not intended to nor shall it create or evidence an offer to, or any other right by, Sublessee with respect to the demised premises or otherwise; it being expressly agreed that this Sublease shall not be effective, and Sublessor shall not be bound hereby, until it is executed and delivered by each party hereto. B. Sublessee agrees to assume Sublessor's obligations at Sublessor's actual cost, under Sublessor's agreement for renting or leasing the T-1 data transmission line in accordance with such agreement, a copy of which is annexed hereto as Exhibit C, indemnifying the Sublessor therefrom. 21 22 IN WITNESS WHEREOF, the parties hereto have executed this Agreement of Sublease as of the day and year first above written. AVALANCHE SOLUTIONS, INC. By: /s/ Jeff Dachis ------------------------------------- Name: Title: CONCRETE MEDIA, INC. 13-3905544 By: /s/ D.A. Pelson - ---------------------- ------------------------------------- Federal Identification Name: D.A. Pelson Number Title: President 22 EX-10.5 8 OFFICE SERVICE AGREEMENT 1 EXHIBIT 10.5 OFFICE SERVICE AGREEMENT This Agreement is made this 29th of October, 1999, by and between Vantas West Wacker, Inc. d/b/a VANTAS ("Center") having offices known and numbered as Suite 700 (the "Facility") in the building located at 333 West Wacker Drive, Chicago, IL 60606 (the "Building") and Bolt Media, Inc. ("Client") a(n) corporation, with an address of 304 Hudson Street, 7th Floor North, New York, NY 10013 for a term of twelve (12) months, commencing on the 15th day of November, 1999, at 9 a.m. (the "Commencement Date") and ending on the 31st day of December, 2000, at 5 p.m. (the "Initial Term") unless renewed in accordance with Paragraph 3. In consideration of the foregoing, the parties for themselves, their heirs, legal representatives, successors and assigns, agree as follows: 1. CENTER'S OBLIGATIONS. a. Subject to the terms and conditions of this Agreement, Center hereby agrees to provide Client for the Term (as defined below in Paragraph 3): (a) the exclusive use of Furnished Private Office(s) number(s) 752 & 788 located in the Facility (the "Premises"); and (b) non-exclusive use of the following services: - Furnished, Decorated, Reception Room with Professional Receptionist - Personalized Telephone Answering During Office Hours - 24-hour Voicemail - 4 hours of Conference Room per month subject to prior scheduling and use by other Clients - Corporate Identity on Lobby Directory where Available - Receipt of Mail and Packages - Complete Kitchen Facilities with Coffee Service - Utilities and Maintenance - HVAC During Normal Business Hours - Janitorial Services - 8 hours per month courtesy of other VANTAS affiliated facilities. Locations subject to current affiliation and availability. ____ Initials ____Initials 2 b. If, for any reason, Center cannot deliver possession of the Premises to Client on the Commencement Date, this Agreement will remain in full force and effect; however, there will be an abatement of the Monthly Office Charge for the period between the Commencement Date and the date that the Premises are delivered to Client. 2. USE. The Premises will be used by Client solely for general office use and such other normally incident uses and for no other purpose, in strict accordance with the Operating Standards, which are annexed hereto as Schedule A. Client will not offer at the Premise any services which Center provides to its Clients, including, but not limited to those services described in Paragraph 1. Client will not make nor permit to be made any use of the Premises, Facility or Building which would violate any of the terms of this Agreement or which, directly or indirectly, is forbidden by law, rule or regulation, which may be dangerous to life, limb or property or which could in any way impair, interfere or tend to impair or interfere with the high quality character, reputation or appearance of the Building or the Facility or with any services performed by Center for Client or for others. The foregoing provisions will also apply to Client's Users (as defined in Paragraph 9). 3. RENEWAL. Upon expiration of the Initial Term and on any subsequent renewal term (each, a "Renewal Term" and together with the Initial Term, the "Term") of this Agreement, the Agreement automatically will be extended for the same period of time as the Initial Term and upon the same terms and conditions as herein contained except for the amount of the Monthly Office Charge (as defined in Paragraph 4) then in effect, which will each be increased by seven percent (7%), unless either party notifies the other in writing within the period hereinafter specified that the Agreement will not be extended. If Client has less than three offices, such notice will be given at least sixty (60) days prior to the expiration of the Initial Term or the Renewal Term, as the case may be. If Client has three or more offices, such notice will be given at least ninety (90) days prior to the expiration of the Initial Term or the Renewal Term, as the case may be. 4. MONTHLY OFFICE CHARGE. a. For and during the Term of this Agreement, Client will pay to Center, on or before the first day of each month after the Commencement Date, the sum of $2,422.00 as Monthly Office Charge (subject to increase in accordance with Paragraph 3 above) for the Premises. If any payment of Monthly Office Charge or other charge due under this Agreement is not received within five (5) calendar days after its due date, the Client will also pay, in addition to Monthly Office Charge, a late payment charge which will be an amount equal to ten percent (10%) of any amount owed to Center or Fifth Dollars ($50.00) whichever is greater. The financial terms of this Agreement are strictly confidential and Client agrees not to knowingly or willfully divulge this information to any other Client or potential Client of Center. b. The Monthly Office Charge payable during the Term of this Agreement is subject to increase following notification of any increase in the rent, operating expenses or taxes which ____ Initials ____Initials 3 the Center might receive under the Main Lease (as defined in Paragraph 20), including any increase in respect of post periods under the Term. Center will promptly notify Client in writing of any such increase, and will bill Client for its pro rata share thereof. c. The Monthly Office Charge is based on the value of the use of the Premises and services to be used by three (3) person(s) only. If more than said number of person(s) regularly use the Premises or services, the Monthly Office Charge will be increased in an amount equal to One Hundred Fifty Dollars ($150.00) for each such additional person. d. If a Client check is returned for any reason, Client will pay an additional charge of One Hundred Dollars ($100.00) per returned check and, for the purpose of considering default and/or late charges, it will be as if the payment represented by the returned check had never been made. 5. REFUNDABLE RETAINER. a. Client will deposit with Center $3,633.00 in good or certified funds, as a non-interest bearing refundable retainer. Center may use the refundable retainer to cure any default of Client under this Agreement, to restore the Premises, including any and all furniture, fixtures and equipment, provided by Center to its original condition and configuration, reasonable wear and tear excepted, to pay for repairs to any damage to the Premises, Facility and/or Building, caused by Client or Client's guests, or to pay any Monthly Office Charge or other charges that Client owes Center at or prior to the expiration of the Term of this Agreement. b. The refundable retainer (less any sums used by Center in accordance with the terms and conditions of this Agreement) will be returned within sixty (60) days after the termination of any services rendered or expiration of the Term. Client may not direct or request that the refundable retainer be applied in lieu of the final payment(s) of Monthly Office Charge or service charges under this Agreement. c. In the event that Center applies any of the refundable retainer deposited pursuant to this Agreement, Center will have the right to charge the Client, and Client will pay, in addition to any Monthly Office Charge, such sums as are necessary to cause the refundable retainer to be returned to its entire original amount. 6. SERVICES. a. Provided Client is not in default of this Agreement, Center will make available certain services to Client as more particularly described in Paragraph 1. Charges for such services will be included as part of the Monthly Office Charge. b. Client shall pay a monthly amount equal to One Hundred Twenty Dollars ($120.00) per office in respect of the monthly service package (the "Monthly Service Package"). Payment of such amount will be on the same terms and conditions as those governing the payment of the Monthly Office Charge. The Monthly Service Package will entitle the Client to receive upon request an aggregate of four hours per month of clerical and/or word processing services from the center. ____ Initials ____Initials 4 c. In addition to the Monthly Service Package, upon request, Center will make available to Client additional services as Center may make generally available, the charges for which will be established as per Center's then scheduled rates as determined by Center. Payment for these services will be subject to the same terms and conditions as those governing the payment of the Monthly Office Charge. Center will have no obligation to provide such services if Client is in default of this Agreement or if the anticipated charges exceed the amount of the refundable retainer. When providing services to Client that involve third panics, Center will have the right to require Client to pay, or to reimburse Center for, the fees and expenses of such third party in advance. 7. TELEPHONE SERVICES. a. Provided Client is not in default of this Agreement, Center will make available to Client a telecommunications package, the charges for which will be established as per Center's then scheduled rates as determined by Center. Payment for these services will be subject to the same terms and conditions as those governing the payment of the Monthly Office Charge. All telephone numbers used by Client will remain at all times the property of Center and Client will acquire no rights in the components of the telecommunications package whatsoever. b. Client hereby agrees to indemnify, hold harmless and to reimburse Center for all charges associated with (1) any toll fraud traceable to telecommunications services provided by Center to Client including, but not limited to, unauthorized use of calling cards or telephone lines, and (2) any advertising costs of Client involving the telephone number assumed to it, including, without limitation, yellow pages advertising (it being understood that Center is under no obligation to procure such advertising and that any such advertising by Client is subject to the Operating Standards). c. It is expressly acknowledged and agreed that Center will be the sole aid exclusive provider of telecommunication services to Client. Client hereby agrees and covenants that it will not use any other telephone service or telephone carrier to provide it service in the Premises. d. Center shall not be liable for any interruption or error in the performance of its services to Client under this Paragraph "7." Client waives any recourse against Center arising from the provision of such services, including, without limitation, any claim of business interruption or for any indirect, incidental, special, consequential or punitive damages, except for claims arising out of willful misconduct by Center. 8. LIMITATION OF LIABILITY/INSURANCE a. Client will indemnify and hold harmless Center from and against any loss, damage, injury, liability or expense to or of personal property occasioned by or resulting from any willful misconduct or grossly negligent act on the part of Client or Client's Users. Center will not be liable to Client or to any other person on account of loss, damage or theft to any business or personal property of Client. Center will not be liable for any loss, damage, injury, liability or expense to or of person or property except as may result from Center's willful misconduct or grossly negligent acts. Center will indemnify and hold harmless Client from and against any loss, damage, injury, liability or expense to or of person or property occasioned by or ____ Initials ____Initials 5 resulting from any willful misconduct or grossly negligent act on the part of the Center, its agents, employees, or invitees, or persons permitted on the Premises by Center. b. Center will not be liable for any claim of business interruption or for any indirect, incidental, special, consequential exemplary of punitive damages arising out of any failure to furnish any service or facility, any error or omission with respect thereto, or any delay or interruption of same. Neither Center nor any of its agents, employees, officers or directors will be deemed to be making any representations or warranties, whether express or implied, as to the ability of any systems, including, without limitation, computer and electronic based equipment relating to the Building, Facility or Premises or to any services to be provided hereunder to process date fields relating to the Year 2000 nor will any of them be liable for the failure of such systems to process such date fields. Center's liability under this Agreement will in no event exceed the amount paid by Client for the services for which the claim arose. The parties agree to the allocation of risk contained herein. c. Client will, prior to the Commencement Date of this Agreement provide Center with a certificate of insurance evidencing General/Public Liability coverage with liability limits of not less than One Million Dollars ($1,000,000.00) per occurrence for Bodily Injury and/or Property Damage Liability and One Hundred Thousand Dollars ($100,000.00) per occurrence for Fire/Legal Liability. Said insurance coverage will remain in force during the Term of this Agreement. VANTAS Incorporated and Vantas West Wacker, Inc., will be named as an additional named insured on each of these policies. Client's failure to provide or maintain such insurance will not reduce or otherwise alter Client's liability or responsibility to pay any judgment rendered against Client for any liability or damages. All insurance required to be maintained by Client shall include a waiver of subrogation in favor of Center and the landlord under the Main Lease. Center will not have any obligation to maintain insurance for Client's benefit. d. The provisions of this Paragraph 8 will survive the expiration or earlier termination of the term of this Agreement. 9. OPERATING STANDARDS. The Operating Standards attached to this Agreement as Schedule A are hereby made an integral part of this Agreement. Client, its employees, agents, guests, invitees, visitors and/or any other persons caused to be present in and around the Premises by the Client ("Client's Users") will perform and abide by the Operating Standards then in effect. 10. EMPLOYMENT OR CENTER'S EMPLOYEES. Client agrees that it will not, during the Term of this Agreement and for a period of one year thereafter, directly or indirectly, employ or offer to employ any person who is or has been an employee of Center without prior consent from Center. If Client hires either an employee of Center or any person who has been an employee of Center within six months prior to the time such person is hired by Client, Client will be liable to Center for liquidated damages equal to six months wages of the employee, at the rate last paid that employee by Center. The provisions of this paragraph will survive the Term of this Agreement. ____ Initials ____Initials 6 11. ACCESS. Center and its agents will have the right of access to the Premises at any time for the purpose of (i) making any repairs, alterations and/or inspections which it deems necessary in its sole discretion for the preservation, safety or improvements of the Premises, or (ii) to show the Premises to prospective Clients, without in any way being deemed or held to have committed an eviction (constructive or otherwise) of or trespass against Client. 12. RELOCATION. Client agrees that the Center may, in its sole discretion, relocate the Client from its present Premises to a like or similar office space within the same Facility upon ten (10) days' notice to the Client. In the event that the Center requires the Client to relocate, the Center will bear the reasonable moving costs of any such relocation. All of terms and conditions of this Agreement, other than the designation of the Premises provided herein, will remain unaffected and in full force and effect. 13. ASSIGNMENT AND SUBLETTING. No assignment or subletting of the Premises, this Agreement or any part thereof will be made by Client without Center's prior written consent, which consent may he withheld in Center's sole discretion. Center may assign its rights and its obligations under Agreement in whole or in part without Client's consent. 14. TERMINATION. a. On expiration or earlier termination of the Term, Client will, without demand, promptly surrender and deliver the Premises, including any furniture, fixtures and equipment provided by Center, to Center in its original condition and configuration, reasonable wear and tear excepted. If Client fails to so surrender and deliver the Premises, Client agrees to pay Center, as liquidated damages, a sum equal to twice the Monthly Office Charge for each month or portion thereof that the Client retains possession of the Premises. b. If Client vacates the Premises and leaves behind any property, whatsoever, such property will be deemed abandoned by Client and may be disposed of by Center at Client's expense and without liability to Center. c. In the event the Premises, the Facility or the Building is damaged, destroyed or taken by eminent domain, either party may terminate this Agreement without liability on (30) days' written notice to the other party. d. Upon early termination of the Main Lease, this Agreement will terminate without liability to any party unless the Landlord under such Main Lease elects to have this Agreement assigned to such Landlord or another entity as provided in such Main Lease. ____ Initials ____Initials 7 15. DEFAULT AND REMEDIES. a. Client will be deemed to be in default of this Agreement if Client fails to fulfill any of its terms, conditions, covenants or provisions of this Agreement, including but not limited to (1) payment of Monthly Office Charge and/or any other charges hereunder within ten days of the date such charges become due: or the abandonment and/or vacatur of the Premises by the Client prior to expiration of the Term, or (2) if Client becomes insolvent, makes an assignment for the benefit of creditors or files a voluntary petition, or has an involuntary petition flied against it, under any bankruptcy or insolvency law. b. In case of such default, the Center may, at its sole discretion, terminate this Agreement upon five (5) days' notice to the Client. Upon the expiration the five day period, Client will vacate the Premises. Should Client fail to vacate the Premises, the Center may: i. re-enter and remove property therefrom; and ii. disconnect any telephone lines installed for the benefit of Client; and iii. cease supplying Client with the services described in Paragraph 1 hereof. If Client defaults and Center takes any of the foregoing action, or changes the locks, removes Client's property, or otherwise denies access to Client, Center will not be liable for any damages to the Client. c. In addition to the foregoing, Center may elect to accelerate all of Client's obligations hereunder, including without limitation, Monthly Office Charge and other monthly recurring charges, for all or part of the term. Center is under no obligation, implied or otherwise, to mitigate its damage(s) under a default by Client. d. Should Center be unable to enter into another office service agreement relating to chic Premises, or should Center enter into another office service agreement relating to the Premises for less than the Monthly Office Charge which Client is obligated to pay under this Agreement, Client will pay the amount of such deficiency, plus the expenses of entering into such other service agreement relating to the Premises, immediately in one lump sum, to Center upon demand and/or at Center's option as such obligations accrue hereunder. e. In connection with any default by Client under this Agreement, if Center incurs attorney's fees and/or costs of collection or of ensuring performance, Client will pay all such sums with interest, and such sums will be deemed to be owed by Client in addition to the Monthly Office Charge hereunder, and if the Term has expired at the time of incurring such sums, such sums will be recoverable by Center as damages. 16. MAIL & TELEPHONE FORWARDING. Upon expiration of the Term, Center will, unless otherwise instructed by Client in writing no later than thirty (30) days prior to the expiration of the Term, forward mail to Client at its new address and give out Client's new telephone number via a voice mail message for a period of three (3) months at the rate of One Hundred Fifty Dollars ($150.00) per month, which sums will be deducted from any amounts deposited with the Center from the refundable retainer deposited hereunder or will otherwise be paid to the Center in advance. Unless the Client pays the Charge ____ Initials ____Initials 8 set forth herein to the Center in advance, Center will have no obligation to provide the services set forth herein. Except as expressly provided herein, Center will have no obligation to notify any person or entity of Client's new telephone number and address. 17. NOTICES. Any notice under this Agreement will be in writing and will be either delivered by hand, first-class mail or by overnight courier to the party at the address set forth below. Center hereby designates its address as: Vantas West Wacker, Inc. 333 West Wacker Drive, Suite 700 Chicago. II. 60606 Phone: (312) 444-2000 Fax: (312) 641-3096 Attn: Management Client hereby designates its address (which address must be addressed within the United States), as: Bolt Media, Inc. Attn: Jeanne Sachs 304 Hudson Street, 7th Floor North New York. NY 10013 Phone: (212) 620-5900 ext. 291 Fax: (212) 620- 4315 If such mail is properly addressed and mailed as above, it will be deemed notice for all purposes, given when sent or delivered, even if returned as undelivered. 18. SEVERABILITY. The invalidity of any one or more of the sections, subsections, sentences, clauses or words contained in this Agreement or the application thereof to any particular set of circumstances, will not affect the validity of the remaining portions of this Agreement or of their valid application to any other set of circumstances. Regardless of whether or not either party has elected to consult with legal counsel in reviewing this Agreement, it is the intent of the parties that in no event will the terms, conditions or provisions of this Agreement be construed against either party as the drafter of this Agreement. 19. EXECUTION BY CLIENT. The party or parties executing this Agreement on behalf of the Client warrant(s) and represent(s): (i) that such executing party (or parties) has (or have) complete and full authority to execute this Agreement on behalf of Client; and (ii) that Client will fully perform its obligations hereunder. ____ Initials ____Initials 9 20. MISCELLANEOUS. a. Failure of the Center to insist upon the strict performance of any term or condition of this Agreement or to exercise any right or remedy available for a breach thereof, or acceptance of full or partial payment during the continuance of any such breach, will not constitute a waiver of any such breach or any such term or condition. No term or condition of this Agreement required to be performed by Client and no breach thereof, will be waived, altered or modified, except by a written instrument executed by Center. b. Time is of the essence as to the performance by Client of all covenants, terms and provisions of this Agreement. c. This Agreement embodies the entire understanding between the parties relative to its subject matter, and will not be modified, changed or altered in any respect except in writing signed by all parties. d. This Agreement may be executed in two or more counterparts, each of which will be deemed to be an original, but all of which together will constitute one and the same instrument. e. This Agreement is subject and subordinate to the Building lease governing the Facility, under which Center is bound as tenant (the "Main Lease") and the provisions of the Main Lease, other than as to the payment of Monthly Office Charge or other monies, are incorporated into this Agreement as if completely herein rewritten. Client will comply with and be bound by all provisions of the Main Lease except that the payment of Monthly Office Charge will be governed by the provisions of this Agreement, and Client will indemnify and hold Center harmless from and against any claim or liability under the Main Lease arising front Client's breach of the Main Lease or this Agreement. ____ Initials ____Initials 10 IN WITNESS WHEREOF, Center and Client have executed this Agreement as of the date first above written. CENTER: VANTAS WEST WACKER, INC. By: --------------------------------------------- CLIENT: BOLT MEDIA, INC. (If a corporation) By: /s/ Jeanne Sachs --------------------------------------------- Name: Jeanne Sachs --------------------------------------------- Title: VP Sales --------------------------------------------- [Corporate Seal] CLIENT: (If an individual or partnership) By: --------------------------------------------- By: --------------------------------------------- ____ Initials ____Initials EX-10.6 9 OFFICE SERVICE AGREEMENT 1 EXHIBIT 10.6 VANTAS OFFICING SOLUTIONS WORLDWIDE OFFICE SERVICE AGREEMENT This Agreement is made this 30th day of June, 1999, by and between Vantas ("Center") having offices known and numbered as Suite 200 (the "Facility") in the building located at 11400 W. Olympic Boulevard, Los Angeles, CA 90064 (the "Building") and Bolt Media, Inc. ("Client") a(n) (corporation, partnership, individual) with an address of 304 Hudson, 7th Floor, North, New York, NY 10013 for a term of 6 months, commencing on the 15th day of July, 1999 (the "Commencement Date") and ending on the 31st day of January 2000 (the "Initial Term" unless renewed in accordance with Paragraph 3. In consideration of the foregoing, the parties for themselves, their heirs, legal representatives, successors and assigns, agree as follows: 1. Center's Obligations. a. Subject to the terms and conditions of this Agreement, Center hereby agrees to provide Client for the Term (as defined below in Paragraph 3): (a) the exclusive use of Private Office(s) number(s) 251 located in the Facility (the "Premises"); and (b) non-exclusive use of the following services: - Furnished, Decorated Reception Room with Professional Receptionist - Personalized Telephone Answering During Office Hours - 24 hour Voicemail - 10 hours of Conference Room per month, subject to prior scheduling and use by other Clients - Corporate Identity on Lobby Directory where Available - Receipt of Mail and Packages - Complete Kitchen Facilities with Coffee Service - Utilities and Maintenance - HVAC During Normal Business Hours - Janitorial Services - 8 hours per month courtesy use of other VANTAS affiliated facilities. Locations subject to current affiliation and availability. b. If, for any reason, Center cannot deliver possession of the Premises to Client on the Commencement Date, this Agreement will remain in full force and effect; however, there will be an abatement of the Monthly Office Charge for the period between the Commencement Date and the date that the Premises are delivered to Client. 2 2. Use. The Premises will be used by Client solely for (general offices purposes) and such other normally incident uses and for no other purpose, in strict accordance with the Operation Standards, which are annexed hereto as Schedule A. Client will not offer at the Premises any services which Center provides to its Clients, including but not limited to those services described in Paragraph 1. Client will not make nor permit to be made any use of the Premises, Facility or Building which would violate any of the terms of this Agreement or which, directly or indirectly, is forbidden by law, rule or regulation, which may be dangerous to life, limb or property or which could in any way impair, interfere or tend to impair or interfere with the high quality character, reputation or appearance of the Building or the Facility or with any services performed by Center for Client or for others. The foregoing provisions will also apply to Client's Users (as defined in Paragraph 9). 3. Renewal Upon expiration of the Initial Term and on any subsequent renewal term (each, a "Renewal Term" and together with the Initial Term, the "Term") of this Agreement, the Agreement automatically will be extended for the same period of time as the Initial Term and upon the same terms and conditions as herein contained except for the amount of the Monthly Office Charge (as defined in Paragraph 4) then in effect, which will each be increased by seven percent (7%), unless either party notifies the other in writing within the period hereinafter specified that the Agreement will not be extended. If Client has less than three offices, such notice will be given at least sixty (60) days prior to the expiration of the Initial Term or Renewal Term, as the case may be. If Client has three or more offices, such notice will be given at least ninety (90) days prior to the expiration of the Initial Term or the Renewal Term, as the case may be. 4. Monthly Office Charge a. For and during the Term of this Agreement. Client will pay to Center, on or before the first day of each month after the Commencement Date, the sum of $800.00 as Monthly Office Charge (subject to increase in accordance with Paragraph 3 above) for the Premises. If any payment of Monthly Office Charge or other charge due under this Agreement is not received within five (5) calendar days after its due date, the Client will also pay, in addition to Monthly Office Charge, a late payment charge which will be an amount equal to ten percent (10%) of any amount owed to Center or fifty dollars ($50.00) whichever is greater. The financial terms of this Agreement are strictly confidential and Client agrees not to knowingly or willfully divulge this information to any other Client or potential Client of Center. b. The Monthly Office Charge payable during the Term of this Agreement is subject to increase following notification of any increase in the rent, operating expenses or taxes when the Center might receive under the Main Lease (an defined in Paragraph 20), including any increase with respect of past periods under the Term. Center will promptly notify Client in writing of any such increase, and will bill Client for its pro rata share thereof. 2 3 c. The Monthly Office Charge is based on the value of the use of the Premises and services can be used by 2 person(s) only. If more then said number of person(s) regularly use the Premises or services, the Monthly Office Charge will be increased in an amount equal to One Hundred Fifty Dollars ($150.00) for each such additional person. d. If a Client check is returned for any reason, Client will pay an additional charge of One Hundred Dollars ($100.00) per returned check and, for the purpose of considering default and/or late charges, it will be as if the payment represented by the returned check had never been made. 5. Refundable Retainer. a. Client will deposit with Center $1,600.00 in good or certified funds, as a non-interest bearing refundable retainer. Center may use the refundable retainer to cure any default of Client under this Agreement, to restore the Premises, including any and all furniture, fixtures and equipment, provided by Center to its original condition and configuration, reasonable wear and tear excepted, to pay for repairs to any damage to the Premises, facility and/or Building, caused by Client or Client's guests, or to pay any Monthly Office Charge or other charges that Client owes Center at or prior to the expiration of the Term of this Agreement. b. The refundable retainer (less any sums used by Center in accordance with the terms and conditions of this Agreement) will be returned within sixty (60) days after the termination of any services rendered or expiration of the Term. Client may not direct or request that the refundable retainer be applied in lieu of the final payment(s) of Monthly Office Charge or service charges under this Agreement. c. In the event that Center applies any of the refundable retainer deposited pursuant to this Agreement, Center will have the right to charge the Client, and Client will pay, in addition to any Monthly Office Charge, such sums as are necessary to cause the refundable retainer to be returned to its entire original amount. 6. Services. a. Provided Client is not in default of this Agreement, Center will make available certain services to Client as more particularly described in Paragraph 1. Charges for such services will be included as part of the Monthly Office Charge. c. In addition to the Monthly Service Package, upon request, Center will make available to Client additional services as Center may make generally available, the charges for 3 4 which will be established us per Center's then scheduled rates as determined by Center. Payment for these services will be subject to the same terms amid conditions as those governing the payment of the Monthly Office Charge. Center will have no obligation to provide such services if Client is in default of this Agreement or II' the anticipated charges exceed the amount of the refundable retainer. When providing services to Client that involve third parties, Center will have the right to require Client TO pay, or to reimburse Center for, the fees and expenses of such third petty in advance. 7. Telephone Services. a. Provided Client is not in default of this Agreement, Center will make available to Client a telecommunications package, the charges for which will be established as per Center's then scheduled rates as determined by Center. Payment for these services will be subject to the same terms and condition as those governing the payment of the Monthly Office Charge. All telephone numbers used by Client will remain at all times the property of Center and Client will acquire no rights in the components of the telecommunications package whatsoever. b. Client hereby agrees to indemnify, hold harmless and to reimburse Center for all charges associated with (1) any toll fraud traceable to telecommunications services provided by Center to Client including, but not limited to, unauthorized use of calling cards or telephone lines, and (2) any advertising costs of Client involving the telephone number assigned to it, including, without limitation, yellow pages advertising (it being understood that Center is under on obligation to procure such advertising and that any such advertising by Client is subject to die Operations Standards). c. It is expressly acknowledged and agreed that Center will be the sole and exclusive provider of telecommunication services to Client. Client hereby agrees and covenants that it will not use any other telephone service or telephone carrier to provide it service in the Premises. d. Center shall nor be liable for any interruption or error in the performance of its services to Client under this Paragraph "7." Client waives any recourse against Center arising from the provision of such services, including, without limitation, any claim of business interruption or for any indirect, incidental, special, consequential or punitive damages, except for claims arising out of willful misconduct by Center. 8. Indemnity/Limitations of Liability/Insurance a. Client will indemnify and hold harmless Center from and against any loss, damage, injury, liability or expense to or of person at property occasioned by or resulting from any willful misconduct or grossly negligent act on the part of Client or Client's Users. Center will not be liable to Client or to any other person on account of loss, damage or theft to any business or personal property of Client. Center will not be liable for any loss, damage, injury, liability or expense to or of person or property except as may result from Center's willful misconduct or grossly negligent acts. Center will indemnify and hold harmless Client from and against any loss, damage, injury, liability or expense to or of person or property occasioned by or 4 5 resulting from any willful misconduct or grossly negligent act on the part of the Center, its agents, employees, or invitees, or persons permitted on the Premises by Center. b. Center will not be liable for any claim of business interruption or for any indirect, incidental, special, consequential exemplary or punitive damages arising out of any failure to furnish any service or facility, any error or omission with inspect thereto, or any delay or interruption of same. Neither Center nor any of its agents, employees, officers or directors will be deemed to be making any representations or warranties, whether express or implied, as to the ability of any system, including, without limitation, computer and electronic based equipment, relating to the Building. Facility or Premises or to any services to be provided hereunder to process date fields relating to the Year 2000 nor will any of them be liable for the failure of such systems to process such date fields. Center's liability under this Agreement will in no event exceed the amount paid by Client for the services for which the claim arose. The parties agree to the allocation of risk contained herein. c. Client will, prior to the Commencement Date of this Agreement provide Center with a certificate of insurance evidencing General/Public Liability coverage with liability limits of not less than One Million Dollars ($1,000.000.00) per occurrence for Bodily Injury and/or Property Damage Liability and One Hundred Thousand Dollars ($100,000.00) per occurrence for Fire/Legal Liability. Said insurance coverage will remain in force during the Term of this Agreement. Vantas International Incorporated and Vantas will be named as an additional named insured on each of these policies. Client's failure to provide or maintain such insurance will not reduce or otherwise alter Client's liability or responsibility to pay any judgment rendered against Client (or any liability or damages. All insurance required to be maintained by Client include a waiver of subrogation n favor of Center and the landlord under the Main Lease. Center will not have any obligation to maintain insurance for Client's benefit. d. The provisions of this Paragraph 8 will survive the expiration or earlier termination of the term of this Agreement. 9. Operating Standard. The Operating Standards attached to this Agreement as Schedule A are hereby made an integral part of this Agreement. Client, its employees, agents, guests, invitees, visitors and/or any other persons caused to be present in, and around the Premises by the Client ("Client's Users") will perform and abide by the Operating Standards then in effect. 10. Employment of Center's Employees Client agrees that it will not, during the Term of this Agreement and for a period of one year thereafter, directly or indirectly, employ or offer to employ any person who is or has been an employee of Center without prior consent from Center. If Client hires either an employee of Center or any person who has been an employee of Center within six months prior to the time such person is hired by Client, Client will be liable to Center for liquidated damages equal to months wages of the employee, at the rate last paid that employee by Center. The provisions of this paragraph will survive the Term of this Agreement. 5 6 11. Access. Center and its agents will have the right of access to the Premises at any time for the purpose of (i) making any repairs, alterations and/or inspections which it deems necessary in its sole discretion for the preservation, safety or improvements of the Premises, or (ii) to show the Premises to prospective Clients, without in any way being deemed or held to have committed an eviction (constructive or otherwise) of or trespass against Client. 12. Relocation. Client agrees that the Center may, in its sole discretion, relocate the Client from its present Premises to a like or similar office space within the same Facility upon ten (10) days notice to the Client. In the event that the Center requires the Client to relocate, the Center will bear the reasonable moving costs of any such relocation. All of terms and conditions of this Agreement, other than the designation of the Premises provided herein, will remain unaffected and in full force and effect. 13. Assignment and Subletting. No assignment or subletting of the Premises, this Agreement or any part thereof will be made by Client without Center's prior written consent, which consent may be withheld in Center's sole discretion. Center may assign its rights and its obligations under Agreement in whole or in part without Client's consent. 14. Termination. a. On expiration or earlier termination of the Term, Client will, without demand, promptly surrender and deliver the Premises, including arty furniture, fixtures and equipment provided by Center, to Center in its original condition and configuration, reasonable wear and tear excepted. If Client fails to so surrender and deliver the Premises, Client agrees to pay Center, as liquidated damages, a sum equal to twice the Monthly Office Charge for each month or portion thereof that the Client retains possession or the premises. b. If Client vacates the Premises and leaves behind any property, whatsoever, such property will be deemed abandoned by Client and may be disposed of by Center at Client's expense and without liability to Center. c. In the event the Premises, the Facility or the Building is damaged, destroyed or taken by eminent domain either party may terminate this Agreement without liability on (30) days written notice to the other party. d. Upon early termination of the Main Lease, this Agreement will terminate without liability to any party unless the Landlord under such Main Lease elects to have this Agreement assigned to such Landlord or another entity as provided in such Main Lease, 6 7 15. Default and Remedies. a. Client will be deemed to be in default of this Agreement if Client fails to fulfill any of its terms, conditions, covenants or provisions of this Agreement, including but not limited to (1) payment of Monthly Office Charge and/or any other charges hereunder within ten day; of the date such charges become due; or the abandonment and/or vacatur of the Premises by the Client prior to expiration of the Term, or (2) if Client becomes insolvent, makes an assignment for the benefit of creditors or files a voluntary petition or has an involuntary petition filed against it, under any bankruptcy or insolvency law, b. In case of such default the Center may, at its sole discretion, terminate this Agreement upon five days notice to the Client. Upon the expiration the five day period, Client will vacate the Premises. Should Client fail to vacate the Premises, the Center may: i. re-enter and take possession of the Premises and remove from all persons and property therefrom; and ii. disconnect any telephone lines installed for the benefit of Client; and iii. cease supplying Client with the services described in Paragraph I hereof. If Client defaults and Center takes any or the foregoing action, or changes the locks, removes Client's property or otherwise denies access to Client, Center will not be liable for any damages to the Client. c. In addition to the foregoing, Center may elect to accelerate all of Client's obligations hereunder, including without limitation Monthly Office Charge and other monthly recurring charges, for all or part of the term. Center is under no obligation, implied or otherwise to initiate its damage(s) under a default by Client. d. Should Center be unable to enter into another office service agreement relating to the Premises, or should Center enter into another office service agreement relating to the Premises for less than the Monthly Office Charge which Client is obligated to pay, under this Agreement, Client will pay the amount of such deficiency, plus the expenses of entering into such other service agreement relating to the Premises, immediately in one lump sum, to Center upon demand and/or at Center's option as such obligations accrue hereunder. e. In connection with any default by Client under this Agreement, if Center incurs attorney's fees and/or costs of collection or of ensuring performance, Client will pay all such sums with interest, and such sums will be deemed to be owed by Client in addition to the Monthly office Charge hereunder, and if the Term has expired at the time of incurring such sums, such sums will be recoverable by Center as damages. 16. Mail and Telephone Forwarding Upon expiration of the Term, Center will, unless otherwise instructed by Client, in writing no later than 30 days prior to the expiration of the Term, forward mail to Client at its new address and give out Client's new telephone number via a voicemail message from a period of three months at the rate of One Hundred and Fifty Dollars ($150.00) per month, which sums will 7 8 be deducted from any amounts deposited with the Center from the refundable retainer deposited hereunder or will otherwise be paid to the Center in advance. Unless the Client pays the Charge set forth herein to the Center in advance. Center will have no obligation to provide the services set forth herein. Except as previously provided herein, Center will have no obligation to notify any person or entity of Client's new telephone number and address. 17. Notices. Any notice under this Agreement will be in writing and will be either delivered by hand, first class mail or by overnight courier to the party at the address set forth below. Center hereby designated its address as: Vantas @ Executive Tower 1140 W. Olympic Blvd., Suite 200 Los Angeles, CA 90064 Attn: Management Client hereby designates its address (which address must be an address within the United States), as: Bolt Media, Inc. 304 Hudson, 7th Floor North New York, NY 10013 Attn: Frank Harrison, CFO or Jeanne Sachs, VP Sales If such mail is properly addressed and mailed as above, it will be deemed notice for all purposes, given when sent or delivered, even if returned as undelivered. 18. Severability. The invalidity of any one or more of the sections, subsections, sentences, clauses or words contained in this Agreement or the application thereof to any particular set of circumstances; will not affect the validity of the remaining portions of this Agreement or of their valid application to any other set of circumstances. Regardless of whether or not either party has elected to consult with legal counsel in reviewing this Agreement, it is the intent of the parties that in no event will the terms, conditions or provision of this Agreement be construed against either party as the drafter of this Agreement. 19. Execution by Client. The party or parties executing this Agreement on behalf of the Client warrant(s) and represent(s): (i) that such executing party (or parties) has (or have) complete and full authority to execute this Agreement on behalf of Client; and (ii) that Client will fully perform its obligations hereunder. 8 9 20. Miscellaneous. a. Failure of the Center to insist upon the strict of any terms or condition of this Agreement or to exercise any right or remedy available for a breach thereof, or acceptance of full or partial payment during the continuance of any such breach, will not constitute a waiver of any such breach or any such terms or condition. No term or condition of this Agreement required to be performed by Client and no breach thereof, will be waived, altered or modified, except by a written instrument executed by Center. b. Time is of the essence as to the performance by Client of all covenants, terms and provisions of this Agreement. c. This Agreement embodies the entire understanding between the parties relative to its subject matter, and will not be modified, changed or altered in any respect except in writing signed by all parties. d. This Agreement may bc executed in two or more counterparts, each of which will be deemed to be an original, but all of which together will constitute one and the same instrument. e. This Agreement is subject and subordinate to the Building lease governing the Facility, under which Center is bound as tenant (the "Main Lease") and the provisions of the Main Lease, other than as to the payment of Monthly Office Charge or other monies, are incorporated into this Agreement as if completely herein rewritten. Client will comply with and be bound by all provisions of the Main Lease except that the payment of Monthly Office Charge will be governed by 'be provisions of this Agreement, and Client will indemnify and hold Center harmless from and against any claim or liability under the Main Lease arising from Center's breach of the Main Lease or this Agreement. 9 10 IN WITNESS WHEREOF, Center and Client have executed this Agreement as of the date first above written. CENTER: Vantas @ Executive Tower By: ----------------------------------------- Wendy E. Craggs - Area General Manager CLIENT: Bolt Media, Inc. ----------------------------------------- (If a corporation) BY: /s/ Frank M. Harrison ----------------------------------------- Name: Frank M. Harrison ----------------------------------------- Title: CFO & Secretary ----------------------------------------- [Corporate Seal] CLIENT: (If an individual or partnership) By: ----------------------------------------- By: ----------------------------------------- 10 11 SCHEDULE A OPERATING STANDARDS 1. Client and their guests will conduct themselves in a businesslike manner; proper attire will be worn at all times; and the noise level will be kept to a level so as to not to interfere with or annoy other Clients. 2. Client will not provide or offer to provide any services to Center's customers if such services are available from Center. 3. Clients not prop open any corridor doors, exit doors connecting corridors during or after business hours. 4. Clients using public areas may only do so with the consent of the Center, and those areas must be kept neat and attractive at all times. 5. Client will not conduct any activity, within the Premises, Facility or Building, which in the sole judgment of the Center will create excessive traffic or is inappropriate to a shared office environment. 6. Client may not conduct business in the corridors or any other areas except in its designated offices or conference rooms without the written Consent of Center. 7. All corridors, halls, elevators and stairways will not be obstructed by Client or used for any purpose other than normal egress and ingress. 8. No advertisement, identifying signs or other notices will be inscribed, painted or affixed on any part of the corridors, doors, windows or public areas. 9. Without Center's prior written consent, Client is not permitted to place "mass market", direct mail or advertising (i.e. newspaper, classified advertisements, yellow pages, billboards) using Center's assigned telephone number or other any such action that would generate an excessive number of incoming calls. 10. Client will not solicit clients of Center or their employees in the Building without first obtaining Center's prior written consent 11. Immediately following Client's use of conference room space and/or audio/visual equipment, Client will clean up and return the space and equipment to the state and condition it was in prior to Client's use. If not, Center may charge Client for any other expenses required to restore the conference space and/or equipment to its original condition. 12 12. Center must be notified in writing if Client desires to utilize the conference room or other common areas of the Facility during evening or weekend hours. Center may deny the Client access if the desired usage is inappropriate and may disrupt normal operations. 13. Client will not, without Center's prior written consent, store or operate any computer (except a desktop/laptop computer or fax machine) or any other large business machines, copier and postage equipment, heating equipment, stove, speaker phones, radios, stereo equipment or other mechanical amplification equipment, refrigerator or coffee equipment, or conduct a mechanical business, do any cooking, or use or allow to be used on the Premises oil, burning fluids, gasoline, kerosene for heating, warming or lighting. No article deemed extra hazardous on account or fire or any explosives will be brought into said Premises or Facility. No offensive gases, odors or liquids will be permitted. 14 Client will bring no animals into the Premises or Facility except for those assisting disabled individuals. 15. Client will not remove furniture fixtures or decorative material from offices or common areas without the prior written consent of Center. 16. Client will not make any additional copies of any Center Issued keys. All keys and security cards are the property of Center and must be returned upon request or by the close of the business on the expiration or sooner termination of the Agreement term. Any lost or un-returned keys or cards will incur a Twenty Five Dollar ($25.00) per item charge and the cost to re-key the office. 17. Client will not smoke nor allow smoking in any area of the Facility, including the Premises, and will comply with all governmental regulations and ordinances concerning smoking. 18. Client will not allow more than three visitors in the reception lobby of the Premises at any one time. 19. Client's parking rights (if any) are defined by the Main Lease. Landlord reserves the right to modify parking arrangements if required to do so by Building management. 20. Any alterations to the Premises requested by Client, including affixing anything to the walls of the Premises, will be done only (1) with the written permission of Center, which permission may be withheld by the Center for any reason whatsoever, and (ii) by an agent of the Center's choosing at the Client's sole cost and expense. 21. Any equipment desired to be used and or installed by the Client, other than those machines ordinarily used for regular office purposes (i.e. personal computers. personal printers, calculators, adding machines, etc.) will be subject to the Centers prior written consent to any such use or installation. 2 13 22. Client will cooperate and be courteous with all other occupants of the Facility and Center's staff and personnel. 23. Upon request, Client will use a chair mat. 24. Center reserves the right, without prior notice, to modify any of the foregoing and to make such other reasonable rides and regulations as in its solo discretion may from time to time be needed for the safety, care, appropriate operation and cleanliness of the Facility. 3 14 OFFICE SERVICE AGREEMENT OFFICE CHANGE RIDER RE: Office Service Agreement (the "Agreement") between Bolt Media. Inc. ("Client") and Vantas Southern California. Inc. @ Executive Tower, West Las Angeles ("Center") DATE: September 24, 1999 Paragraph 1 of the Agreement is hereby modified as follows: In place and instead of facility office space number(s) #251, Client shall now, from the date of the execution of this Rider, occupy facility office space number(s) #204. Client hereby agrees and understands that it no longer has a right to use and occupy facility office space number(s) #251. Effective date is October 15, 1999. Paragraph 4 of the Agreement is hereby modified as follows: The Monthly Office Charge shall be the sum of $1,400.00 (the "Modified Monthly Office Charge") until the expiration of the Term currently in effect. Should the Agreement automatically renew pursuant to paragraph 3 of the Agreement the Monthly Office Charge upon which any such renewal shall be calculated based on the Modified Monthly Office Charge described herein. All other terms and conditions of the Agreement shall remain in full force and effect. ACCEPTED BY CENTER: ACCEPTED BY CLIENT: By: By: /s/ Frank M. Harrison ----------------------------------- --------------------------------- Date: Title: --------------------------------- ------------------------------ EX-10.12 10 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.12 ASSET PURCHASE AND ASSUMPTION OF LIABILITIES AGREEMENT BY AND BETWEEN CONCRETE MEDIA, INC. AND CONCRETE MEDIA CONSTRUCTION, LLC DECEMBER 30, 1998 2 This ASSET PURCHASE AND ASSUMPTION OF LIABILITIES AGREEMENT (this "Agreement") is entered into this 30th day of December, 1998, by and between CONCRETE MEDIA, INC., a Delaware corporation ("CMI"), and CONCRETE MEDIA CONSTRUCTION, LLC, a Delaware limited liability company ("Concrete Media Construction"). WHEREAS, CMI now desires to sell and transfer to Concrete Media Construction all of the assets as listed on the attached Exhibit 1.01 (the "Assets"); and WHEREAS, Concrete Media Construction desires to purchase and acquire the Assets and desires to become liable for paying, performing and discharging the liabilities and obligations arising out of or relating to the business of website development services as previously conducted by CMI or arising out of or relating to the Assets, of whatever kind or nature, whether contingent or absolute, whether known or unknown, whether arising prior to or on or after December 30, 1998, including without limitation, those listed on Exhibit 1.02 and all of the foregoing liabilities and obligations described in this Agreement (the "Liabilities"). NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: ARTICLE I TRANSFER AND SALE OF ASSETS SECTION 1.01 Transfer and Sale of the Assets. On the terms and subject to the conditions of this Agreement, CMI agrees to sell, convey, transfer, assign and deliver to Concrete Media Construction, and Concrete Media Construction agrees to receive from CMI on December 30, 1998, the Assets pursuant to a Bill of Sale in the form of Exhibit 1.03 attached hereto. SECTION 1.02 Consideration for the Assets. In consideration for the purchase and sale of the Assets, upon the terms and subject to the conditions set forth in this Agreement, on December 30, 1998, Concrete Media Construction shall execute a promissory note dated December 30, 1998, payable to CMI in the principal amount of $315,000 due December 30, 2001 and also shall execute a promissory note dated December 30, 1998, payable to CMI in the principal amount of $105,000 due January 15, 1999. The closing of the transactions contemplated hereby (the "Closing") shall take place at 10:00 a.m., eastern standard time, on December 30, 1998 (or if the conditions to the Closing shall not have been satisfied or waived by such date then as soon as practicable thereafter (the "Closing Date"). SECTION 1.03 Assumption of Liabilities and Covenant to Satisfy all Liabilities. As of the close of business on December 30, 1998, Concrete Media Construction shall assume and satisfy, discharge and be primarily liable for paying, performing and discharging the Liabilities. 3 Notwithstanding the provisions of this Agreement or any exhibit hereto, Concrete Media Construction shall assume any and all liabilities, obligations or commitments with respect to the Concrete Media Construction business (the "Website Business") or the Assets, of any nature whatsoever, whether known or unknown, contingent or otherwise, including, but not limited to, any such liabilities, obligations or commitments to any affiliate of CMI or any other third party from the beginning of time to the date hereof. SECTION 1.04 Concrete Media Construction Indemnification of CMI. Concrete Media Construction, by its officers and managers, covenants and agrees to defend, indemnify and hold harmless CMI (and its successors-in-interest), its stockholders, officers, directors, employees, agents, advisers, representatives and affiliates (collectively, the "CMI Indemnitees") from and against, and shall pay or reimburse CMI Indemnitees for, any and all actions, causes of actions, suits, debts, losses, charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, and expenses (including attorney fees and costs actually incurred), of any nature whatsoever, in law or equity (collectively "Claims"), which arise out of or are related to (i) the conduct of the Website Business or (ii) the Assets, regardless of whether known or unknown or incurred before or after the date of this Agreement. SECTION 1.05 Further Assurances. At any time and from time to time after December 30, 1998, at the request of any party hereto and without further consideration CMI and Concrete Media Construction shall execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation as may be reasonably requested in order more effectively to sell, transfer, convey and assign to Concrete Media Construction and to confirm Concrete Media Construction's title to the Assets and Concrete Media Construction's obligations with respect to the Liabilities. ARTICLE II REPRESENTATIONS AND WARRANTIES OF CMI CMI represents and warrants to Concrete Media Construction as follows: SECTION 2.01 Organization and Qualification. CMI is a corporation duly organized, validly existing and in good standing under the laws of State of Delaware and is duly licensed or qualified to transact business as a foreign corporation in the State of New York and is in good standing in the State of New York. SECTION 2.02 Corporate Power and Authority. CMI has the corporate power and authority to own and hold its properties and to carry on its business. CMI has the corporate power and authority to execute, deliver and perform this Agreement and the other documents and instruments contemplated hereby. The execution, delivery and performance of this Agreement and the documents contemplated hereby and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by CMI. This Agreement and each of the other agreements, documents and instruments to be executed and delivered by CMI have 2 4 been duly executed and delivered by, and constitute the legal, valid and binding obligation of, CMI enforceable against CMI in accordance with their terms. SECTION 2.03 Validity, Etc. Neither the execution and delivery of this Agreement and the other documents and instruments contemplated hereby, the consummation of the transactions contemplated hereby or thereby nor the performance of this Agreement and such other agreements in compliance with the terms and conditions hereof and thereof will (i) violate, conflict with or result in any breach of any trust agreement, certificate of incorporation, bylaw, judgment, decree, order, statute or regulation applicable to CMI, (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority or (iii) violate, conflict with or result in a breach, default or termination of, or give rise to any right of termination, cancellation or acceleration of the maturity of any payment date of, any of the obligations of CMI. ARTICLE III REPRESENTATIONS AND WARRANTIES OF CONCRETE MEDIA CONSTRUCTION Concrete Media Construction represents and warrants to CMI as follows: SECTION 3.01 Organization. Concrete Media Construction is duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation in each jurisdiction in which the failure to so qualify would have a material adverse impact on the Concrete Media Construction's ability to purchase the Assets and Concrete Media Construction's ability to assume the Liabilities herein. SECTION 3.02 Concrete Media Construction Power and Authority. Concrete Media Construction has the corporate power and authority to execute, deliver and perform this Agreement and the other documents and instruments contemplated hereby. The execution, delivery and performance of this Agreement and the documents contemplated hereby and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by Concrete Media Construction. This Agreement and each of the other agreements, documents and instruments to be executed and delivered by Concrete Media Construction have been duly executed and delivered by, and constitute the valid and binding obligation of Concrete Media Construction enforceable against Concrete Media Construction in accordance with their terms. SECTION 3.03 Validity, Etc. Neither the execution and delivery of this Agreement nor the other documents and instruments contemplated hereby, the consummation of the transactions contemplated hereby or thereby, nor the performance of this Agreement and such other agreements in compliance with the terms and conditions hereof and thereof will (i) conflict with or result in any breach of any trust agreement, certificate of organization, bylaw, judgment, decree, order, statute or regulation applicable to Concrete Media Construction (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, (iii) result in a breach of or default (or give rise to any right of termination, cancellation or acceleration) under any law, rule or regulation or any judgment, 3 5 decree, order, governmental permit, license or order or any of the terms, conditions or provisions of any mortgage, indenture, note, license, agreement or other instrument to which Concrete Media Construction is a party or (v) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Concrete Media Construction. SECTION 3.04 No Violation of Laws or Contracts. Neither the execution and performance of this Agreement, the Note or the other agreements executed by Concrete Media Construction in accordance with the terms hereof, nor the consummation of the transactions contemplated hereby and thereby, will violate any provisions of law, any order of any court or other agency or government, or any ordinance, indenture or agreement to which Concrete Media Construction is a party. ARTICLE IV FORWARD COMMUNICATIONS SECTION 4.01. Forward Communications. Any written communication received at any time by CMI with respect to any of the Assets or Liabilities shall be transmitted by CMI to Concrete Media Construction within two (2) business days of receipt. ARTICLE V COVENANT OF CMI SECTION 5.01. Use of Name. CMI hereby covenants and agrees that it shall use the name "Concrete Media" only for so long and up until such time as it merges with Bolt Media, Inc. Effective upon the merger, the name of the surviving corporation will be Bolt Media, Inc. ARTICLE VI COVENANT OF CONCRETE MEDIA CONSTRUCTION SECTION 6.01. Permission to Use Name. Concrete Media Construction hereby covenants and agrees that it shall allow CMI to continue to use the name "Concrete Media" only for so long and up until such time as CMI merges with Bolt Media, Inc. Upon the effective date of the merger, CMI shall cease using the name "Concrete Media." [Remainder of Page Intentionally Left Blank] 4 6 IN WITNESS WHEREOF, Concrete Media, Inc. and Concrete Media Construction LLC have each executed this Asset Purchase and Assumption of Liabilities Agreement as of the day and year first above written. CONCRETE MEDIA, INC. By: /s/ Daniel A. Pelson ----------------------------------- Name: Daniel A. Pelson Title: CEO CONCRETE MEDIA CONSTRUCTION, LLC By: /s/ Aaron Cohen ----------------------------------- Name: Aaron Cohen Title: President 5 7 EXHIBITS 1.01 List of Assets 1.02 List of Liabilities 1.03 Bill of Sale 6 8 EXHIBIT 1.01 LIST OF ASSETS Twelve (12) Work Stations (i.e. computer hard drive, monitor, modem). Two (2) Servers (i.e., two mainframe computers). The Name "Concrete Media". All agreements, contracts and understandings relating to the services provided to the following customers: ABC Bertelsmann Hachette Filipacchi New Media iBalls (Site design and maintenance only) Isiah International/Isiah Investment, LLC The Princeton Review (Site design and maintenance only) Time Warner Toymax Tripod (Site design and maintenance only) Village Voice (Site design and maintenance only) Employees to be Transferred Glaucia W. Cappelozza Christopher Cody Aaron Cohen Hanna K. Dunston Jennifer A. Fixman David S. Goodman William H. Hadley Douglas McLellan Phuong-Dao T. Nguyen Liza Pagano Jorge E. Pedroza Anh Tuan Pham Enja H. Schenck Alvin R. Townsend, Jr. Yuri Bogdanowsky Michael Human Diane J. Goodman Shannon McGarity 7 9 EXHIBIT 1.02 LIST OF LIABILITIES (1) Warranty Liability, in the amount of seventy-five thousands dollars ($75,000.00). (2) Vacation Accrual, in the amount of fifteen thousand dollars ($15,000). 8 10 EXHIBIT 1.03 BILL OF SALE This Bill of Sale dated December 30, 1998 is executed and delivered by Concrete Media, Inc., a Delaware corporation (the "Seller"), in connection with the Asset Purchase and Assumption of Liabilities Agreement (the "Asset Purchase Agreement") dated December 30, 1998, by and between the Seller and Concrete Media Construction, LLC (the "Buyer"). WHEREAS, pursuant to the Asset Purchase Agreement, the Seller has agreed to sell, transfer, convey, assign and deliver to the Buyer the assets listed on the attached Exhibit A. NOW, THEREFORE, in consideration of the execution and delivery of the Asset Purchase Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged subject to the terms of the Asset Purchase Agreement, the Seller hereby agrees as follows: 1. The Seller hereby sells, transfers, conveys, assigns and delivers to the Buyer and its successors and assigns, all right, title and interest in and to all of the assets, properties and rights of the Seller as listed on the attached Exhibit A. 2. The Seller hereby agrees to execute and deliver after December 30, 1998 such other instruments or documents and to take such additional actions as may be reasonably requested by the other in order to effect or complete the transfer contemplated hereby. 3. This Bill of Sale is intended to evidence the consummation of the sale and transfer by the Seller to the Buyer of the Assets as listed on the attached Exhibit A, all as contemplated by the Asset Purchase Agreement. The Seller, by its execution of this Bill of Sale, and the Buyer, by its acceptance of this Bill of Sale, each hereby acknowledge and agree that the remedies of any party under the Asset Purchase Agreement shall not be deemed to be enlarged, modified or altered in any way by this Bill of Sale. Any inconsistencies or ambiguities between this Bill of Sale and the Asset Purchase Agreement shall be resolved in favor of the Asset Purchase Agreement. 4. This Bill of Sale shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of law principles thereof. [Remainder of Page Intentionally Left Blank] 9 11 IN WITNESS WHEREOF, the Seller and the Buyer have caused this instrument to be duly executed under seal as of and on the date first above written. CONCRETE MEDIA, INC., as Seller By: _________________________________ Name: Title: AGREED AND ACCEPTED: CONCRETE MEDIA CONSTRUCTION, LLC, as Buyer By: _______________________________ Name: Title: 10 12 EXHIBIT A LIST OF ASSETS Twelve (12) Work Stations (i.e. computer hard drive, monitor, modem). Two (2) Servers (i.e., two mainframe computers) The Name "Concrete Media". All agreements, contracts and understandings relating to the services provided to the following customers: ABC Bertelsmann Hachette Filipacchi New Media iBalls (Site design and maintenance only) Isiah International/Isiah Investment, LLC The Princeton Review (Site design and maintenance only) Time Warner Toymax Tripod (Site design and maintenance only) Village Voice (Site design and maintenance only) Employees to be Transferred Glaucia W. Cappelozza Christopher Cody Aaron Cohen Hanna K. Dunston Jennifer A. Fixman David S. Goodman William H. Hadley Douglas McLellan Phuong-Dao T. Nguyen Liza Pagano Jorge E. Pedroza Anh Tuan Pham Enja H. Schenck Alvin R. Townsend, Jr. Yuri Bogdanowsky Michael Human Diane J. Goodman Shannon McGarity 11 EX-10.13 11 ASSET PURCHASE AGREEMENT 1 EXHIBIT 10.13 ASSET PURCHASE AND ASSUMPTION OF LIABILITIES AGREEMENT BY AND BETWEEN CONCRETE MEDIA, INC. AND GIRLS ON, INC. JANUARY 29, 1999 2 EXHIBIT 10.13 This ASSET PURCHASE AND ASSUMPTION OF LIABILITIES AGREEMENT (this "Agreement") is entered into this 29th day of January, 1999, by and between CONCRETE MEDIA, INC., a Delaware corporation ("CMI"), and GIRLS ON, INC., a Delaware corporation ("Girls On"). WHEREAS, CMI now desires to sell and transfer to Girls On all of the assets as listed on the attached Exhibit 1.01 (the "Assets"); and WHEREAS, Girls On desires to purchase and acquire the Assets and desires to become liable for paying, performing and discharging the liabilities and obligations arising out of or relating to the Girls On business services (the "Girls On Business") as previously conducted by CMI or arising out of or relating to the Assets, of whatever kind or nature, whether contingent or absolute, whether known or unknown, whether arising prior to or on or after January 29, 1999, including without limitation, those listed on Exhibit 1.02 and all of the foregoing liabilities and obligations described in this Agreement (the "Liabilities"). NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties, intending to be legally bound, agree as follows: ARTICLE I TRANSFER AND SALE OF ASSETS SECTION 1.01 Transfer and Sale of the Assets. On the terms and subject to the conditions of this Agreement, CMI agrees to sell, convey, transfer, assign and deliver to Girls On, and Girls On agrees to receive from CMI on January 29, 1999, the Assets pursuant to a Bill of Sale in the form of Exhibit 1.03 attached hereto. SECTION 1.02 Consideration for the Assets. The aggregate consideration to be paid by Girls On for the Assets shall be the Purchase Price plus the assumption of the Liabilities. In the event that the Girls On Business is sold to a third party during the 12-month period, commencing on the Closing Date (as defined below) (the "Earnout Period"), Girls On shall pay CMI a percentage of the net proceeds from such sale (the "Purchase Price") as set forth below. In the event: (i) a third party closes the purchase of Girls On on or before three months after the Closing Date, Girls On shall pay CMI thirty five (35) percent of the net proceeds that Girls On receives from such sale; (ii) a third party closes the purchase of Girls On between three months and six months after the Closing Date, Girls On shall pay CMI thirty (30) percent of the net proceeds that Girls On receives from such sale; (iii) a third party closes the purchase of Girls On between six months and nine months after the Closing Date, Girls On shall pay CMI twenty five (25) percent of the net proceeds that Girls On receives from such sale; or 3 (iv) a third party closes the purchase of Girls On between nine months and twelve months after the Closing Date, Girls On shall pay CMI twenty (20) percent of the net proceeds that Girls On receives from such sale; For any sale after the expiration of the Earnout Period, Girls On's obligation to pay CMI a percentage of the net proceeds from the sale of Girls On Business shall terminate and CMI hereby agrees that it shall not be entitled to a percentage of the net proceeds from the sale of Girls On Business after the Earnout Period. For purposes hereof, (i) a sale of an interest in Girls On shall not be considered a sale of Girls On Business; and (ii) in the event that the proceeds of the sale of Girls On is received in more than one kind of consideration (such as cash, notes, and/or equity interests in a third party) the proceeds payable to CMI shall be paid in the same kinds and proportions and at the same time(s) as are received by Girls On or its shareholders in the transaction. The closing of the transactions contemplated hereby (the "Closing") shall take place at 10:00 a.m., eastern standard time, on January 29, 1999 (or if the conditions to the Closing shall not have been satisfied or waived by such date then as soon as practicable thereafter (the "Closing Date"). SECTION 1.03 Assumption of Liabilities and Covenant to Satisfy all liabilities. As of the close of business on January 29, 1999, Girls On shall assume and satisfy, discharge and be liable for paying, performing and discharging the Liabilities. Notwithstanding the provisions of this Agreement or any exhibit hereto, Girls On shall assume any and all liabilities, obligations or commitments with respect to the Girls On Business or the Assets, of any nature whatsoever, whether known or unknown, contingent or otherwise, including, but not limited to, any such liabilities, obligations or commitments to any affiliate of CMI or any other third party from the beginning of time to the date hereof. SECTION 1.04 Girls On Indemnification of CMI. Girls On, by its officers and directors, covenants and agrees to defend, indemnify and hold harmless CMI, its stockholders, officers, directors, employees, agents, advisers, representatives and affiliates of CMI (collectively, the "CMI Indemnitees") from and against, and shall pay or reimburse CMI Indemnitees for, any and all actions, causes of actions, suits, debts, losses, charges, complaints, claims, liabilities, obligations, promises, agreements, controversies, damages, and expenses (including attorney fees and costs actually incurred), of any nature whatsoever, in law or equity (collectively "Claims"), which arise out of or are related to (i) the conduct of the Girls On Business or (ii) the Assets, regardless of whether known or unknown or incurred before or after the date of this Agreement. SECTION 1.05 Further Assurances. At any time and from time to time after January 29, 1999 at the request of any party hereto and without further consideration CMI and Girls On shall execute and deliver such other instruments of sale, transfer, conveyance, assignment and confirmation as may be reasonably requested in order more effectively to sell, transfer, convey and assign to Girls On and to confirm Girls On's title to the Assets and Girls On's obligations with respect to the Liabilities. 2 4 ARTICLE II REPRESENTATIONS AND WARRANTIES OF CMI CMI represents and warrants to Girls On as follows: SECTION 2.01 Organization and Qualification. CMI is a corporation duly organized, validly existing and in good standing under the laws of State of Delaware and is duly licensed or qualified to transact business as a foreign corporation in the State of New York and is in good standing in the State of New York. SECTION 2.02 Corporate Power and Authority. CMI has the corporate power and authority to own and hold its properties and to carry on its business. CMI has the corporate power and authority to execute, deliver and perform this Agreement and the other documents and instruments contemplated hereby. The execution, delivery and performance of this Agreement and the documents contemplated hereby and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by CMI. This Agreement and each of the other agreements, documents and instruments to be executed and delivered by CMI have been duly executed and delivered by, and constitute the legal, valid and binding obligation of, CMI enforceable against CMI in accordance with their terms. SECTION 2.03 Validity, Etc. Neither the execution and delivery of this Agreement and the other documents and instruments contemplated hereby, the consummation of the transactions contemplated hereby or thereby nor the performance of this Agreement and such other agreements in compliance with the terms and conditions hereof and thereof will (i) violate, conflict with or result in any breach of any trust agreement, certificate of incorporation, bylaw, judgment, decree, order, statute or regulation applicable to CMI, (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority or (iii) violate, conflict with or result in a breach, default or termination of, or give rise to any right of termination, cancellation or acceleration of the maturity of any payment date of, any of the obligations of CMI. ARTICLE III REPRESENTATIONS AND WARRANTIES OF GIRLS ON Girls On represents and warrants to CMI as follows: SECTION 3.01 Organization. Girls On is duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to transact business as a foreign corporation in each jurisdiction in which the failure to so qualify would have a material adverse impact on the Girls On's ability to purchase the Assets and Girls On's ability to assume the Liabilities herein. SECTION 3.02 Girls On Power and Authority. Girls On has the corporate power and authority to execute, deliver and perform this Agreement and the other documents and instruments contemplated hereby. The execution, delivery and performance of this Agreement and the documents contemplated hereby and the consummation of the transactions contemplated hereby and thereby have been duly authorized and approved by Girls On. This Agreement and 3 5 each of the other agreements, documents and instruments to be executed and delivered by Girls On have been duly executed and delivered by, and constitute the valid and binding obligation of Girls On enforceable against Girls On in accordance with their terms. SECTION 3.03 Validity, Etc. Neither the execution and delivery of this Agreement nor the other documents and instruments contemplated hereby, the consummation of the transactions contemplated hereby or thereby, nor the performance of this Agreement and such other agreements in compliance with the terms and conditions hereof and thereof will (i) conflict with or result in any breach of any trust agreement, certificate of organization, bylaw, judgment, decree, order, statute or regulation applicable to Girls On (ii) require any consent, approval, authorization or permit of, or filing with or notification to, any governmental or regulatory authority, (iii) result in a breach of or default (or give rise to any right of termination, cancellation or acceleration) under any law, rule or regulation or any judgment, decree, order, governmental permit, license or order or any of the terms, conditions or provisions of any mortgage, indenture, note, license, agreement or other instrument to which Girls On is a party or (v) violate any order, writ, injunction, decree, statute, rule or regulation applicable to Girls On. SECTION 3.04 No Violation of Laws or Contracts. Neither the execution and performance of this Agreement, the Note or the other agreements executed by Girls On in accordance with the terms hereof, nor the consummation of the transactions contemplated hereby and thereby, will violate any provisions of law, any order of any court or other agency or government, or any ordinance, indenture or agreement to which Girls On is a party. ARTICLE IV FORWARD COMMUNICATIONS SECTION 4.01. Forward Communications. Any written communication received at any time by CMI with respect to any of the Assets or Liabilities shall be transmitted by CMI to Girls On within two (2) business days of receipt. 4 6 IN WITNESS WHEREOF, Concrete Media, Inc. and Girls On, Inc. have each executed this Asset Purchase and Assumption of Liabilities Agreement as of the day and year first above written. CONCRETE MEDIA, INC. By: /s/ Daniel A. Pelson --------------------------------- Name: D. A. Pelson Title: CEO GIRLS ON, INC. By: /s/ Aaron Cohen ---------------------------------- Name: Aaron Cohen Title: President 5 7 EXHIBITS 1.01 List of Assets 1.02 List of Liabilities 1.03 Bill of Sale 6 8 EXHIBIT 1.01 LIST OF ASSETS
A. TANGIBLE ASSETS Lease/Owned ----------- i). 1 Web Server - Gateway * Leased ii) 1 Data base Server - Gateway * Leased iii) 1 Recommendation Server - Gateway * Leased iv) 6 Computer workstations (i.e. hard drive, monitor, modem) Various
* Located in rack at Exodus - $850.00 Monthly charge B. INTANGIBLE ASSETS i) "Girls on" Name ii) Unregistered Trademarks and Domain addresses: Girlson.com Girlsonfilm.com GirlsonTV.com GirlsonBooks.com C. TRANSFERRED CONTRACTS a. Content Agreement between One Zero Media, Inc. and Concrete Media, Inc. dated as of July 28, 1998. b. One half of the Concrete Media Hot Mail Web Courier contract by and between Hot Mail Corporation and Concrete Media, Inc. dated as of March 3, 1998. c. Software License Agreement by and between Firefly Network, Inc. and Concrete Media, Inc. dated December 18, 1997. d. Memorandum of Understanding between MovieLink, Inc. and Concrete Media, Inc. dated September 30, 1998. e. Matrix Movie data License and Service Agreement by and between Matrix Software, Inc. and Concrete Media, Inc. dated February 24, 1998. f. Agreement between HarperCollins Publishers Inc. and Concrete Media Inc. dated June 5, 1998. 7 9 D. OUTSTANDING ADVERTISING ORDERS TO PLACE ADS ON GIRLS ON SITE IN THE AMOUNT OF $6,000. E. EMPLOYEES TO BE TRANSFERRED Mary Ferguson Andrea Pyros 8 10 EXHIBIT 1.02 LIST OF LIABILITIES Hotmail - June 1998 to January 1999 $ 87,652.08 Alta Vista - through January, 1999 per contract 125,000.00 Firefly - Balance of contract 30,000.00 ------------ Total $242,652.08
9 11 EXHIBIT 1.03 BILL OF SALE This Bill of Sale dated January 29, 1999 is executed and delivered by Concrete Media, Inc., a Delaware corporation (the "Seller"), in connection with the Asset Purchase and Assumption of Liabilities Agreement (the "Asset Purchase Agreement") dated January 29, 1999, by and between the Seller and Girls On, Inc. (the "Buyer"). WHEREAS, pursuant to the Asset Purchase Agreement, the Seller has agreed to sell, transfer, convey, assign and deliver to the Buyer the assets listed on the attached Exhibit A. NOW, THEREFORE, in consideration of the execution and delivery of the Asset Purchase Agreement and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged subject to the terms of the Asset Purchase Agreement, the Seller hereby agrees as follows: 1. The Seller hereby sells, transfers, conveys, assigns and delivers to the Buyer and its successors and assigns, all right, title and interest in and to all of the assets, properties and rights of the Seller as listed on the attached Exhibit A. 2. The Seller hereby agrees to execute and deliver after January 29, 1999 such other instruments or documents and to take such additional actions as may be reasonably requested by the other in order to effect or complete the transfer contemplated hereby. 3. This Bill of Sale is intended to evidence the consummation of the sale and transfer by the Seller to the Buyer of the Assets as listed on the attached Exhibit A, all as contemplated by the Asset Purchase Agreement. The Seller, by its execution of this Bill of Sale, and the Buyer, by its acceptance of this Bill of Sale, each hereby acknowledge and agree that the remedies of any party under the Asset Purchase Agreement shall not be deemed to be enlarged, modified or altered in any way by this Bill of Sale. Any inconsistencies or ambiguities between this Bill of Sale and the Asset Purchase Agreement shall be resolved in favor of the Asset Purchase Agreement. 4. This Bill of Sale shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflict of law principles thereof. [Remainder of Page Intentionally Left Blank] 10 12 IN WITNESS WHEREOF, the Seller and the Buyer have caused this instrument to be duly executed under seal as of and on the date first above written. CONCRETE MEDIA, INC., as Seller By: ----------------------------- Name: Title: AGREED AND ACCEPTED: GIRLS ON, INC. as Buyer By: ------------------------------------ Name: Title: 11 13 EXHIBIT A LIST OF ASSETS
A. TANGIBLE ASSETS Lease/Owned ----------- i). 1 Web Server - Gateway * Leased ii) 1 Data base Server - Gateway * Leased iii) 1 Recommendation Server - Gateway * Leased iv) 6 Computer workstations (i.e. hard drive, monitor, modem) Various
* Located in rack at Exodus - $850.00 Monthly charge B. INTANGIBLE ASSETS i) "Girls on" Name ii) Unregistered Trademarks and Domain addresses: Girlson.com Girlsonfilm.com GirlsonTV.com GirlsonBooks.com C. TRANSFERRED CONTRACTS a. Content Agreement between One Zero Media, Inc. and Concrete Media, Inc. dated as of July 28, 1998. b. One half of the Concrete Media Hot Mail Web Courier contract by and between Hot Mail Corporation and Concrete Media, Inc. dated as of March 3, 1998. One half of the c. Software License Agreement by and between Firefly Network, Inc. and Concrete Media, Inc. dated December 18, 1997. d. Memorandum of Understanding between MovieLink, Inc. and Concrete Media, Inc. dated September 30, 1998. e. Matrix Movie data License and Service Agreement by and between Matrix Software, Inc. and Concrete Media, Inc. dated February 24, 1998. f. Agreement between HarperCollins Publishers Inc. and Concrete Media Inc. dated June 5, 1998 12 14 D. OUTSTANDING ADVERTISING ORDERS TO PLACE ADS ON GIRLS ON SITE IN THE AMOUNT OF $6,0000. E. EMPLOYEES TO BE TRANSFERRED Mary Ferguson Andrea Pyros 13 EX-23.1 12 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Bolt, Inc. on Form S-1 of our report dated December 6, 1999, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the headings "Selected Financial Data" and "Experts" in such Prospectus. Deloitte & Touche LLP New York, NY December 21, 1999 EX-27.1 13 FINANCIAL DATA SCHEDULE
5 1,000 US DOLLARS 4-MOS YEAR YEAR 9-MOS DEC-31-1996 DEC-31-1997 DEC-31-1998 DEC-31-1999 AUG-15-1996 JAN-01-1997 JAN-01-1998 JAN-01-1999 DEC-31-1996 DEC-31-1997 DEC-31-1998 SEP-30-1999 1 1 1 1 0 184 194 3,637 0 0 0 0 0 150 349 1,163 0 0 11 101 0 0 0 0 0 395 532 5,055 0 271 558 2,679 0 29 104 302 0 662 1,033 8,752 0 267 662 2,924 0 0 0 0 0 0 0 8,019 0 1 1 1 0 4 4 4 0 390 (635) (3,122) 0 662 1,033 6,752 0 0 0 20 19 478 2,685 1,923 0 0 0 16 0 0 0 16 71 1,671 3,170 7,856 0 0 27 89 0 0 61 59 (52) (1,151) (538) (4,398) 0 0 0 0 (52) (1,151) (538) (4,398) 0 0 0 0 0 0 0 0 0 0 0 0 (52) (1,151) (538) (4,398) (0.01) (0.26) (0.12) (1.46) (0.01) (0.26) (0.12) (1.46)
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