-----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, JZEWTns/Rhtd0sSGRHoUnEorTRhlQH9A3KXwH8VrvzwW6CYx9D2HI175k5jm/M24 MmpXQO+muFBdVQnAm/QYYQ== 0000950123-99-011219.txt : 19991231 0000950123-99-011219.hdr.sgml : 19991231 ACCESSION NUMBER: 0000950123-99-011219 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19991230 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BOLT INC CENTRAL INDEX KEY: 0001099589 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133905544 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: SEC FILE NUMBER: 333-93235 FILM NUMBER: 99783554 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/A 1 BOLT, INC. 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 30, 1999 REGISTRATION NO. 333-93235 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ AMENDMENT NO. 1 TO 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. [ ] 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 30, 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. +10.12 Asset Purchase and Assumption of Liabilities Agreement, dated December 30, 1998, by and between the Registrant and Concrete Media Construction, LLC.
II-3 90
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- +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. + Previously filed. ** Confidential treatment has been requested for a portion of this exhibit. (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 Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York, on December 30, 1999. BOLT, INC. By: /s/ DANIEL A. PELSON ------------------------------------ Daniel A. Pelson President & Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the 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 30, 1999 - --------------------------------------------------- Officer and Director Daniel A. Pelson (principal executive officer) /s/ ALBERT G. PASTINO Chief Financial Officer December 30, 1999 - --------------------------------------------------- (principal financial and Albert G. Pastino accounting officer) ROBERT DOVE* Director December 30, 1999 - --------------------------------------------------- Robert Dove WILLIAM PEABODY* Director December 30, 1999 - --------------------------------------------------- William Peabody SAMANTHA MCCUEN* Director December 30, 1999 - --------------------------------------------------- Samantha McCuen STEPHEN J. HARRICK* Director December 30, 1999 - --------------------------------------------------- Stephen J. Harrick ALAN COLNER* Director December 30, 1999 - --------------------------------------------------- Alan Colner
* By executing his name hereto, Daniel A. Pelson is signing this document on behalf of the persons indicated above pursuant to the powers of attorney duly executed by such persons and filed with the Securities and Exchange Commission. By: /s/ DANIEL A. PELSON ---------------------------------------------- Daniel A. Pelson Attorney-in-Fact
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. + Previously filed. ** Confidential treatment has been requested for a portion of this exhibit. EX-10.7 2 ANCHOR TENANT AGREEMENT 1 EXHIBIT 10.7 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS WITH ASTERISKS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. CONFIDENTIAL ANCHOR TENANT AGREEMENT This Anchor Tenant Agreement (this "AGREEMENT"), effective as of November 16, 1999 (the "EFFECTIVE DATE"), is made and entered into by and between America Online, Inc. ("AOL"), a Delaware corporation, with its principal offices at 22000 AOL Way, Dulles, Virginia 20166, and Bolt Media, Inc. ("INTERACTIVE CONTENT PROVIDER", "ICP" or "BOLT"), a Delaware corporation, with its principal offices at 304 Hudson Street, New York, New York 10013 (each a "Party" and collectively the "Parties"). INTRODUCTION AOL and ICP each desires that AOL provide access to the ICP Internet Site and ICP Programming through the AOL Network, subject to the terms and conditions set forth in this Agreement. Defined terms used but not otherwise defined in this Agreement shall be as defined on Exhibit B attached hereto. TERMS 1. DISTRIBUTION; PROGRAMMING 1.1 PROMOTION AND DISTRIBUTION. Beginning on a mutually agreed upon date(s) after the Effective Date, AOL shall provide ICP with the promotions set forth on Exhibit A-1 in accordance with the specifications set forth therein. The promotions described on Exhibit A-1 and any other promotions provided by AOL to ICP shall be referred to as the "PROMOTIONS." Except to the extent expressly described herein, the exact form, placement and nature of the Promotions shall be determined by AOL in its reasonable editorial discretion. 1.2 CONTENT. The ICP Internet Site and ICP Programming shall consist of the Content described on the programming plan attached as Exhibit A-2 (the "PROGRAMMING PLAN"). ICP shall inform AOL of relevant search terms and terminology associated with popular areas and functionality within the ICP Internet Site and ICP Programming for AOL's promotional and Content integration purposes. The inclusion of any additional Content within the ICP Internet Site and/or ICP Programming (including, without limitation, any features, functionality or technology) that is not in keeping with the Programming Plan and the relevant AOL policies set forth or otherwise referenced herein shall be subject to AOL's prior written approval. 1.3 LICENSE. ICP hereby grants to AOL for the Term a non-exclusive worldwide license to use, market, license, store, distribute, reproduce, display, adapt, communicate, perform, translate, transmit, and promote the ICP Internet Site, the ICP Programming and the Licensed Content (or any portion thereof) through the AOL Network as AOL may determine in its reasonable discretion in accordance with this Agreement, including without limitation the right to integrate Content from the ICP Internet Site and/or ICP Programming by linking to specific areas thereon, provided that the link to any such Content on the AOL Network shall conform to the specifications of an ICP Presence. 1.4 MANAGEMENT. ICP shall design, create, edit, manage, review, update (on a daily basis or as otherwise specified herein), and maintain the ICP Internet Site, ICP Programming and the Licensed Content in a timely and professional manner and in accordance with the terms of this Agreement and shall keep the Licensed Content current, accurate and well-organized at all times. ICP shall ensure that the Licensed Content within the ICP Internet Site and ICP Programming is equal to or better than the Content distributed by ICP through any other ICP Interactive Site in all material respects, including without limitation, quality, breadth, depth, timeliness, functionality, features, prices of products and services and terms and conditions, except to the extent inclusion of 2 such Content would otherwise violate this Agreement, provided that any changes to the ICP Internet Site, ICP Programming or the Licensed Content that are made to comply with this Section shall be subject to AOL's review and approval and the terms of this Agreement. Notwithstanding the foregoing or any term of this Agreement, such obligations to produce Content that is "equal to or better" than that of other ICP Interactive Sites [*] where such variations in the quality of ICP's Content are caused solely by the limitations of [*] AOL Member bandwidth, or any other feature of the applicable AOL Property; provided, however that upon the [*] set forth above, ICP will be obligated to include within the ICP Internet Site, ICP Programming and Licensed Content such previously excluded Content that is "equal to or better" than that of other ICP Interactive Sites. Except as specifically provided for herein, AOL shall have no obligations of any kind with respect to the ICP Internet Site or ICP Programming. ICP shall be responsible for any hosting or communication costs associated with the ICP Internet Site and ICP Programming, including, without limitation, the costs associated with (i) any agreed-upon direct connections between the AOL Network and the ICP Internet Site or ICP Programming or (ii) a mirrored version of the ICP Internet Site. AOL Members shall not be subject to a registration process (or any similar process) in order to access the ICP Internet Site, ICP Programming or the Licensed Content. [*]. In the event ICP fails to comply with any material term of this Agreement, including without limitation ICP's obligations under this Section 1.4 and Exhibit A-3, and ICP's promotional obligations under Section 2, AOL will have the right (in addition to any other remedies available to AOL hereunder), provided such failure to comply continues for more than [*] following notification by AOL, to decrease the promotion it provides to ICP hereunder and/or to decrease or cease any other contractual obligation of AOL hereunder until such time as ICP corrects its non-compliance, in which event AOL will be relieved of the proportionate amount of any promotional commitment made to ICP by AOL hereunder corresponding to such decrease in promotion. 1.5 CARRIAGE FEE. ICP shall pay AOL [*] as follows: 1.5.1 CASH PAYMENT. ICP shall pay AOL [*] as follows: ICP shall pay AOL [*] on the Effective Date and [*] on or before each of the dates that are three (3) months, six (6) months, nine (9) months, twelve (12) months, fifteen (15) months and eighteen (18) months respectively, after the Effective Date. 1.5.2 IN-KIND PROGRAMMING. ICP shall provide AOL with the equivalent of [*] made up of [*] (the "ICP In-Kind Commitments"). Without limiting any other rights or remedies available to AOL, AOL's distribution and Impressions commitments specified in Sections 1.1 and 1.6 herein are and will be contingent upon provision by ICP of the ICP In-Kind Commitments [*]. 1.6 IMPRESSIONS TARGET. AOL shall provide ICP with at least [*] Impressions during the Term from placement of ICP Presences on the AOL Network (the "IMPRESSIONS TARGET") substantially as follows: (a) at least [*] Impressions on the AOL Service, (b) at least [*] Impressions within Shop@AOL and (c) at least [*] Impressions elsewhere on the AOL Network as set forth in the carriage plan on Exhibit A. Any shortfall in Impressions from (a) above may be made up by over-delivery of Impressions in (c) above. AOL shall use commercially reasonable efforts to deliver the Impressions in equal amounts throughout the Term, subject to fluctuations in AOL Network usage. 2 3 In the event that the Impressions Target is not met (or will not, in AOL's reasonable judgment, be met) during the Term, then as ICP's sole remedy, upon mutual agreement of the Parties either (a) the Term shall be extended for up to six (6) months without additional carriage fees payable by ICP, (b) AOL shall provide ICP with the remaining Impressions in the form of advertising space within the AOL Network of comparable value to the undelivered Impressions (as reasonably determined by AOL) within contextually relevant areas of the AOL Network (e.g., the AOL Service music channel), or (c) some combination thereof. 1.7 MEMBER BENEFITS. ICP will generally promote through the ICP Internet Site any special or promotional offers made available by or on behalf of ICP through any ICP Interactive Site. In addition, ICP shall make reasonable efforts to promote through the ICP Internet Site special offers exclusively available to AOL Members ("AOL Exclusive Offers"). ICP shall feature at least one AOL Exclusive Offer for AOL Members (except as otherwise mutually agreed upon by the Parties) each month. ICP shall provide benefits to AOL Members, such as price discounts, product enhancement, unique service benefits, promotional offers, member of the day recognition and such other contests services and discounts as ICP may, in its sole discretion, decided to deliver from time to time. ICP will provide AOL with reasonable prior notice of AOL Exclusive Offers and other special offers and AOL shall make reasonable efforts to market the availability of such offers. 1.8 SITE AND CONTENT PREPARATION. ICP shall achieve Site and Content Preparation within [*] days after the Effective Date. "SITE AND CONTENT PREPARATION" shall mean that ICP shall have completed all necessary production work (including completion of all necessary training for AOL's proprietary "Rainman" publishing tool for the management of the message boards and chat rooms) for the ICP Internet Site, all ICP Programming and any other related areas or screens (including programming all Content thereon); customized and configured the ICP Internet Site, and all ICP Programming in accordance with this Agreement; and completed all other necessary work (including, without limitation, undergone all AOL site testing set forth on Exhibit F) to prepare the ICP Internet Site, all ICP Programming and any other related areas or screens to launch on the AOL Network as contemplated hereunder. In the event ICP has not achieved Site and Content Preparation for the (a) ICP Internet Site within [*] days after the Effective Date and (b) ICP Programming for message boards and chat within [*] days after the Effective Date (provided that ICP uses reasonable efforts to achieve Site and Content Preparation for this section (b) within [*] days after the Effective Date), then in addition to any other remedies available, the Impressions Target set forth in Section 1.6 shall be reduced on a pro rata basis based on the number of days after such [*] and [*] day periods that ICP achieves Site and Content Preparation divided by [*]. In the event ICP has not achieved Site and Content Preparation within [*] days after the Effective Date, then in addition to any other remedies available, AOL shall have the right to terminate this Agreement by giving ICP written notice thereof. If ICP is delayed in achieving Site and Content Preparation due to any delay by in performing its obligations or exercising its approval rights under this Agreement, then the [*] day and [*] day periods referenced in this Section shall each be extended by the amount of time of ICP's delay solely attributable to such delay by AOL. 1.9 EXCLUSIVITY. During the Term, ICP shall not enter into any arrangements (written or otherwise) substantially similar in nature to this Agreement with any third party Interactive Service. During the Term and for the twelve (12) month period after the expiration or other termination of the Term, ICP shall not become an Internet service provider. 1.10 TEEN POLICIES: The Parties agree that the entire ICP Internet Site and all ICP Programming is designated as Content targeted to Young Teens (children ages 13 - 15) and/or Mature Teens (16 - 17). ICP shall ensure that all Content distributed on or through the ICP Internet Site and all ICP Programming complies with any relevant AOL policy (e.g., Young Teens, Mature Teens) including any viewruling obligations. 3 4 2. CROSS-PROMOTION 2.1 COOPERATION. Each Party shall cooperate with and reasonably assist the other Party in supplying material for marketing and promotional activities. 2.2 PRIMARY SITE. ICP shall include a prominent, actionable promotional button (at least 90 x 30 pixels or 70 x 70 pixels in size) appearing on the first screen of the Primary Site (the "AOL PROMO"), to promote the following AOL products or services: [*] (to the extent the Parties agree to an arrangement therein) and [*], or other such products and services as may be mutually agreed upon by the Parties. AOL shall provide the creative content to be used in the AOL Promo subject to the approval of ICP, which approval shall not be unreasonably withheld or delayed. ICP shall post (or update, as the case may be) the creative content supplied by AOL within the spaces for the AOL Promo within five days of its receipt of such content from AOL. Without limiting any other reporting obligations of the Parties contained herein, ICP shall provide AOL with monthly written reports specifying the number of impressions to the pages containing the AOL Promo during the prior month. In the event that AOL elects to serve the AOL Promo to the Primary Site from an ad server controlled by AOL or its agent, ICP shall take all reasonable operational steps necessary to facilitate such ad serving arrangement, including, without limitation, inserting HTML code designated by AOL on the pages of the Primary Site on which the AOL Promo will appear. In addition, within each ICP Interactive Site, ICP shall provide prominent promotion for the keywords associated with the ICP Internet Site. 2.2.1 AOL COMPONENT PRODUCTS. To the extent ICP offers or promotes any products or services similar to AOL's component products and services (including the AOL Tools listed in Section 5.2(c)) ([*] (a) specific products and services which ICP has written agreements to promote on the Primary Site as of the Effective Date and (b) ICP-only branded products and services), ICP shall provide equal or greater promotions for such AOL-designated products. Notwithstanding the generality of the foregoing, ICP will promote a co-branded version of AOL Instant Messenger ("AIM") as ICP's exclusive instant messaging service on the Primary Site and, during registration and within member profiles on the Primary Site, ICP shall include a default option for users to provide their AOL screen names and/or AIM screen names. In the event that AOL develops or acquires any additional component products or services during the Term or any extension thereof, ICP shall [*] to provide the promotion set forth in this Section 2.2.1 for such newly developed or acquired AOL products or services. 2.3 OTHER MEDIA. [*] ICP's written contractual arrangements with third parties as of the Effective Date prohibiting ICP from fulfilling its obligations under this Section 2.3, in [*] of ICP's television, radio, print and "out of home" (e.g., buses and billboards, point of purchase and other "place-based" promotions) advertisements and in any publications, programs, features or other forms of media over which ICP exercises at least partial editorial control, ICP will include specific references or mentions (orally where possible) of the availability of the ICP Internet Site through the AOL Network. Such references or mentions shall be at least as prominent as any references that ICP makes to any ICP Interactive Site (by way of site name, related company name, URL or otherwise). Without limiting the generality of the foregoing, ICP's listing of the "URL" for any ICP Interactive Site will be accompanied by an equally prominent listing of the "keyword" term on AOL for the ICP Internet Site, which listing shall conform to the keyword guidelines attached hereto as Exhibit F. All such references or mentions of AOL, and the use of AOL's trademarks, trade names and service marks in connection therewith, shall be in accordance with Section II of Exhibit C. 2.4 PREFERRED ACCESS PROVIDER. When promoting AOL, ICP shall promote AOL as the preferred access provider through which a user can access the ICP Internet Site (and ICP shall not 4 5 implement or authorize any other promotions on behalf of any third parties which are inconsistent with the foregoing). 3. REPORTING; PAYMENT. 3.1 AOL USAGE REPORTING. AOL shall make available to ICP a monthly report specifying for the prior month (changing to weekly if such reports become generally available during the Term) aggregate usage and Impressions with respect to ICP's presence on the AOL Network, which are similar in substance and form to the reports provided by AOL to similarly situated AOL content partners. 3.2 ICP INTERNET SITE REPORTING. ICP will supply AOL with monthly reports that reflect total impressions by AOL Members to the ICP Internet Site during the prior month, the aggregate number of and aggregate dollar value associated with all transactions involving AOL Members and any registration information obtained from AOL Members at the ICP Internet Site during the period in question. ICP represents that all URLs related to the ICP Internet Site are listed on Exhibit A-2 and ICP shall provide AOL with an update of such list promptly upon any change thereto. 3.3 PROMOTIONAL COMMITMENTS. ICP shall provide to AOL a monthly report documenting its compliance with any promotional commitments it has undertaken pursuant to this Agreement substantially in the form attached as Exhibit D hereto, and ICP shall provide AOL with impressions data with respect to the promotions on the Primary Site specified in Section 2. 3.4 ADVERTISING. ICP shall provide monthly aggregate information to AOL regarding (i) AOL Advertisements (as defined below) sold by ICP or its agents and (ii) all advertising or promotional activity on the ICP Internet Site. ICP shall indicate the name and products of such advertisers. 3.5 WIRED PAYMENTS. All payments by ICP hereunder shall be paid in full in U.S. funds wired to the "America Online" account, [*] at the Chase Manhattan Bank, 1 Chase Manhattan Plaza, New York, New York 10081 [*], or such other account of which AOL shall give ICP written notice. 4. ADVERTISING AND MERCHANDISING 4.1 AOL NETWORK ADVERTISING INVENTORY. AOL owns all right, title and interest in and to the advertising and promotional spaces within the AOL Network including, without limitation, the AOL Frames and shall have the right to all revenues generated therefrom. The specific advertising inventory within any such AOL forms or pages shall be as reasonably determined by AOL. ICP owns all right, title and interest in and to the advertising and promotional spaces within the Primary Site, the ICP Internet Site and any other linked ICP Interactive Site and shall have the right to all revenues generated therefrom. 4.2 ICP SALE OF ADVERTISEMENTS. ICP shall have the [*] right [*] to license or sell Advertisements in or through the ICP Internet Site ("AOL ADVERTISEMENTS"), subject to such AOL-standard restrictions as AOL may disclose in writing to ICP and shall have the right to all revenues therefrom. 4.3 INTERACTIVE COMMERCE. Any merchandising permitted hereunder by ICP shall be subject to the terms and conditions of the Shopping Channel Promotional Agreement attached hereto as Exhibit G and shall only be conducted through the Merchant Site (as defined in Exhibit G). 5. CUSTOMIZED ICP PROGRAMMING AND ICP INTERNET SITE 5.1 PRODUCTION; PERFORMANCE. ICP shall optimize all ICP Programming and the ICP Internet Site for distribution hereunder according to AOL specifications and guidelines (including, without 5 6 limitation, any HTML publishing guidelines) and the Operating Standards set forth on Exhibit E attached hereto. 5.2 CUSTOMIZATION. ICP shall customize all ICP Programming and the ICP Internet Site for AOL Members as follows: (a) The ICP Internet Site shall be a [ * ] ICP shall customize and co-brand the ICP Internet Site and ICP Programming for distribution over the AOL Properties listed in Exhibit A-1 using AOL's design guideline templates and co-branding requirements, including by (x) [ * ] and (y) [ * ] In addition, ICP shall comply with any customization and co-branding requirements set forth on Exhibit A. ICP shall make reasonable changes to the customization and/or co-branding of the ICP Internet Site and ICP Programming to conform to the standard requirements of any AOL Property or otherwise reasonably requested by AOL during the Term. (b) ICP shall ensure that AOL Members accessing the ICP Programming or linking to the ICP Internet Site do not receive advertisements, promotions or links (i) for any entity reasonably construed to be in competition with AOL or the applicable AOL Property, (ii) in a category in which AOL or the applicable AOL Property has an exclusive or other preferential relationship, or (iii) otherwise in violation of the applicable AOL Property's then-standard advertising policies in each case solely to the extent that ICP has been [*] conflicts and policies in writing by AOL. ICP shall ensure that all Advertisements sold by ICP or its agents comply with all applicable federal, state and local laws and regulations. (c) Within the ICP Internet Site and ICP Programming, ICP shall use (and AOL shall provide and grant to ICP, free of charge, all rights necessary to use) AOL's tools and technology ("AOL TOOLS") for all community and communications utilities and functionality (including, without limitation, chat, message boards, web page community services such as AOL Hometown, IP telephony, email, address book, web-based greeting cards and instant messaging); any registration or similar processes permitted hereunder; navigation services (e.g., search and directory products, classified listings, white pages and yellow pages); personalization services (e.g., Suitcase, hosting, data exchange, personalized news service, personal finance services and calendaring); commerce/content aggregation services (e.g., Shop@AOL and local content); audio and video streaming technology and content; and such other tools as may be necessary to provide a level of service and functionality comparable to the Primary Site or as may be mutually agreed upon by the Parties. (d) ICP may host all pages of the ICP Internet Site under the following co-branded domain name: aol.bolt.com. 5.3 LINKS ON ICP INTERNET SITE. The Parties will work together on mutually acceptable links (including links back to AOL) within the ICP Internet Site and ICP Programming in order to create a robust and engaging AOL member experience and the ICP Internet Site and ICP Programming that are customized for the AOL Service shall not contain any pointers or links to any other area on or outside the AOL Network without AOL's prior written consent, other than standard advertising that otherwise complies with this Agreement. 6 7 5.4 REVIEW. ICP shall allow appropriate AOL personnel to have reasonable access to all ICP Programming and the ICP Internet Site from time to time for the purpose of reviewing such sites to determine compliance with the provisions of this Section 5. 6. TERM, TERMINATION, PRESS RELEASES. 6.1. TERM. Unless earlier terminated as set forth herein, the initial term of this Agreement shall commence on the Effective Date and expire twenty six (26) months from the Effective Date. AOL shall have the right to extend this Agreement for one additional six-month period (the "EXTENSION TERM") solely with respect to the ICP Programming set forth in Exhibit A-2(c) and A-2(d). During the Extension Term, AOL shall pay ICP [ * ]% of Advertising Revenues (as defined in Exhibit B) and AOL may terminate the Agreement at any time upon [*] days prior written notice to ICP. During the Extension Term, (i) all references in the Agreement to the ICP Internet Site shall be deleted, (ii) ICP shall continue to receive "Powered by Bolt" promotion on all Bolt-monitored message boards and chats and (iii) the following Sections of the Agreement shall survive: 1.2, 1.3, 1.10, 4.1, 5.2(b), 5.2(c), 6.1, 7, the third bullet under Exhibit A-1I, A-2 "Overview", A-2(c), A-2(d), A-3, Exhibit B and Exhibit C. AOL shall exercise its renewal option under this Section 6.1 by providing ICP with written notice of such election no later than thirty (30) days prior to the expiration of the initial term. Upon the expiration or earlier termination of this Agreement, AOL may, at its discretion, continue to promote one or more "pointers" or links from the AOL Network to an ICP Interactive Site and continue to use ICP's trade names, trade marks and service marks in connection therewith (collectively, a "Continued Link"). The provisions of this Section 6.1 related to a Continued Link shall survive the completion, expiration, termination or cancellation of this Agreement. 6.2 TERMINATION FOR BREACH. Either Party may terminate this Agreement at any time in the event of a material breach by the other Party which remains uncured after thirty (30) days written notice thereof; provided, however, that AOL will not be required to provide notice to ICP in connection with ICP's failure to make any payment required under Section 1.5, and the cure period with respect to any scheduled payment shall be fifteen (15) days from the date such payment is due. 6.3 TERMINATION FOR BANKRUPTCY/INSOLVENCY OR CHANGES IN BUSINESS. Either Party may terminate this Agreement immediately following written notice to the other Party if the other Party (i) ceases to do business in the normal course, (ii) becomes or is declared insolvent or bankrupt, (iii) is the subject of any proceeding related to its liquidation or insolvency (whether voluntary or involuntary) which is not dismissed within ninety (90) calendar days or (iv) makes an assignment for the benefit of creditors. 6.4 PRESS RELEASES. Each Party will submit to the other Party, for its prior written approval, which will not be unreasonably withheld or delayed, any press release or any other public statement ("PRESS RELEASE") regarding the transactions contemplated hereunder. Notwithstanding the foregoing, either Party may issue Press Releases and other disclosures as required by law or as reasonably advised by legal counsel without the consent of the other Party and in such event, the disclosing Party will provide at least five (5) business days prior written notice of such disclosure. The failure to obtain the prior written approval of the other Party shall be deemed a material breach of this Agreement. Because it would be difficult to precisely ascertain the extent of the injury caused to the non-breaching Party, in the event of such material breach, the non-breaching Party may elect either to (a) terminate this Agreement immediately upon notice to the other Party, or (b) elect, as liquidated damages, to modify the Impressions commitment hereunder by fifteen percent (15%) (i.e., either an increase in the Impressions commitment if AOL has violated this provision or a decrease in the Impressions commitment if ICP has violated this provision). The Parties agree that the liquidated damages set forth in the preceding sentence are a reasonable approximation of the injury that would be suffered by the non-breaching Party. 7 8 7. TERMS AND CONDITIONS. The terms and conditions set forth on the Exhibits attached hereto are hereby made a part of this Agreement. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the Effective Date. AMERICA ONLINE, INC. BOLT MEDIA, INC. By: /s/ Jonathan R. Edsor By: /s/ Daniel Pelson ---------------------------- ----------------------------- Print Name: Jonathan R. Edsor Print Name: Daniel Pelson Title: Executive Director, Business Affairs Title: CEO Date: 11/30/99 Date: 12/1/99 8 9 EXHIBIT A EXHIBIT A-1: CARRIAGE PLAN I. AOL SERVICE - Permanent branded placements on the AOL Teens channel and Teens Real Life department main screens. - "Powered by Bolt" artwork in the Teens "Chat & Boards" area - "Powered by Bolt" promotion on all Bolt-monitored message board and chat areas - Featured content placement throughout Teen channel and other mutually agreed channels / departments based on AOL editorial decision II. SHOP@AOL (AOL SERVICE, NETSCAPE, AOL.COM AND COMPUSERVE)
PLACEMENT WITHIN SHOPPING CHANNEL LEVEL OF PROMOTION --------------------------------- ------------------ Apparel / Boys - Teens Anchor Apparel / Girls - Teens Gold Sports & Outdoors / Shoes & Apparel Silver Audio Systems Silver
III. MEDIA PLAN Online media schedule targeted to 18-24 year old AOL members in entertainment, music and mail sections of ICQ, Netcenter and Spinner/Winamp. EXHIBIT A-2: PROGRAMMING PLAN OVERVIEW Bolt will manage and monitor AOL Teens Channel message board areas and provide content written exclusively by teens. Bolt will create a "clean" version of the Primary Site that adheres to AOL teen content policies, and incorporate AOL user submissions into content development process. Bolt will feature "best" content as determined by Bolt's editorial decisions. Bolt will enable AOL to provide a stronger sense of community programming "by teens for teens." Bolt will also provide the back-end monitoring for expanded Teens Channel chat areas. PROGRAMMING REQUIREMENTS (a) Bolt will create a customized version of the Primary Site (per the co-branding, teen policies, etc. referenced in the Agreement) in HTML located at aol.bolt.com. (b) Bolt will provide the following specific content (updated on a regular basis) - A minimum of [ * ] pieces of community-driven content per week such as teen reviews (CDs, concerts, movies, video games, etc.), and member-written articles on teen lifestyle (style trends, dating, sports, money, teen-interest news features, school life, etc.) - A minimum of [ * ] original feature per month (such as the Bolt Virtual Corsage). (c) Bolt will monitor approximately [ * ] AOL Teens Channel message boards, each for a minimum of twelve (12) hours per day - Bolt will remove posts that violate TOS, reveal personal information, or are generally off-topic within twenty four (24) hours (see Exhibit A-3) - AOL will provide Bolt with guidelines for use in determining (i) what content should be removed; and (ii) a monitor's options / processes / tools for removing content and/or silencing 9 10 members. (see Exhibit A-3) - Basic requirements of Bolt's staff are outlined in Exhibit A-3. (d) Bolt will monitor / host a minimum of [*] chat rooms for the AOL Teens Channel according to the following schedule: - On Saturdays and Sundays, chat rooms must be staffed from 9AM to 1AM EST - On Weekdays from September to May, chat rooms must be staffed from 3PM to 1AM EST. - On Weekdays from June to August, chat rooms must be staffed from 9AM to 1AM EST (e) In general, the ICP Internet Site will live as a separate community from that found on the Primary Site, but will feature the same content features that are produced for the Primary Site and, within ninety (90) days after the Effective Date, will feature a percentage of AOL Member-generated content based on the number of submissions by AOL Members as follows: - If AOL Members make [*] submissions per day, then [*]% of the content on the ICP Internet Site will be AOL Member-generated content. - If AOL Members make [*] submissions per day, then [*]% of the content on the ICP Internet Site will be AOL Member-generated content. - If AOL Members make [*] submissions per day, then [*]% of the content on the ICP Internet Site will be AOL Member-generated content. - If AOL Members make [*] submissions per day, then [*]% of the content on the ICP Internet Site will be AOL Member-generated content. (f) Registration - User registration is a required part of Bolt's content development process. AOL will permit Bolt to solicit content from AOL Members and will grant a license for Bolt to use and post that content on the Bolt.com and ICP Internet sites. - AOL members will be identified on the aol.bolt.com site solely by their: - AOL Screen name - Gender - Birthday - Zip Code - Email Address - IM Address - AOL will integrate user profiles with Bolt.com to ensure AOL Members do not have to re-register to participate in the content development process at the users discretion. EXHIBIT A-3: MESSAGE BOARD AND CHAT ROOM MANAGEMENT REQUIREMENTS: MANAGEMENT TERMS AND REQUIREMENTS: Any Content submitted by ICP or its agents within message boards or any comparable vehicles will be subject to the license grant relating to submissions to "public areas" set forth in the AOL Terms of Service. ICP acknowledges that it has no rights or interest in AOL Member submissions to message boards within the AOL Network and that AOL owns all right, title and interest in and to the message boards and Content therein during and after the Term. AOL will grant Bolt the license to solicit content from AOL members which will be posted on the ICP Internet Site and the Primary Site. All content posted on pages within the ICP Internet sites will be the property of Bolt.com, and Bolt will give AOL a perpetual license to this content. ICP shall manage the message boards in accordance with a mutually agreed upon programming plan, AOL's Terms of Service and AOL's then current policies relating to message boards and member communications. In managing the message boards, ICP agrees to refrain from editing or altering any opinion expressed by an AOL Member, except in cases when ICP (i) has a good faith belief that the Content in question violates an applicable law, regulation, third party right or portion of AOL's Terms of Service or (ii) obtains AOL's prior approval. ICP shall retain adequate personnel to manage the message boards for at least twelve (12) hours per day (preferably afternoons and evenings) who (A) are at least 18 years of age, (B) are paid employees of ICP, (C) have passed a background check through an authorized organization (AOL may provided a recommendation if necessary) and (D) 10 11 have been adequately trained in, among other things, how to comply with AOL's monitoring and hosting standards for areas targeted toward young teens at no cost to ICP, and, at AOL's option, shall have undergone training acceptable to AOL at no cost to ICP (except for ICP's travel and lodging costs associated with such training). If at any time AOL notifies ICP that AOL is not satisfied that ICP is upholding AOL's standards or commercially reasonable policies and standards as determined by AOL in managing the message boards or managing the message boards and chat rooms in accordance with the Programming Plan, and ICP does not rectify the problems within thirty (30) days after receiving such notice, AOL may terminate ICP's management of the message boards and chat rooms and any Promotions associated therewith. CHAT ROOMS: On average, Bolt will provide one host per two (2) chat rooms. 11 12 EXHIBIT B -- DEFINITIONS DEFINITIONS. The following definitions shall apply to this Agreement: ADVERTISEMENTS. Promotions, advertisements, links, pointers and similar services or rights. ADVERTISING REVENUES. Aggregate amounts collected by AOL or AOL's agents, as the case may be, arising from the license or sale of Advertisements during the Alternative Extension Term through the message boards and chat areas set forth on the "carriage plan" in Exhibit A, less applicable Advertising Sales Commissions. ADVERTISING SALES COMMISSION. Actual amounts paid as commission to third party agencies in connection with sale of an Advertisement during the Alternative Extension Term through the message boards and chat areas set forth on the "carriage plan" in Exhibit A, or [ * ]% in the event that AOL sells the Advertisement directly and will not be deducting third party agency fees. AFFILIATE. Any agent, distributor or franchisee of AOL, or an entity that, directly or indirectly, controls, is controlled by, or is under common control with AOL, including any entity in which AOL holds, directly or indirectly, at least a nineteen percent (19%) equity interest. AOL INSTANT MESSENGER. The AOL-branded service, currently available through the Internet, that enables end-users of such service to exchange, in real-time, private, personalized messages with, and to monitor the online status of, other end-users of such service and AOL Members. AOL SERVICE. The standard narrow-band U.S. version of the America Online(R) brand service, specifically excluding (a) AOL.com(SM) and any other AOL Interactive Site, (b) the international versions of an America Online service (e.g., AOL Japan), (c) the CompuServe(R) brand service and any other CompuServe products or services, (d) Netscape Netcenter(TM) and any other Netscape(R) products or services, (e) "ICQ(SM)," "AOL NetFiND(SM)," "AOL Instant Messenger(SM)," "Digital City(SM)," "AOL NetMail(SM)," "Real Fans(SM)", "Love@AOL(SM)", "Entertainment Asylum(SM)," "AOL Hometown(SM)" or any similar independent product, service or property which may be offered by, through or with the U.S. version of the America Online(R) brand service, (f) any programming or content area offered by or through the U.S. version of the America Online(R) brand service over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas), (g) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through the U.S. version of the America Online(R) brand service, (h) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date and (i) any other version of an America Online service which is materially different from the standard narrow-band U.S. version of the America Online brand service, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded version of the service and any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer. AOL PROPERTY. Any product, service or property owned, operated, marketed, distributed, or authorized to be distributed by or through AOL or its Affiliates, including, without limitation, the AOL Service, Netscape and AOL.com. AOL LOOK AND FEEL. The elements of graphics, design, organization, presentation, layout, user interface, navigation, trade dress and stylistic convention (including the digital implementations thereof) within the AOL Network and the total appearance and impression substantially formed by the combination, coordination and interaction of these elements. AOL MEMBER(S). Any user of the AOL Network, including authorized users (including any sub-accounts under an authorized master account) of the AOL Service and/or the CompuServe Service. AOL NETWORK. (i) The AOL Service, Netscape, AOL.com, the CompuServe Service and (ii) any other product, service or property owned, operated, distributed or authorized to be distributed by or through AOL or its Affiliates worldwide (and including those products, services and properties that are excluded from the definitions of the AOL Service, AOL.com or any other AOL Property). It is understood and agreed that the rights of ICP relate solely to particular AOL Properties as expressly set forth in this Agreement and not generally to the AOL Network. BOLT LOOK AND FEEL. The elements of graphics, design, organization, presentation, layout, user interface, navigation, trade dress and stylistic convention (including the digital implementations thereof) within the ICP Interactive Site and the Primary Site. CHANGE OF CONTROL. (a) The consummation of a reorganization, merger or consolidation or sale or other disposition of substantially all of the assets of a party or (b) the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under such Act) of more than 50% of either (i) the then outstanding shares of common stock of such party; or (ii) the combined voting power of the then outstanding voting securities of such party entitled to vote generally in the election of directors. COMPUSERVE SERVICE. The standard HTML version of the narrow-band U.S. version of the CompuServe brand service, specifically excluding (a) any international versions of such service (e.g., NiftyServe), (b) any web-based service including "compuserve.com", "cserve.com" and "cs.com", or any similar product or service offered by or through the U.S. version of the CompuServe brand service, (c) Content areas owned, maintained or controlled by CompuServe affiliates or any similar "sub-service," (d) any programming or Content area offered by or through the U.S. version of the CompuServe brand service over which CompuServe does not exercise complete or substantially complete operational control (e.g., third-party Content areas), (e) any yellow pages, white pages, classifieds or other search, directory or review services or Content (f) any co-branded or private label branded version of the U.S. version of the CompuServe brand service, (g) any version of the U.S. version of the CompuServe brand service which offers Content, distribution, services or functionality materially different from the Content, distribution, services or functionality associated with the standard, narrow-band U.S. version of the CompuServe brand service, including, without limitation, any version of such service distributed through any platform or device other than a desktop personal computer, (h) any property, feature, product or service which CompuServe or its affiliates may acquire subsequent to the Effective Date, (i) the America Online brand service and any independent product or service which may be offered by, through or with the U.S. version of the America Online brand service and (j) the HMI versions of the CompuServe brand service. CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the course of this Agreement, which is, or should be reasonably understood to be, confidential or proprietary to the disclosing Party, including, but not limited to, the material terms of this Agreement, information about AOL Members, technical processes and formulas, source codes, product designs, sales, cost and other unpublished financial information, product and business plans, projections and marketing data. "Confidential Information" shall not include information (a) already lawfully known to or independently developed by the receiving Party, (b) disclosed in published materials, (c) generally known to the public, or (d) lawfully obtained from any third party. CONTENT. Text, images, video, audio (including, without limitation, music used in time relation with text, images, or video), and other data, products, services, advertisements, promotions, URLs, keywords and other navigational elements, links, pointers, technology and software. For the avoidance of doubt this definition shall not apply with respect to any Content of the ICP Internet Site that is not Licensed Content and is distributed in the same form or a substantially similar form on the Primary Site or any other ICP Interactive Site and the limitations and policies applicable to Content hereunder shall not govern use or exploitation thereof other than in connection with the ICP Internet Site. KEYWORD(TM) SEARCH TERMS. (a) The Keyword online search terms made available on the AOL Service, combining AOL's Keyword online search modifier with a term or phrase specifically related to ICP (and determined in accordance with the terms of this Agreement) and (b) the Go Word online search terms made available on the CompuServe Service, combining CompuServe's Go Word online search modifier with a term or phrase specifically related to ICP (and determined in accordance with the terms of this Agreement). ICP COMPETITORS. [ * ] 12 13 [ * ] ICP INTERACTIVE SITE. Any interactive site or area (other than ICP Programming), including any mirrored site or area, which is managed, maintained or owned by ICP or its agents or to which ICP provides and/or licenses information, content or other materials, including, by way of example and without limitation, (i) an ICP site on the World Wide Web portion of the Internet or (ii) a channel or area delivered through a "push" product such as the Pointcast Network or interactive environment such as Microsoft's proposed Active Desktop or interactive television service such as WebTV. ICP INTERNET SITE. The version(s) of the Primary Site that is customized for distribution through the AOL Network in accordance with this Agreement. ICP PRESENCE. Any (a) ICP trademark or logo, (b) headline or picture from ICP Content, (c) teaser, icon, or link to the ICP Internet Site or ICP Programming and/or (d) other Content which originates from, describes or promotes ICP or ICP's Content. ICP PROGRAMMING. Any (a) area within the AOL Network or outside the AOL Network but exclusively available to AOL Members, which area is developed, programmed, and/or managed by ICP, in whole or in part, pursuant to this Agreement and all Content thereon (including, without limitation, message boards, chat and other AOL Member-supplied content areas contained therein) including, without limitation, any co-branded site or page, but excluding the ICP Internet Site and (b) Content provided to AOL by ICP pursuant to this Agreement for distribution on or through the AOL Network other than on the ICP Internet Site. IMPRESSION. User exposure to an ICP Presence, as such exposure may be reasonably determined and measured by AOL in accordance with its standard methodologies and protocols. INTERACTIVE SERVICE. An entity offering one or more of the following: (i) online or Internet connectivity services (e.g., an Internet service provider); (ii) an interactive site or service featuring a broad selection of aggregated third party interactive content (or navigation thereto) (e.g., an online service or search and directory service) and/or marketing a broad selection of products and/or services across multiple interactive commerce categories; (iii) a persistent desktop client; or (iv) communications software capable of serving as the principal means through which a user creates, sends or receives electronic mail or real time or "instant" online messages (whether by telephone, computer or other means). LICENSED CONTENT. All Content offered through the ICP Internet Site pursuant to this Agreement or otherwise provided by or on behalf of ICP or its agents in connection herewith (e.g., offline promotional content or online Content for distribution through the AOL Network), including without limitation all ICP Programming. NETSCAPE NETCENTER. Netscape Communications Corporation's primary Internet-based Interactive Site marketed under the "Netscape Netcenter(SM)" brand, specifically excluding (a) the AOL Service and the CompuServe Service, (b) AOL.com and CompuServe.com, (c) any international versions of such site, (d) "ICQ," "AOL Netfind," "AOL Instant Messenger," "AOL NetMail," "AOL Hometown," "My News," "Digital City," or any similar independent product or service offered by or through such site or any other AOL Interactive Site, (e) any programming or Content area offered by or through such site over which AOL does not exercise complete operational control (including, without limitation, Content areas controlled by other parties and member-created Content areas), (f) any programming or Content area offered by or through the U.S. version of the America Online brand service which was operated, maintained or controlled by the former AOL Studios division (e.g., Electra), (g) any yellow pages, white pages, classifieds or other search, directory or review services or Content offered by or through such site or any other AOL Interactive Site, (h) any property, feature, product or service which AOL or its affiliates may acquire subsequent to the Effective Date and (i) any other version of an AOL or Netscape Communications Corporation Interactive Site which is materially different from Netscape Communications Corporation's primary Internet-based Interactive Site marketed under the "Netscape Netcenter(TM)" brand, by virtue of its branding, distribution, functionality, Content or services, including, without limitation, any co-branded versions and any version distributed through any broadband distribution platform or through any platform or device other than a desktop personal computer (e.g. Custom NetCenters built specifically for third parties). PAGE VIEW. The unit of measurement that represent the number of requests for a page of content. A page of content is, but is not limited to, a static page such as an HTML document or a dynamically generated page such as from a CGI script. Pages containing framesets shall not be counted as Page Views and only the pages within the frameset containing principle content shall be counted as Page Views. PRIMARY SITE. The Internet site and Content, currently located at URL:http:// www.bolt.com and all related URLs, which are managed, maintained or owned by ICP or its agents or to which ICP licenses information, content or other materials. PRODUCT. Any product, good or service which ICP (or others acting on its behalf or as distributors) offers, sells, provides, distributes or licenses to AOL Members directly or indirectly through (i) the ICP Internet Site (including through any Interactive Site linked thereto) or ICP Programming, (ii) any other electronic means directed at AOL Members (e.g., e-mail offers), or (iii) an "offline" means (e.g., toll-free number) for receiving orders related to specific offers within the ICP Internet Site or ICP Programming requiring purchasers to reference a specific promotional identifier or tracking code, including, without limitation, products sold through surcharged downloads (to the extent expressly permitted hereunder). TERM. The period beginning on the Effective Date and ending upon the expiration or earlier termination of this Agreement. 13 14 EXHIBIT C -- STANDARD LEGAL TERMS AND CONDITIONS I. AOL NETWORK CONTENT. ICP represents and warrants that all Content contained within the ICP Internet Site and ICP Programming and all Licensed Content (i) does and will conform to AOL's applicable Terms of Service, the terms of this Agreement and any other standard, written policy of AOL and any applicable AOL Property (including without limitation AOL's kids policies to the extent applicable), provided that ICP has been provided with written notice of all such standards and policies, (ii) does not and will not infringe on or violate any copyright, trademark, U.S. patent, rights of publicity, moral rights or any other third party right, including without limitation, any music performance or other music related rights, and (iii) does not and will not contain any Content which violates any applicable law or regulation ((i), (ii) and (iii) collectively, the "Rules"). Notwithstanding the foregoing or any other term hereof, ICP makes no representation or warranty with respect to Content that has been provided by AOL, an AOL affiliate, an AOL member or any other end-user of ICP's Interactive Services. In the event that AOL notifies ICP in writing that any such Content, as reasonably determined by AOL, does not comply or adhere to the Rules, then ICP shall use its best efforts to block access by AOL Members to such Content. In the event that ICP cannot, through its best efforts, block access by AOL Members to such Content in question, then ICP shall provide AOL prompt written notice of such fact. AOL may then, at its option, either (i) restrict access from the AOL Network to the Content in question using technology available to AOL or (ii) in the event access cannot be restricted, direct ICP to remove any such Content. ICP will cooperate with AOL's reasonable requests to the extent AOL elects to implement any such access restrictions. AOL NETWORK DISTRIBUTION. ICP shall not authorize or permit any third party to distribute any Content of ICP through the AOL Network absent AOL's prior written approval. The distribution, placements and/or promotions described in this Agreement or otherwise provided to ICP by AOL shall be used by ICP solely for its own benefit, will link to and promote solely the Licensed Content within the ICP Internet Site or ICP Programming expressly described on Exhibit A and will not be resold, traded, exchanged, bartered, brokered or otherwise offered or transferred to any third party or contain any branding other than ICP's branding. Further, the Content of all such distribution, placements and promotions shall be subject to AOL's policies relating to advertising and promotion, including those relating to AOL's exclusivity commitments and other contractual preferences to third parties. CHANGES TO AOL PROPERTIES. AOL reserves the right to redesign or modify the organization, structure, "look and feel," navigation and other elements of the AOL Network at any time, including without limitation, by adding or deleting channels, subchannels and/or screens and/or by outsourcing to a third party the programming responsibility for any channel, subchannel, screen or portion thereof. If such redesign or modification substantially modifies the nature of the distribution provided under this Agreement in a material adverse fashion, or if AOL is otherwise unable to deliver any particular Promotion, AOL will work with ICP in good faith to provide ICP, as its sole remedy, with comparable distribution. CONTESTS. ICP shall ensure that any contest, sweepstakes or similar promotion conducted or promoted through the ICP Internet Site and/or ICP Programming (a "Contest") complies with all applicable laws and regulations. ICP shall provide AOL with (i) at least thirty (30) days prior written notice of any Contest and (ii) upon AOL's request, an opinion from ICP's counsel confirming that the Contest complies with all applicable federal, state and local laws and regulations. DISCLAIMERS. ICP agrees to include within the ICP Internet and ICP Programming a disclaimer (the specific form and substance to be mutually agreed upon by the Parties) indicating that all Content (including any products and services) is provided solely by ICP and not AOL, and any transactions are solely between ICP and AOL Members using or purchasing such Content and that neither ICP nor AOL is not responsible for any loss, expense or damage arising out of the Licensed Content or services provided through the ICP Internet Site or ICP Programming (e.g., "In no event shall AOL nor, ICP or any of its their agents, employees, representatives or affiliates be in any respect legally liable to you or any third party in connection with any information or services contained herein and neither AOL nor ICP make any warranty or guaranty as to the accuracy, completeness, correctness, timeliness, or usefulness of any of the information contained herein"). ICP shall not in any manner state or imply that AOL recommends or endorses ICP or its Content. In addition, the parties will agree on an acceptable user policy that will extend the full benefit of the safe harbor provisions of the Communications Decency Act and the Digital Millennium Copyright Act to both Parties. INSURANCE. At all times during the Term, ICP shall maintain an insurance policy or policies reasonably satisfactory to AOL and adequate in amount to insure ICP against all liability associated with the Licensed Content. ICP shall include AOL as a named insured party on such policy or policies. ICP shall provide AOL with a copy of such policy or policies within thirty (30) days after the Effective Date, failing which, in addition to all other available remedies, AOL shall be entitled to delay the launch of the Licensed Content on the AOL Network (and reduce AOL's promotional and Impressions obligations proportionately). ICP shall promptly notify AOL of any material change in such policy or policies. REWARDS PROGRAMS. ICP shall not offer, provide, implement or otherwise make available on the ICP Internet Site or ICP Programming any promotional programs or plans that are intended to provide customers with rewards or benefits in exchange for, or on account of, their past or continued loyalty to, or patronage or purchase of, the products or services of ICP or any third party (e.g., a promotional program similar to a "frequent flier" program), unless such promotional program or plan is provided exclusively through AOL's "AOL Rewards" program, accessible on the AOL Service at Keyword: "AOL Rewards." NAVIGATION. In cases where an AOL Member performs a search for ICP through any search or navigational tool or mechanism that is accessible or available through the AOL Network (e.g., promotions, Keyword Search Terms, navigation bars or any other promotions or navigational tools), AOL shall have the right to direct such AOL Member to the ICP Internet Site, or any other ICP Interactive Site determined by AOL in its reasonable discretion. ICP shall ensure that navigation back to the AOL Network from the ICP Internet Site (and from any other ICP Interactive Site linked to from the AOL Network), whether through a particular pointer or link, the "back" button on an Internet browser, the closing of an active window, or any other return mechanism, shall not be interrupted by ICP through the use of any intermediate screen or other device not specifically requested by the user, including without limitation through the use of any html pop-up window or any other similar device. AOL LOOK AND FEEL. ICP acknowledges and agrees that AOL shall own all right, title and interest in and to the AOL Look and Feel. In addition, AOL shall retain editorial control over the portions of the AOL pages and forms which frame the ICP Internet Site or ICP Programming (the "AOL FRAMES"). AOL may, at its discretion, incorporate navigational icons, links and pointers or other Content into such AOL Frames. BOLT LOOK AND FEEL. AOL acknowledges and agrees that ICP shall own all right, title and interest in and to the Bolt Look and Feel. AOL hereby acknowledges that Bolt is the owner of the right to use the trademark BOLT and such other marks, names and logos as relate to the products and services offered by Bolt in connection with the Primary Site. AOL agrees that all goodwill accruing to the use of such marks and Bolt Look and Feel in connection with the ICP Internet Site will accrue to Bolt. AOL agrees that nothing contained herein shall constitute an assignment of the right to use such marks or the Bolt Look and Feel other than in accordance with this Agreement. AOL agrees that it will not contest Bolt's ownership in such marks or in the Bolt Look and Feel, or otherwise challenge the validity of such rights. AOL acknowledges that, in order to protect Bolt's valuable property rights in such marks and the Bolt Look and Feel, Bolt must control the quality and nature of the use thereof by AOL. AOL agrees to use such marks and Bolt Look and Feel in accordance with such standards and subject to such notice provisions as Bolt may provide to AOL from time to time. OPERATIONS. AOL shall be entitled to require reasonable changes to the ICP Internet Site and ICP Programming to the extent such site will, in AOL's good faith judgment, adversely affect operations of the AOL Network. CLASSIFIEDS, AUCTIONS AND CLUBS. ICP shall not implement or promote any classifieds listing features through ICP Programming or ICP Internet Site without AOL's prior written approval. Such approval may be conditioned upon, among other things, ICP's conformance with any then-applicable service-wide technical or other standards related to online classifieds. ICP shall not conduct any merchandising through the ICP Internet Site or ICP Programming through auctions, clubs or any method other than a direct sales format without AOL's prior written consent. MESSAGE BOARDS; CHAT ROOMS AND COMPARABLE VEHICLES. Any Content submitted by ICP or its agents within message boards, chat rooms or any comparable vehicles will be subject to the license grant relating to submissions to "public areas" set forth in the AOL Terms of Service. ICP acknowledges that it has no rights or interest in AOL Member submissions to message boards, chat rooms or any other vehicles through which AOL Members may make submissions within the AOL Network. ICP will refrain from editing, deleting or altering, without AOL's prior approval, any opinion expressed or submission made by an AOL Member within ICP Programming except in cases where ICP has a good faith belief that the Content in question violates an applicable law, regulation, third party right or the applicable AOL Property's Terms of Service. AOL grants ICP a worldwide license to use, copy, edit, display, transmit, create derivative works 14 15 from and distribute Content submitted by AOL Members or other users of the ICP Internet Site solely in connection with the production and distribution of ICP Programming. DUTY TO INFORM. ICP shall promptly inform AOL of any information related to the ICP Internet Site, ICP Programming or the Licensed Content which could reasonably lead to a claim, demand or liability of or against AOL and/or its Affiliates by any third party. RESPONSE TO QUESTIONS/COMMENTS; CUSTOMER SERVICE. ICP shall respond promptly and professionally in a commercially reasonable manner to questions, comments, complaints and other reasonable requests regarding the ICP Internet Site, ICP Programming or the Licensed Content by AOL Members or on request by AOL, and shall cooperate and assist AOL in promptly answering the same. ICP shall have sole responsibility for customer service (including, without limitation, order processing, billing, shipping, etc.) and AOL shall have no responsibility with respect thereto. ICP shall comply with all applicable requirements of any federal, state or local consumer protection or disclosure law. STATEMENTS THROUGH AOL NETWORK. ICP shall not make, publish, or otherwise communicate through the AOL Network any deleterious remarks concerning AOL or its Affiliates, directors, officers, employees, or agents (including, without limitation, AOL's business projects, business capabilities, performance of duties and services, or financial position) which remarks are based on the relationship established by this Agreement or information exchanged hereunder. This section is not intended to limit good faith editorial statements made by ICP based upon publicly available information, or information developed by ICP independent of its relationship with AOL and its employees and agents. PRODUCTION WORK. In the event that ICP requests any AOL production assistance, ICP shall work with AOL to develop detailed production plans for the requested production assistance (the "PRODUCTION PLAN"). Following receipt of the final Production Plan, AOL shall notify ICP of (i) AOL's availability to perform the requested production work, (ii) the proposed fee or fee structure for the requested production work and (iii) the estimated development schedule for such work. To the extent the Parties reach agreement regarding implementation of agreed-upon Production Plan, such agreement shall be reflected in a separate work order signed by the Parties. All fees to be paid to AOL for any such production work shall be paid in advance. To the extent ICP elects to retain a third party provider to perform any such production work, work produced by such third party provider must generally conform to AOL's production standards available at Keyword "Styleguide."The specific production resources which AOL allocates to any production work to be performed on behalf of ICP shall be as determined by AOL in its sole discretion. With respect to any routine production, maintenance or related services which AOL reasonably determines are necessary for AOL to perform in order to support the proper functioning and integration of the Promotions, ICP Programming and the ICP Internet Site ("Routine Services"), ICP will pay the then-standard fees charged by AOL for such Routine Services. PRODUCTION TOOLS. AOL shall determine in its sole discretion, which of its proprietary publishing tools (each a "Tool") shall be made available to ICP as may be necessary to develop and implement the Licensed Content during the Term. ICP shall be granted a nonexclusive license during the Term to use any such Tool, which license shall be subject to: (i) ICP's compliance with all rules and regulations relating to use of the Tools, as published from time to time by AOL, (ii) AOL's right to withdraw or modify such license at any time, and (iii) ICP's express recognition that AOL provides all Tools on an "as is" basis, without warranties of any kind. TRAINING AND SUPPORT. AOL shall make available to ICP standard AOL training and support programs necessary to produce any AOL areas hereunder. ICP can select its training and support program from the options then offered by AOL. Such training and support package as will be necessary to fulfill ICP's obligations hereunder shall be provided free of charge by AOL, except that ICP will pay travel and lodging costs associated with its participation in any AOL training programs (including AOL's travel and lodging costs when training is conducted at ICP's offices). LAUNCH DATE. In the event that any terms contained herein relate to or depend on the launch date of the ICP Internet Site or other property contemplated by this Agreement, which launch date is later than the Effective Date, then it is the intention of the Parties to record such launch date in a written instrument signed by both Parties promptly following such launch date; provided that, in the absence of such a written instrument, the launch date shall be as reasonably determined by AOL based on the information available to AOL. KEYWORDS. Any Keyword Search Terms to be directed to the ICP Internet Site shall be (i) subject to availability for use by ICP (provided that keyword "Bolt" shall link to the ICP Programming and/or ICP Internet Site) and (ii) limited to the combination of the Keyword(TM) search modifier combined with a registered trademark of ICP. AOL reserves the right to revoke at any time ICP's use of any Keyword Search Terms which do not incorporate registered trademarks of ICP. ICP acknowledges that its utilization of a Keyword Search Term will not create in it, nor will it represent it has, any right, title or interest in or to such Keyword Search Term, other than the right, title and interest ICP holds in ICP's registered trademark independent of the Keyword Search Term. Without limiting the generality of the foregoing, ICP will not: (a) attempt to register or otherwise obtain trademark or copyright protection in the Keyword Search Term; or (b) use the Keyword Search Term, except for the purposes expressly required or permitted under this Agreement. This Section shall survive the completion, expiration, termination or cancellation of this Agreement. ACCOUNTS. To the extent AOL has granted ICP any accounts on the AOL Service, ICP will be responsible for the actions taken under or through its accounts, which actions are subject to AOL's applicable Terms of Service and for any surcharges, including, without limitation, all premium charges, transaction charges, and any applicable communication surcharges incurred by any account issued to ICP, but ICP will not be liable for charges incurred by any account relating to AOL's standard monthly usage fees and standard hourly charges, which charges AOL will bear. Upon the termination of this Agreement, all accounts, related screen names and any associated usage credits or similar rights, will automatically terminate. AOL will have no liability for loss of any data or content related to the proper termination of any such account. II. TRADEMARKS TRADEMARK LICENSE. In designing and implementing any marketing, advertising, or other promotional materials (expressly excluding Press Releases) related to this Agreement and/or referencing the other Party and/or its trade names, trademarks and service marks (the "PROMOTIONAL MATERIALS") and subject to the other provisions contained herein, ICP shall be entitled to use the following trade names, trademarks and service marks of AOL: the "America Online(R)" brand service, "AOL(TM)" service/software and AOL's triangle logo and, in connection therewith, ICP shall comply with the AOL styleguide available at keyword: "style guide"; and AOL and its Affiliates shall be entitled to use the trade names, trademarks and service marks of ICP (collectively, together with the AOL marks listed above, the "Marks"); provided that each Party: (i) does not create a unitary composite mark involving a Mark of the other Party without the prior written approval of such other Party and (ii) displays symbols and notices clearly and sufficiently indicating the trademark status and ownership of the other Party's Marks in accordance with applicable trademark law and practice. This Section shall survive the completion, expiration, termination or cancellation of this Agreement. RIGHTS. Each Party acknowledges that its utilization of the other Party's Marks will not create in it, nor will it represent it has, any right, title or interest in or to such Marks other than the licenses expressly granted herein. Each Party agrees not to do anything contesting or impairing the trademark rights of the other Party. QUALITY STANDARDS. Each Party agrees that the nature and quality of its products and services supplied in connection with the other Party's Marks shall conform to quality standards communicated in writing by the other Party for use of its trademarks. Each Party agrees to supply the other Party, upon request, with a reasonable number of samples of any Materials publicly disseminated by such Party which utilize the other Party's Marks. Each Party shall comply with all applicable laws, regulations and customs and obtain any required government approvals pertaining to use of the other Party's Marks. PROMOTIONAL MATERIALS. Each Party will submit to the other Party, for its prior written approval, which shall not be unreasonably withheld or delayed, any Promotional Materials; provided, however, that after initial public announcement of the business relationship between the Parties in accordance with the approval and other requirements contained herein, either Party's subsequent factual reference in Promotional Materials to the existence of a business relationship between AOL and ICP, including, without limitation, the availability of the Licensed Content through the AOL Network, or use of screen shots relating to the distribution under this Agreement (so long as the AOL Network is clearly identified as the source of such screen shots) for promotional purposes shall not require the approval of the other Party. Once approved, the Promotional Materials may be used by a Party and its affiliates for the purpose of promoting the distribution of the Licensed Content through the AOL Network and reused for such purpose until such approval is withdrawn with reasonable prior notice. In the event such approval is withdrawn, existing inventories of Promotional Materials may be depleted. INFRINGEMENT PROCEEDINGS. Each Party agrees to promptly notify the other Party of any unauthorized use of the other Party's Marks of which it has actual knowledge. Each Party shall have the sole right and discretion to bring proceedings alleging infringement of its Marks or unfair competition related thereto; provided, however, that each Party agrees to provide the other Party, at such other Party's expense, with its reasonable cooperation and assistance with respect to any such infringement proceedings. 15 16 III. REPRESENTATIONS AND WARRANTIES Each Party represents and warrants to the other Party that: (i) such Party has the full corporate right, power and authority to enter into this Agreement, to grant the licenses granted hereunder and to perform the acts required of it hereunder; (ii) the execution of this Agreement by such Party, and the performance by such Party of its obligations and duties hereunder, do not and will not violate any agreement to which such Party is a party or by which it is otherwise bound; (iii) when executed and delivered by such Party, this Agreement will constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms; (iv) such Party's Promotional Materials will neither infringe on any copyright, U.S. patent or any other third party right nor violate any applicable law or regulation and (v) such Party acknowledges that the other Party makes no representations, warranties or agreements related to the subject matter hereof which are not expressly provided for in this Agreement. IV. CONFIDENTIALITY Each Party acknowledges that Confidential Information may be disclosed to the other Party during the course of this Agreement. Each Party agrees that it will take reasonable steps, at least substantially equivalent to the steps it takes to protect its own proprietary information, during the term of this Agreement, and for a period of three years following expiration or termination of this Agreement, to prevent the disclosure of Confidential Information of the other Party, other than to its employees, or to its other agents who must have access to such Confidential Information for such Party to perform its obligations hereunder, who will each agree to comply with this section. Notwithstanding the foregoing, either Party may issue a press release or other disclosure containing Confidential Information without the consent of the other Party, to the extent such disclosure is required by law, rule, regulation or government or court order. In such event, the disclosing Party will provide at least five (5) business days prior written notice of such proposed disclosure to the other Party. Further, in the event such disclosure is required of either Party under the laws, rules or regulations of the Securities and Exchange Commission or any other applicable governing body, such Party will (i) redact mutually agreed-upon portions of this Agreement to the fullest extent permitted under applicable laws, rules and regulations and (ii) submit a request to such governing body that such portions and other provisions of this Agreement receive confidential treatment under the laws, rules and regulations of the Securities and Exchange Commission or otherwise be held in the strictest confidence to the fullest extent permitted under the laws, rules or regulations of any other applicable governing body. V. RELATIONSHIP WITH AOL MEMBERS SOLICITATION OF SUBSCRIBERS. (a) During the term of this Agreement and for a two year period thereafter, ICP will not use the AOL Network (including, without limitation, the e-mail network contained therein) to solicit AOL Members on behalf of another Interactive Service. More generally, ICP will not send unsolicited, commercial e-mail (i.e., "spam") or other online communications through or into AOL's products or services, absent a Prior Business Relationship. For purposes of this Agreement, a "Prior Business Relationship" will mean that the AOL Member to whom commercial e-mail or other online communication is being sent has voluntarily either (i) engaged in a transaction with ICP or (ii) provided information to ICP through a contest, registration, or other communication, which included clear notice to the AOL Member that the information provided could result in commercial e-mail or other online communications being sent to that AOL Member by ICP or its agents. Any commercial e-mail or other online communications to AOL Members which are otherwise permitted hereunder will (x) include a prominent and easy means to "opt-out" of receiving any future commercial e-mail communications from ICP and (y) shall also be subject to AOL's then-standard restrictions on distribution of bulk e-mail (e.g., related to the time and manner in which such e-mail can be distributed through or into the AOL product or service in question). (b) ICP shall ensure that its collection, use and disclosure of information obtained from AOL Members under this Agreement ("MEMBER INFORMATION") complies with (i) all applicable laws and regulations and (ii) AOL's standard privacy policies, available on the AOL Service at the keyword term "Privacy" (or, in the case of the ICP Internet Site, ICP's standard privacy policies so long as such policies are prominently published on the site and provide adequate notice, disclosure and choice to users regarding ICP's collection, use and disclosure of user information). ICP will not disclose Member Information collected hereunder to any third party in a manner that identifies AOL Members as end users of an AOL product or service or use Member Information collected under this Agreement to market another Interactive Service. EMAIL NEWSLETTERS. Any email newsletters sent to AOL Members by ICP or its agents shall (i) be subject to AOL's policies on use of the email functionality, including but not limited to AOL's policy on unsolicited bulk email, (ii) be sent only to AOL Members requesting to receive such newsletters, (iii) not contain Content which violates AOL's Terms of Service, and (iv) not contain any advertisements, marketing or promotion for any other Interactive Service. AOL MEMBER COMMUNICATIONS. To the extent ICP is otherwise permitted to send communications to AOL Members (in accordance with the other requirements contained herein): in any such communications to AOL Members on or off the ICP Internet Site (including, without limitation, e-mail solicitations), ICP will limit the subject matter of such communications to those categories of products, services and/or content that are specifically contemplated by this Agreement and will not encourage AOL Members to take any action inconsistent with the scope and purpose of this Agreement, including without limitation, the following actions: (i) using an Interactive Site other than the ICP Internet Site for the purchase of Products, (ii) using Content other than the Licensed Content; (iii) bookmarking of Interactive Sites; or (iv) changing the default home page on the AOL browser. Additionally, with respect to such AOL Member communications, in the event that ICP encourages an AOL Member to purchase products through such communications, ICP shall ensure that (a) the AOL Network is expressly promoted as the primary means through which the AOL Member can access the ICP Internet Site (including without limitation by stating the applicable Keyword Search Term and including direct links to specific offers within the ICP Internet Site) and (b) any link to the ICP Internet Site will link to a page which indicates to the AOL Member that such user is in a site which is affiliated with the AOL Network. VI. TREATMENT OF CLAIMS LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM BREACH OF THIS AGREEMENT, THE USE OF OR INABILITY TO USE THE AOL NETWORK OR ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY SHALL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION BELOW. EXCEPT AS PROVIDED BELOW IN THE "INDEMNITY" SECTION, NEITHER PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR MORE THAN THE AGGREGATE AMOUNTS PAYABLE HEREUNDER IN THE YEAR IN WHICH THE EVENT GIVING RISE TO SUCH LIABILITY OCCURRED; PROVIDED THAT EACH PARTY SHALL REMAIN LIABLE FOR THE AGGREGATE AMOUNT OF ANY PAYMENT OBLIGATIONS OWED TO THE OTHER PARTY UNDER THE PROVISIONS OF THIS AGREEMENT. NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS, ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING THE AOL NETWORK, THE AOL TOOLS OR, ANY AOL PUBLISHING TOOLS, THE CONTENT, THE ICP INTERNET SITE, THE PRIMARY SITE OR ANY ICP INTERACTIVE SITE INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING THE PROFITABILITY OF AOL NETWORK OR THE ICP INTERNET SITE. INDEMNITY. Each Party will defend, indemnify, save and hold harmless the other Party and the officers, directors, agents, affiliates, distributors, franchisees and employees of the other Party from any and all third party claims, demands, liabilities, costs or expenses, including reasonable attorneys' fees ("LIABILITIES"), resulting from the indemnifying Party's material breach or alleged breach of any duty, representation, or warranty of this Agreement. In addition, ICP will defend, indemnify, save and hold harmless AOL and AOL's officers, directors, agents, affiliates, distributors, franchisees and employees from any and all Liabilities arising out of or in any way related to the Licensed Content except to the extent that such Licensed Content has been provided by an AOL Member in which case this indemnity shall not apply. If a Party entitled to indemnification hereunder (the "INDEMNIFIED PARTY") becomes aware of any matter it believes is indemnifiable hereunder involving any claim, action, suit, investigation, arbitration or other proceeding against the Indemnified Party by any third party (each an "Action"), the Indemnified Party shall give the other Party (the "INDEMNIFYING PARTY") prompt written notice of such Action. Such notice shall (i) provide the basis on which indemnification is being asserted and (ii) be accompanied by copies of all relevant pleadings, demands, and other papers related to the Action and in the possession of the Indemnified Party. The Indemnifying Party shall have a period of ten (10) days after delivery of such notice to respond. If the Indemnifying Party elects to defend the Action or does not respond within the requisite ten (10) day period, the Indemnifying Party shall be obligated to defend the Action, at its own expense, and by counsel reasonably satisfactory to the Indemnified Party. The Indemnified Party shall cooperate, at the expense of the Indemnifying Party, with the Indemnifying Party and its counsel in the defense and the Indemnified Party shall 16 17 have the right to participate fully, at its own expense, in the defense of such Action. If the Indemnifying Party responds within the required ten (10) day period and elects not to defend such Action, the Indemnified Party shall be free, without prejudice to any of the Indemnified Party's rights hereunder, to compromise or defend (and control the defense of) such Action. In such case, the Indemnifying Party shall cooperate, at its own expense, with the Indemnified Party and its counsel in the defense against such Action and the Indemnifying Party shall have the right to participate fully, at its own expense, in the defense of such Action. Any compromise or settlement of an Action shall require the prior written consent of both Parties hereunder, such consent not to be unreasonably withheld or delayed. ACKNOWLEDGMENT. AOL AND ICP EACH ACKNOWLEDGES THAT THE PROVISIONS OF THIS AGREEMENT WERE NEGOTIATED TO REFLECT AN INFORMED, VOLUNTARY ALLOCATION BETWEEN THEM OF ALL RISKS (BOTH KNOWN AND UNKNOWN) ASSOCIATED WITH THE TRANSACTIONS CONTEMPLATED HEREUNDER. THE LIMITATIONS AND DISCLAIMERS RELATED TO WARRANTIES AND LIABILITY CONTAINED IN THIS AGREEMENT ARE INTENDED TO LIMIT THE CIRCUMSTANCES AND EXTENT OF LIABILITY. THE PROVISIONS OF THIS SECTION VI SHALL BE ENFORCEABLE INDEPENDENT OF AND SEVERABLE FROM ANY OTHER ENFORCEABLE OR UNENFORCEABLE PROVISION OF THIS AGREEMENT. VII. ARBITRATION (a) The Parties shall act in good faith and use commercially reasonable efforts to promptly resolve any claim, dispute, claim, controversy or disagreement (each a "Dispute") between the Parties or any of their respective subsidiaries, affiliates, successors and assigns under or related to this Agreement or any document executed pursuant to this Agreement or any of the transactions contemplated hereby. If the Parties cannot resolve the Dispute within such timeframe, the Dispute shall be submitted to the Management Committee for resolution. For ten (10) days after the Dispute was submitted to the Management Committee, the Management Committee shall have the exclusive right to resolve such Dispute; provided further that the Management Committee shall have the final and exclusive right to resolve Disputes arising from any provision of this Agreement which expressly or implicitly provides for the Parties to reach mutual agreement as to certain terms. If the Management Committee is unable to amicably resolve the Dispute during the ten (10) day period, then the Management Committee will consider in good faith the possibility of retaining a third party mediator to facilitate resolution of the Dispute. In the event the Management Committee elects not to retain a mediator, the Dispute will be subject to the resolution mechanisms described below. "Management Committee" shall mean a committee made up of a senior executive from each of the Parties for the purpose of resolving Disputes under this Section and generally overseeing the relationship between the Parties contemplated by this Agreement. Neither Party shall seek, nor shall be entitled to seek, binding outside resolution of the Dispute unless and until the Parties have been unable to amicably resolve the dispute as set forth in this paragraph (a) and then, only in compliance with the procedures set forth in this Section. (b) Except for Disputes relating to issues of (i) proprietary rights, including but not limited to intellectual property and confidentiality, and (ii) any provision of this Agreement which expressly or implicitly provides for the Parties to reach mutual agreement as to certain terms (which shall be resolved by the Parties solely and exclusively through amicable resolution as set forth in paragraph (a)), any Dispute not resolved by amicable resolution as set forth in paragraph (a) shall be governed exclusively and finally by arbitration. Such arbitration shall be conducted by the American Arbitration Association ("AAA") in Washington, D.C. and shall be initiated and conducted in accordance with the Commercial Arbitration Rules ("COMMERCIAL RULES") of the AAA, including the AAA Supplementary Procedures for Large Complex Commercial Disputes ("COMPLEX PROCEDURES"), as such rules shall be in effect on the date of delivery of a demand for arbitration ("DEMAND"), except to the extent that such rules are inconsistent with the provisions set forth herein. Notwithstanding the foregoing, the Parties may agree in good faith that the Complex Procedures shall not apply in order to promote the efficient arbitration of Disputes where the nature of the Dispute, including without limitation the amount in controversy, does not justify the application of such procedures. (c) The arbitration panel shall consist of three arbitrators. Each Party shall name an arbitrator within ten (10) days after the delivery of the Demand. The two arbitrators named by the Parties may have prior relationships with the naming Party, which in a judicial setting would be considered a conflict of interest. The third arbitrator, selected by the first two, shall be a neutral participant, with no prior working relationship with either Party. If the two arbitrators are unable to select a third arbitrator within ten (10) days, a third neutral arbitrator will be appointed by the AAA from the panel of commercial arbitrators of any of the AAA Large and Complex Resolution Programs. If a vacancy in the arbitration panel occurs after the hearings have commenced, the remaining arbitrator or arbitrators may not continue with the hearing and determination of the controversy, unless the Parties agree otherwise. (d) The Federal Arbitration Act, 9 U.S.C. Secs. 1-16, and not state law, shall govern the arbitrability of all Disputes. The arbitrators shall allow such discovery as is appropriate to the purposes of arbitration in accomplishing a fair, speedy and cost-effective resolution of the Disputes. The arbitrators shall reference the Federal Rules of Civil Procedure then in effect in setting the scope and timing of discovery. The Federal Rules of Evidence shall apply in toto. The arbitrators may enter a default decision against any Party who fails to participate in the arbitration proceedings. (e) The arbitrators shall have the authority to award compensatory damages only. Any award by the arbitrators shall be accompanied by a written opinion setting forth the findings of fact and conclusions of law relied upon in reaching the decision. The award rendered by the arbitrators shall be final, binding and non-appealable, and judgment upon such award may be entered by any court of competent jurisdiction. The Parties agree that the existence, conduct and content of any arbitration shall be kept confidential and no Party shall disclose to any person any information about such arbitration, except as may be required by law or by any governmental authority or for financial reporting purposes in each Party's financial statements. (f) Each Party shall pay the fees of its own attorneys, expenses of witnesses and all other expenses and costs in connection with the presentation of such Party's case (collectively, "Attorneys' Fees"). The remaining costs of the arbitration, including without limitation, fees of the arbitrators, costs of records or transcripts and administrative fees (collectively, "Arbitration Costs") shall be born equally by the parties. Notwithstanding the foregoing, the arbitrators may modify the allocation of Arbitration Costs and award Attorneys' Fees in those cases where fairness dictates a different allocation of Arbitration Costs between the Parties and an award of Attorneys' Fees to the prevailing Party as determined by the arbitrators. (g) Any Dispute that is not subject to final resolution by the Management Committee or to arbitration under this Section or law (collectively, "Non-Arbitration Claims") shall be brought in a court of competent jurisdiction in the Commonwealth of Virginia. Each Party irrevocably consents to the exclusive jurisdiction of the courts of the Commonwealth of Virginia and the federal courts situated in the Commonwealth of Virginia, over any and all Non-Arbitration Claims and any and all actions to enforce such claims or to recover damages or other relief in connection with such claims or to enforce a judgment rendered in an arbitration proceeding. VIII. MISCELLANEOUS AUDITING RIGHTS. Each Party shall maintain complete, clear and accurate records of all expenses, revenues, fees, transactions and related documentation (including agreements) in connection with the performance of this Agreement ("RECORDS"). All such Records shall be maintained for a minimum of five (5) years following termination of this Agreement. For the sole purpose of ensuring compliance with this Agreement, AOL shall have the right, subject to strict confidentiality restrictions, at its expense, to conduct a reasonable and necessary copying and inspection of portions of the Records of ICP that are directly related to amounts payable to AOL pursuant to this Agreement, which right may, at AOL's option, be exercised by directing an independent certified public accounting firm to conduct such inspection. For the sole purpose of ensuring compliance with this Agreement, ICP shall have the right, at its expense, to direct an independent certified public accounting firm subject to strict confidentiality restrictions to conduct a reasonable and necessary copying and inspection of portions of the Records of AOL that are directly related to amounts payable to ICP pursuant to this Agreement. Any such audit may be conducted after twenty (20) business days prior written notice, subject to the following. Such audits shall not be made more frequently than once every twelve months. No such audit of AOL shall occur during the period beginning on June 1 and ending October 1. In lieu of providing access to its Records as described above, either Party shall be entitled to provide the other Party with a report from an independent certified public accounting firm confirming the information to be derived from such Records. EXCUSE. Neither Party shall be liable for, or be considered in breach of or default under this Agreement on account of, any delay or failure to perform as required by this Agreement as a result of any causes or conditions which are beyond such Party's reasonable control and which such Party is unable to overcome by the exercise of reasonable diligence. INDEPENDENT CONTRACTORS. The Parties to this Agreement are independent contractors. Neither Party is an agent, representative or partner of the other Party. Neither Party shall have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, the other Party. This Agreement shall not be interpreted or construed to create an association, agency, joint venture or partnership between the Parties or to impose any liability attributable to such a relationship upon either Party. NOTICE. Any notice, approval, request, authorization, direction or other communication under this Agreement will be given in writing and will be deemed to have been delivered and given for all purposes (i) on the delivery date if 17 18 delivered by electronic mail on the AOL Network (to screenname "AOLNotice@aol.com" in the case of AOL) or by confirmed facsimile; (ii) on the delivery date if delivered personally to the Party to whom the same is directed; (iii) one business day after deposit with a commercial overnight carrier, with written verification of receipt; or (iv) five business days after the mailing date, whether or not actually received, if sent by U.S. mail, return receipt requested, postage and charges prepaid, or any other means of rapid mail delivery for which a receipt is available. In the case of AOL, such notice will be provided to both the Senior Vice President for Business Affairs [*] and the Deputy General Counsel [*], each at the address of AOL set forth in the first paragraph of this Agreement. In the case of ICP, except as otherwise specified herein, the notice address shall be the address for ICP set forth in the first paragraph of this Agreement, with the other relevant notice information, including the recipient for notice and, as applicable, such recipient's fax number or AOL e-mail address, to be as reasonably identified by AOL. NO WAIVER. The failure of either Party to insist upon or enforce strict performance by the other Party of any provision of this Agreement or to exercise any right under this Agreement shall not be construed as a waiver or relinquishment to any extent of such Party's right to assert or rely upon any such provision or right in that or any other instance; rather, the same shall be and remain in full force and effect. RETURN OF INFORMATION. Upon the expiration or termination of this Agreement, each Party shall, upon the written request of the other Party, return or destroy (at the option of the Party receiving the request) all confidential information, documents, manuals and other materials specified by the other Party. SURVIVAL. Sections IV, V, VI, VII and VIII of this Exhibit C, shall survive the completion, expiration, termination or cancellation of this Agreement. In addition, all payment terms of this Agreement and any payments due and payable and any provision that expressly states that it shall survive or which, by its nature, must survive the completion, expiration, termination or cancellation of this Agreement, shall survive the completion, expiration, termination or cancellation of this Agreement. For the avoidance of doubt all payments that are not due and payable shall expire and be null, void and unenforceable upon the expiration or termination hereof. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and supersedes any and all prior agreements of the Parties with respect to the transactions set forth herein. Neither Party shall be bound by, and each Party specifically objects to, any term, condition or other provision which is different from or in addition to the provisions of this Agreement (whether or not it would materially alter this Agreement) and which is proffered by the other Party in any correspondence or other document, unless the Party to be bound thereby specifically agrees to such provision in writing. AMENDMENT. No change, amendment or modification of any provision of this Agreement shall be valid unless set forth in a written instrument signed by the Party subject to enforcement of such amendment. FURTHER ASSURANCES. Each Party shall take such action (including, but not limited to, the execution, acknowledgment and delivery of documents) as may reasonably be requested by the other Party for the implementation or continuing performance of this Agreement. ASSIGNMENT. ICP shall not assign this Agreement or any right, interest or benefit under this Agreement without the prior written consent of AOL. Assumption of this Agreement by any successor to ICP (including, without limitation, by way of merger, consolidation or sale of all or substantially all of ICP's stock or assets) shall be subject to AOL's prior written approval. Further, in the event of (i) any Change of Control of ICP resulting in control of ICP by an Interactive Service or an entity that controls, is controlled by or is under common control with an Interactive Service, or (ii) any Change of Control of AOL, AOL shall have the right to terminate this Agreement upon written notice to ICP. In addition, AOL shall not [*] this Agreement to an ICP Competitor without the prior written consent of ICP. Subject to the foregoing, this Agreement shall be fully binding upon, inure to the benefit of and be enforceable by the Parties hereto and their respective successors and assigns. SUBCONTRACTORS. To the extent ICP desires to utilize consultants or subcontractors to perform a material portion of its obligations under this Agreement, utilization of such consultants and/or subcontractors shall be subject to AOL's prior written approval and ICP shall provide AOL with direct contact information for the employees of such consultants and/or subcontractors who are responsible for performing such obligations, which employees shall be available during business hours for consultation with AOL. ICP shall be responsible for ensuring that all consultants and subcontractors comply with this Agreement and ICP shall be liable for any breaches of this Agreement caused by any consultant or subcontractor. CONSTRUCTION; SEVERABILITY. In the event that any provision of this Agreement conflicts with the law under which this Agreement is to be construed or if any such provision is held invalid by a court with jurisdiction over the Parties to this Agreement, (i) such provision shall be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law, and (ii) the remaining terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect. REMEDIES. Except where otherwise specified, the rights and remedies granted to a Party under this Agreement are cumulative and in addition to, and not in lieu of, any other rights or remedies which the Party may possess at law or in equity. APPLICABLE LAW. This Agreement shall be interpreted, construed and enforced in all respects in accordance with the laws of the Commonwealth of Virginia except for its conflicts of laws principles. EXPORT CONTROLS. Both parties shall adhere to all applicable laws, regulations and rules relating to the export of technical data and shall not export or re-export any technical data, any products received from the other Party or the direct product of such technical data to any proscribed country listed in such applicable laws, regulations and rules unless properly authorized. HEADINGS. The captions and headings used in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same document. Signatures sent by facsimile shall be deemed original signatures. 18 19 EXHIBIT D CERTIFICATION OF COMPLIANCE WITH COMMITMENTS REGARDING PROMOTIONS Pursuant to Section 3.3 of the Anchor Tenant Agreement between Bolt Media, Inc. ("ICP") and America Online, Inc. ("AOL"), dated as of November 16, 1999 (the "Agreement"), the following report is delivered to AOL for the period beginning _____________ and ending __________ (the "Period"): I. PROMOTIONAL COMMITMENTS ICP hereby certifies to AOL that ICP completed the following promotional commitments during the Period:
TYPE OF PROMOTION DATE(S) OF DURATION/CIRCULATION OF RELEVANT CONTRACT PROMOTION PROMOTION SECTION ----------------- ---------- ----------------------- ----------------- 1. 2. 3.
IN WITNESS WHEREOF, this Certificate has been executed this ___ day of ___________, 199_. ___________________________________ By: _______________________________ Print Name:________________________ Title: ____________________________ Date: _____________________________ 19 20 EXHIBIT E TECHNICAL OPERATING STANDARDS 1. ICP Internet Site Infrastructure. ICP will be responsible for all communications, hosting and connectivity costs and expenses associated with the ICP Internet Site. ICP will provide all hardware, software, telecommunications lines and other infrastructure necessary to meet traffic demands on the ICP Internet Site from the AOL Network. ICP will design and implement the network between the AOL Service and ICP Internet Site such that (i) no single component failure will have a materially adverse impact on AOL Members seeking to reach the ICP Internet Site from the AOL Network and (ii) no single line under material control by ICP will run at more than 70% average utilization for a 5-minute peak in a daily period. In this regard, ICP will provide AOL, upon request, with a detailed network diagram regarding the architecture and network infrastructure supporting the ICP Internet Site. In the event that ICP elects to create a custom version of the ICP Internet Site in order to comply with the terms of this Agreement, ICP will bear responsibility for all aspects of the implementation, management and cost of such customized site. 2. Optimization; Speed. ICP will use commercially reasonable efforts to ensure that: (a) the functionality and features within the ICP Internet Site are optimized for the client software then in use by AOL Members; and (b) the ICP Internet Site is designed and populated in a manner that minimizes delays when AOL Members attempt to access such site. At a minimum, ICP will ensure that the ICP Internet Site's data transfers initiate within fewer than fifteen (15) seconds on average. Prior to commercial launch of any material promotions described herein, ICP will permit AOL to conduct performance and load testing of the ICP Internet Site (in person or through remote communications), with such commercial launch not to commence until such time as AOL is reasonably satisfied with the results of any such testing. 3. User Interface. ICP will maintain a graphical user interface within the ICP Internet Site that is competitive in all material respects with interfaces of other similar sites based on similar form technology. AOL reserves the right to review and approve the user interface and site design prior to launch of the Promotions and to conduct focus group testing to assess compliance with respect to such consultation and with respect to ICP's compliance with the preceding sentence. 4. Technical Problems. ICP agrees to use commercially reasonable efforts to address material technical problems (over which ICP exercises control) affecting use by AOL Members of the ICP Internet Site (an "ICP Technical Problem") promptly following notice thereof. In the event that ICP is unable to promptly resolve an ICP Technical Problem following notice thereof from AOL (including, without limitation, infrastructure deficiencies producing user delays), AOL will have the right to regulate the promotions it provides to ICP hereunder until such time as ICP corrects the ICP Technical Problem at issue. 5. Monitoring. ICP will ensure that the performance and availability of the ICP Internet Site is monitored on a continuous (24 X 7) basis. ICP will provide AOL with contact information (including e-mail, phone, pager and fax information, as applicable, for both during and after business hours) for ICP's principal business and technical representatives, for use in cases when issues or problems arise with respect to the ICP Internet Site. 6. Telecommunications. Where applicable the ICP will utilize encryption methodology to secure data communications between the Parties' data centers. The network between the Parties will be configured such that no single component failure will significantly impact AOL Users. The network will be sized such that no single line over which the ICP has material control runs at more than 70% average utilization for a 5-minute peak in a daily period. 7. Security. ICP will utilize Internet standard encryption technologies (e.g., Secure Socket Layer - SSL) to provide a secure environment for conducting transactions and/or transferring private member information (e.g. credit card numbers, banking/financial information, and member address information) to and from the ICP Internet Site. ICP will facilitate periodic reviews of the ICP Internet Site by AOL in order to evaluate the security risks of such site. ICP will promptly remedy any security risks or breaches of security as may be identified by AOL's Operations Security team. 8. Technical Performance. i. ICP will design the ICP Internet Site to support the AOL-Client embedded versions of the Microsoft Internet Explorer 3.XX and 4.XX browsers (Windows and Macintosh), the Netscape Browser 4.XX and make commercially reasonable efforts to support all other AOL browsers listed at: "http://webmaster.info.aol.com." ii. To the extent ICP creates customized pages on the ICP Internet Site for AOL Members, ICP develop and employ a methodology to detect AOL Members (e.g., examine the HTTP User-Agent field in order to identify the "AOL Member-Agents" listed at: http://webmaster. info.aol.com and referenced under the heading "Browser Detection." iii. ICP will periodically review the technical information made available by AOL at http://webmaster.info.aol.com. iv. ICP will design its site to support HTTP 1.0 or later protocol as defined in RFC 1945 and to adhere to AOL's parameters for refreshing or preventing the caching of information in AOL's proxy system as outlined in the document provided at the following URL: http://webmaster.info.aol.com. ICP is responsible for the manipulation of these parameters in web based objects so as allow them to be cached or not cached as outlined in RFC 1945. v. Prior to releasing material, new functionality or features through the ICP Internet Site ("NEW FUNCTIONALITY"), ICP will use commercially reasonable efforts to either (i) test the New Functionality to confirm its compatibility with AOL Service client software and (ii) provide AOL with written notice of the New Functionality so that AOL can perform tests of the New Functionality to confirm its compatibility with the AOL Service client software. Should any new material, new functionality or features through the ICP Internet Site be released without notification to AOL, AOL will not be responsible for any adverse member experience until such time that compatibility tests can be performed and the new material, functionality or features qualified for the AOL Service. 9. AOL Internet Services Partner Support. AOL will provide ICP with access to the standard online resources, standards and guidelines documentation, technical phone support, monitoring and after-hours assistance that AOL makes generally available to similarly situated web-based partners. AOL support will not, in any case, be involved with content creation on behalf of ICP or support for any technologies, databases, software or other applications which are not supported by AOL or are related to any ICP 20 21 area other than the ICP Internet Site. Support to be provided by AOL is contingent on ICP providing to AOL demo account information (where applicable), a detailed description of the ICP Internet Site's software, hardware and network architecture and access to the ICP Internet Site for purposes of such performance and the coordination load testing as AOL elects to conduct. 10. ICP Programming. The terms and conditions of this Exhibit applicable to the ICP Internet Site shall apply equally to any ICP Programming that is (a) programmed in HTML or (b) web-based. 21 22 EXHIBIT F KEYWORD GUIDELINES PRINT/GRAPHIC - - Preferred listing: (AOL Logo appears) America Online Keyword: Bolt America Online Keyword: Bolt - - If necessary, due to space constraints, listing may (pending approval) appear as follows: AOL KEYWORD: BOLT - - Every effort should be made to have 'America Online' spelled out - - Capitalization - listing should appear in initial caps only Note: When America Online is abbreviated to AOL - AOL must appear in all caps. K of Keyword must always be capitalized - - Font, Font style and Size must all be consistent - - Listing size must be of equal prominence to that of any/all other URLs featured BROADCAST/RADIO - - America Online Keyword must be orally announced in its entirety (even if an accompanying graphic is set with AOL versus America Online) Example voiceover would read: "For more information, please visit America Online Keyword: Bolt" 22 23 EXHIBIT G EXHIBIT G-1: SHOPPING CHANNEL AGREEMENT DESCRIPTION OF PRODUCTS: The only categories of Products to be sold through the Merchant Site are as listed below: Product List: Bags & Packs Get Groovy Halloween Music Storage accessories all bags & packs all electronics cosmetics girls' clothes handbags hats inline skating gear jewelry lights & lamps logo t-shirts logo t-shirts music storage music stuff other cool stuff other cool stuff outerwear outerwear pants & shorts pants & shorts personal stereos shirts shirts shoes shoes skateboard gear skirts & dresses sweaters & sweats sweaters & sweats watches 23 24 DESCRIPTION OF SPECIFIC PROMOTION(S): Please check the box next to the Promotion(s) that MERCHANT is purchasing. [ ] ANCHOR PROMOTION Beginning on the [*] and continuing through the Term of the Agreement, MERCHANT will become an "Anchor" in the Boys-Teens department of the Apparel commerce center of the Shopping Channel on the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter. As an "Anchor" in a department, MERCHANT will be entitled to the following: PRINCIPAL EXPOSURE ON THE AOL SERVICE, AOL.COM, THE COMPUSERVE SERVICE AND THE NETSCAPE NETCENTER: - - One continuous (24/7) 143 x 245 pixels promotional space with corporate brand or logo, product offering graphic and product offering two-line text field on the front screen of the department named above. ADDITIONAL PROMOTION ON THE AOL SERVICE SHOPPING CHANNEL: - - Rotation with other anchor tenants of the relevant commerce center on the commerce center front screen of the AOL Service on two promotional spaces with corporate brand or logo, product offering graphic. These promotional space rotations are reserved for the anchor tenant merchant's of each commerce center and will be divided proportionately among them. - - Product listing availability through the AOL Product Search, subject to Merchant's participation and the terms and conditions set forth on Exhibit C Section 3. - - Banner rotation on the AOL Product Search screen of the AOL Service. These banner rotations will be divided proportionately among all shopping channel merchants. - - Up to three (3) AOL keywords for use from the AOL Service, for registered MERCHANT trade name or trademark (subject to the other provisions contained herein). - - Fifteen percent (15%) discount from the then-current rate card on purchases of additional advertising banners or buttons on the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter, subject to availability for the period requested (with such purchases to be made in accordance with the then-applicable standard Advertising Insertion Order for the property in question). Sponsorships are not entitled to the aforementioned discount. - - Eligibility to participate in the following AOL shopping promotional programs (the "Program Areas") subject to the terms and conditions set forth on Exhibit C Section 3: - Quick Gifts - Standard Seasonal Catalogs or Special Event Merchandising areas (e.g., Christmas Shop), subject to MERCHANT's participation in AOL's Quick Checkout and AOL's Search Product as described on Exhibit C Section 3. - Premier-level Seasonal Catalogs or Special Event Merchandising areas (e.g., Golf Outings), subject to MERCHANT's participation in AOL's Quick Checkout and AOL's Search Product as described on Exhibit C Section 3. - Gift Reminder - Newsletters All additional Promotions on the AOL Service, AOL.com, the CompuServe Service, the Netscape Netcenter or the AOL Network not specified herein will be determined at AOL's reasonable discretion; provided that the additional, standard Promotions to be provided to the MERCHANT within the Shopping areas on the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter will be comparable in nature to the additional, standard Promotions provided to other similarly situated MERCHANTs in the same category (i.e. anchor tenant, gold tenant or silver tenant). 24 25 [ ] GOLD TENANT PROMOTION Beginning on the [*] and continuing through the Term of the Agreement, MERCHANT will become a "Gold Tenant" in the Girls-Teens department of the Apparel commerce center of the Shopping Channel on the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter. As a "Gold Tenant" in a department, MERCHANT will be entitled to the following: PRINCIPAL EXPOSURE ON THE AOL SERVICE, AOL.COM, THE COMPUSERVE SERVICE, AND THE NETSCAPE NETCENTER: - - One continuous (24/7) 143 x 30 pixels button with corporate brand or logo on the front screen of the department named above. ADDITIONAL PROMOTION ON THE AOL SERVICE: - - Rotation with other gold tenants in the department on a promotional banner with text and branded art promotion on the department front screen. These banner rotations are reserved for the gold tenant merchant's on the department screen and will be divided proportionately among them. - - Product listing availability through the AOL Product Search, subject to Merchant's participation and the terms and conditions set forth on Exhibit C Section 3. - - Banner rotation on the AOL Product Search screen of the AOL Service. These banner rotations will be divided proportionately among all shopping channel merchants. - - Up to three (3) AOL keywords for use from the AOL Service, for registered MERCHANT trade name or trademark (subject to the other provisions contained herein). - - Fifteen percent (15%) discount from the then-current rate card on purchases of additional advertising banners or buttons on the AOL Service, AOL.com, the CompuServe Service, and the Netscape Netcenter, subject to availability for the period requested (with such purchases to be made in accordance with the then-applicable standard Advertising Insertion Order for the property in question). Sponsorships are not entitled to the aforementioned discount. - - Eligibility to participate in the following AOL shopping promotional programs (the "Program Areas") subject to the terms and conditions set forth on Exhibit C Section 3: - Quick Gifts - Standard Seasonal Catalogs or Special Event Merchandising areas (e.g., Christmas Shop), subject to MERCHANT's participation in AOL's Quick Checkout and AOL's Search Product as described on Exhibit C Section 3. - Premier-level Seasonal Catalogs or Special Event Merchandising areas (e.g., Golf Outings), subject to MERCHANT's participation in AOL's Quick Checkout and AOL's Search Product as described on Exhibit C Section 3. - Gift Reminder - Newsletters All additional Promotions on the AOL Service, AOL.com, the CompuServe Service, the Netscape Netcenter or the AOL Network not specified herein will be determined at AOL's reasonable discretion; provided that the additional, standard Promotions to be provided to the MERCHANT within the Shopping areas on the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter will be comparable in nature to the additional, standard Promotions provided to other similarly situated MERCHANTs in the same category (i.e. anchor tenant, gold tenant or silver tenant). 25 26 [ ] SILVER TENANT PROMOTION Beginning on the [*] and continuing through the Term of the Agreement, MERCHANT will become a "Silver Tenant" in the Shoes & Apparel department of the Sports & Outdoors commerce center, the main department of the Audio Systems commerce center and the Home Furnishings department of the Home & Garden commerce center of the Shopping Channel on the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter. As a "Silver Tenant" in a department, MERCHANT will be entitled to the following: PRINCIPAL EXPOSURE: - - One continuous (24/7) listing in the silver tenant area in a department specified above on the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter. - - Banner rotation on the AOL Product Search screen of the AOL Service. These banner rotations will be divided proportionately among all shopping channel merchants. - - One (1) AOL keyword for use from the AOL Service, for registered MERCHANT trade name or trademark (subject to the other provisions contained herein). All additional Promotions on the AOL Service, AOL.com, the CompuServe Service, the Netscape Netcenter or the AOL Network not specified herein will be determined at AOL's reasonable discretion; provided that the additional, standard Promotions to be provided to the MERCHANT within the Shopping areas on the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter will be comparable in nature to the additional, standard Promotions provided to other similarly situated MERCHANTs in the same category (i.e. anchor tenant, gold tenant or silver tenant). 26 27 EXHIBIT G-2: SHOPPING CHANNEL DEFINITIONS ADDITIONAL MERCHANT CHANNEL. Any other online distribution channel through which MERCHANT makes available an offering comparable in nature to the Merchant Site. AFFILIATE. Any agent, distributor, or franchisee of AOL, or any entity in which AOL holds at least a nineteen percent (19%) equity interest. AOL MEMBER. Any authorized user of the AOL Service, including any sub-accounts using the AOL Service under an authorized master account. AOL NETWORK. (i) The AOL Service (ii) AOL.com, (iii) the CompuServe Service, (iv) Netscape Netcenter, and (v) any other product or service owned, operated, distributed or authorized to be distributed by or through AOL or its Affiliates worldwide through which such party elects to offer the Merchant Site. AOL SERVICE. The standard narrow-band U.S. America Online(R) brand online service. AOL USER. Any user of the AOL Service, AOL.com, the CompuServe Service, the Netscape Netcenter, or the AOL Network. AOL.COM. The standard narrow-band U.S. version of AOL's primary website marketed under the AOL.com(R) brand. COMPUSERVE SERVICE. The standard narrow-band U.S. CompuServe(R) brand online service. CONFIDENTIAL INFORMATION. Any information relating to or disclosed in the course of the Agreement, which is or should be reasonably understood to be confidential or proprietary to the disclosing Party, including, but not limited to, the material terms of this Agreement, information about AOL Users, technical processes and formulas, source codes, product designs, sales, cost and other unpublished financial information, product and business plans, projections, and marketing data. "Confidential Information" will not include information (a) already lawfully known to or independently developed by the receiving Party, (b) disclosed in published materials, (c) generally known to the public, (d) lawfully obtained from any third party, or (e) required or reasonably advised to be disclosed by law. CONTENT. Text, images, video, audio (including, without limitation, music used in synchronism or timed relation with visual displays) and other data, Products, advertisements, promotions, links, pointers and software, including any modifications, upgrades, updates, enhancements and related documentation. IMPRESSION. User exposure to the commerce center screens, department level screens and any other promotional inventory screens (e.g. AOL Welcome Screen) containing the applicable promotion or advertisement, as such exposure may be reasonably determined and measured by AOL in accordance with its standard methodologies and protocols. INTERACTIVE SERVICE. Means and refers to an entity offering one or more of the following: (i) online or Internet connectivity services (e.g., an Internet service provider); (ii) an interactive site or service featuring a broad selection of aggregated third party interactive content or navigation thereto (e.g., an online service or search and directory service) and/or marketing a broad selection of products and/or services across numerous interactive commerce categories (e.g., an online mall or other leading broad-based online commerce site); (iii) a persistent desktop client; or (iv) communications software capable of serving as the principal means through which a user creates, sends or receives electronic mail or real time or "instant" online messages (whether by telephone, computer or other means), including without limitation greeting cards. KEYWORD SEARCH TERMS. The keyword online navigational terms made available on the AOL Service, combining AOL's keyword online search modifier with a term or phrase specifically related to MERCHANT (and determined in accordance with the terms of this Agreement). MERCHANT INTERACTIVE SITE. Any site which is managed, maintained, owned or controlled by Merchant or its agents. NETSCAPE NETCENTER. The standard narrow-band U.S. version of the primary website of Netscape Communications Corporation marketed under the "Netcenter(TM)" brand. PRODUCTS. See Section 1. 27 28 EXHIBIT G-3: STANDARD SHOPPING CHANNEL TERMS & CONDITIONS 1. MERCHANT SITE. MERCHANT will work diligently to develop and implement the Merchant Site, consisting of the specific Product(s) set forth in Exhibit A and any additional Products agreed upon in writing by the Parties subsequent to the Effective Date. Except as mutually agreed upon in writing by the Parties, the Merchant Site will contain only categories of Products, services and Content that are directly related to the MERCHANT Products listed in Exhibit A. All sales of Products through the Merchant Site will be conducted through a direct sales format (e.g. no auctions or clubs), absent the mutual consent of the Parties. MERCHANT will ensure that the Merchant Site does not in any respect promote, advertise, market or distribute the products, services or Content of any other Interactive Service. 2. MANAGEMENT OF MERCHANT SITE. MERCHANT will manage, review, delete, edit, create, update and otherwise manage all Content available on or through the Merchant Site, in a timely and professional manner and in accordance with the terms of this Agreement and AOL's applicable Terms of Service and Privacy Policy (as set forth on the AOL Service). MERCHANT will ensure that the Merchant Site is current, accurate and well-organized at all times. MERCHANT warrants that the Merchant Site and any material contained therein: (i) will conform to AOL's then-applicable Terms of Service and Privacy Policy; (ii) will not infringe on or violate any copyright, trademark, U.S. patent or any other third party right, including without limitation, any music performance or other music-related rights; and (iii) will not contain any Product which violates any applicable law or regulation, including those relating to contests, sweepstakes or similar promotions. AOL will have no obligations with respect to the Products available on or through the Merchant Site, including, but not limited to, any duty to review or monitor any such Products; provided, however, that AOL reserves the right to review and approve any additional Products and any third-party content, products or services that MERCHANT makes or desires to make available through the Merchant Site. Upon AOL's request, MERCHANT agrees to include within the Merchant Site a product disclaimer (the specific form and substance to be mutually agreed upon by the Parties) indicating that transactions are solely between MERCHANT and the AOL Users who purchase products from MERCHANT. MERCHANT will ensure that neither MERCHANT nor any Content, product or service contained within the Merchant Site, linked to the Promotion, or otherwise relating the Agreement shall (i) disparage AOL; (ii) promote any Interactive Service; or (iii) state or imply that AOL endorses MERCHANT's Products. 3. OPTIMIZATION OF MERCHANT SITE. MERCHANT will take all reasonable steps necessary to conform its promotion and sale of Products through the Merchant Site to the then-existing commerce technologies made available to MERCHANT by AOL. MERCHANT will be given an opportunity to implement, at MERCHANT's option, AOL's "quick checkout" tool which allows AOL Users to enter payment and shipping information which is then passed from AOL's centralized server unit to MERCHANT for order fulfillment ("AOL Quick Checkout") and AOL's "product search" tool technology which allows AOL Users to run a customized search among Merchant's detailed inventory data ("AOL Product Search"); provided however that in the event that MERCHANT declines participation in these programs then AOL reserves the right to reduce or prohibit MERCHANT's participation in any other incremental merchandising programs offered through the Shopping Channel. Collection, storage and disclosure of AOL Quick Checkout information which MERCHANT provides to AOL, will be subject to AOL's privacy policy and all confidentiality requirements hereunder. To the extent that the Merchant Site offers AOL's Quick Checkout, MERCHANT will ensure that the AOL Quick Checkout is of equal placement and prominence to other available payment options. AOL reserves the right to review and test the Merchant Site from time to time to determine whether the site is compatible with the AOL Network's then-available client and host software and network. AOL will be entitled to require reasonable changes to the Content, features and/or functionality within the Merchant Site to the extent such content, features or functionality will, in AOL's good faith judgment, adversely affect operations of the AOL Network. MERCHANT agrees to optimize operations of the Merchant Site consistent with Exhibit E attached hereto. 4. REMOVAL OF CONTENT. AOL will have the right to remove, or direct MERCHANT to remove, any Content in the Merchant Site (including, without limitation, any features, functionality or technology) which, as reasonably determined by AOL (i) violates AOL's then-standard Terms of Service or Privacy Policy (as set forth on the AOL Service), any other standard, written AOL policy or the terms of this Agreement, (ii) is inconsistent in any manner with the terms of the Agreement or with the Product description set forth in Exhibit A or (iii) is otherwise in conflict with AOL's programming objectives or its existing contractual commitments to third parties. In the event that MERCHANT cannot, through such efforts, block access to the Content in question, then MERCHANT will provide AOL prompt written notice of such fact no later than five (5) days after AOL notifies MERCHANT of AOL's objection to such Content. AOL may then, at its option, either (i) restrict access by AOL Users to the Content in question using technology available to AOL or (ii) terminate all links, promotions and advertisements for the Merchant Site until such time as the Content in question is no longer displayed. MERCHANT will cooperate with AOL's reasonable requests to the extent AOL elects to implement any of the foregoing access restrictions. 5. PROMOTIONAL PLACEMENT. AOL reserves the right to reject, cancel or remove at any time the Promotion for any reason with fifteen (15) days prior notice to MERCHANT, and AOL will refund to MERCHANT a pro-rata portion of the fee allocable to the display of the Promotion based on the number of days that the Promotion was displayed. Except for the pro-rata refund set forth in the foregoing sentence, AOL will not be liable in any way for any rejection, cancellation or removal of the Promotion. AOL reserves the right to redesign or modify the organization, navigation, structure, "look and feel" and other elements of the AOL Service, AOL.com, the CompuServe Service, the Netscape Netcenter and the AOL Network, at its sole discretion at any time. In the event such modifications materially affect the placement of the Promotion, AOL will notify MERCHANT and will work with MERCHANT to display the Promotion in a comparable location and manner. If AOL and MERCHANT cannot reach agreement on a substitute placement, MERCHANT will have the right to cancel the Promotion, upon sixty(60) days advance written notice to AOL. In such case, MERCHANT will only be responsible for the pro-rata portion of payments attributable to the number of days from the Effective Date through the end of the sixty (60) day notice period. MERCHANT may not resell, trade, exchange, barter or broker to any third party any promotional or advertising space which is the subject of this Agreement. MERCHANT will not be entitled to any refund or proration for delays caused by MERCHANT's failure to deliver to AOL any materials relating to the Promotion. MERCHANT acknowledges and agrees that AOL will own all right, title and interest in and to the elements of graphics, design, organization, presentation, layout, user interface, navigation and stylistic convention (including the digital implementations thereof) which are generally associated with online areas contained within the AOL Network. 6. PRODUCT OFFERING. MERCHANT will ensure that the Merchant Site generally includes all of the Products and other Content (including, without limitation, any features, offers, contests, functionality or technology) that are then made available by or on behalf of MERCHANT through any Additional MERCHANT Channel unless prohibited by this Agreement. 7. TERMS AND CONDITIONS. MERCHANT will ensure that the prices, terms and conditions related to Products in the Merchant Site are generally no less favorable in any respect to the terms and conditions for the Products offered by or on behalf of MERCHANT through any Additional MERCHANT Channel. 8. EXCLUSIVE OFFERS. MERCHANT will generally promote through the Merchant Site any special or promotional offers made available by or on behalf of MERCHANT through any Additional MERCHANT Channel. In addition, MERCHANT shall promote through the Merchant 28 29 Site on a regular and consistent basis special offers exclusively available to AOL Users (the "AOL Exclusive Offers"). MERCHANT shall, at all times, feature at least one AOL Exclusive Offer for AOL Users (except as otherwise mutually agreed upon by the Parties). The AOL Exclusive Offer made available by MERCHANT shall provide a substantial member benefit to AOL Users, either by virtue of a meaningful price discount, product enhancement, unique service benefit or other special feature. MERCHANT will provide AOL with reasonable prior notice of Exclusive Offers so that AOL can in its editorial discretion, market the availability of such offers. At MERCHANT's option, MERCHANT will work with AOL or its authorized agents to develop a customized AOL rewards program, which shall be a promotional program or plan that is intended to provide AOL users with rewards or benefits in exchange for, or on account of, their past or continued loyalty to, or patronage or purchase of, the products or services of Merchant or any third party. (e.g. a promotional program similar to a "frequent flier" program), to be provided through AOL's "AOL Rewards" program, accessible on the AOL Service at Keyword: "AOL Rewards." Merchant's participation in such promotional rewards program is subject to AOL's approval and may also require the payment of certain reasonable administration fees to AOL or its authorized agents or contractors operating the program. 9. CUSTOMER SERVICE. It is the sole responsibility of MERCHANT to provide customer service to persons or entities purchasing Products through the AOL Network, including without limitation, order processing, billing, fulfillment, shipment, collection and other customer service associated with any Products offered, sold or licensed through the Merchant Site, and AOL will have no obligations whatsoever with respect thereto. Merchant Site shall include clear and conspicuous disclosure of its customer service policies and a phone number and an email or street address at which customers may contact MERCHANT. MERCHANT shall provide a name of a customer service contact for use by AOL and a telephone number and email or street address to which AOL may forward or refer customer inquiries or complaints relating to MERCHANT. MERCHANT will receive all emails from customers via a computer available to MERCHANT's customer service staff and generally respond to such emails within one business day of receipt. MERCHANT will receive all orders electronically and generally process all orders within one business day of receipt, provided Products ordered are not advance order items. MERCHANT will ensure that all orders of Products are received, processed, fulfilled and delivered on a timely and professional basis. MERCHANT will offer AOL Users who purchase Products through such the Merchant Site a money-back satisfaction guarantee. MERCHANT will bear all responsibility for compliance with federal, state and local laws in the event that Products are out of stock or are no longer available at the time an order is received. MERCHANT will also comply with the requirements of any federal, state or local consumer protection or disclosure law. Payment for Products will be collected by MERCHANT directly from customers. MERCHANT's order fulfillment operation will be subject to AOL's reasonable review. 10. LAUNCH DATES. In the event that any terms contained herein relate to or depend on the commercial launch date of the Merchant Site (the "Merchant Site Launch Date"), then it is the intention of the Parties to record such Merchant Site Launch Date in a written instrument signed by both Parties promptly following such Merchant Site Launch Date; provided that, in the absence of such a written instrument, the Merchant Site Launch Date will be as reasonably determined by AOL based on the information available to AOL. For each day beyond the Merchant Site Launch Date that the actual commercial launch of the Merchant Site is delayed (e.g., due to MERCHANT or the Merchant Site not being ready), then AOL will be entitled to reduce the Impressions Commitment pro rata and decrease the promotions it provides to MERCHANT hereunder. 11. MERCHANT CERTIFICATION PROGRAM. MERCHANT will participate in any generally applicable "Certified Merchant" program operated by AOL or its authorized agents or contractors. Such program may require merchant participants on an ongoing basis to meet certain reasonable standards relating to provision of electronic commerce through the AOL Service, AOL.com, the CompuServe Service and the Netscape Netcenter and may also require the payment of certain reasonable certification fees to AOL or its authorized agents or contractors operating the program. At MERCHANT's option, MERCHANT may (i) participate in the BizRate(R) Program, a service offered by Binary Compass Enterprises, Inc. (BCE), which provides opt-in satisfaction surveys to AOL Users who purchase Products through the Merchant Site, or such other provider of such services as AOL may designate or approve from time to time, and (ii) provide a link to BizRate's then-current standard survey forms, or such other survey forms offered by any other party that AOL may reasonably designate or approve from time to time. To the extent MERCHANT participates in the BizRate(R) Program, MERCHANT's participation shall be based upon a separate written agreement which MERCHANT will enter into with BCE, or other such party reasonably designated or approved by AOL. MERCHANT hereby authorizes BCE or other third party providing such services to provide to AOL any and all reports provided to MERCHANT by BCE and agrees to provide written notice of such authorization to BCE, or such other third party. 12. TRAFFIC FLOW/NAVIGATION. MERCHANT will take reasonable efforts to ensure that AOL traffic is either kept within the Merchant Site or channeled back into the AOL Network (e.g. hypertext links). The Parties will work together on implementing mutually acceptable links from the Merchant Site back to the AOL Network. In the event that AOL points to the Merchant Site or any other Merchant Interactive Site or otherwise delivers traffic to such site hereunder, MERCHANT will ensure that navigation back to the AOL Network from such site, whether through a particular pointer or link, the "back" button on an Internet browser, the closing of an active window, or any other return mechanism, shall not be interrupted by MERCHANT through the use of any intermediate screen or other device not specifically requested by the AOL user, including without limitation through the use of any html pop-up window or any other similar device. AOL will be entitled to establish navigational icons, links, and/or pointers connecting the Merchant Site (or portions thereof) with the AOL Network. Additionally, in cases where an AOL User performs a search for Merchant through any search or navigational tool or mechanism that is accessible or available through the AOL Network (e.g., Promotions, Keyword Search Terms, or any other similar promotions or navigational tools), AOL shall have the right to direct such AOL User to the Merchant Site, or any other Merchant Interactive Site determined by AOL in its reasonable discretion. 29 30 EXHIBIT G-4: STANDARD LEGAL TERMS & CONDITIONS 1. PRODUCTION AND TECHNICAL SERVICES. Unless expressly provided for elsewhere in this Agreement, (i) AOL will have no obligation to provide any creative, design, technical or production services to MERCHANT and (ii) the nature and extent of any such services which AOL may provide to MERCHANT will be as determined by AOL in its sole discretion. The terms regarding any creative, design, technical or productions services provided by AOL to MERCHANT will be as mutually agreed upon by the parties in a separate written work order. With respect to any routine production, maintenance or related services which AOL reasonably determines are necessary for AOL to perform in order to support the proper functioning and integration of the Merchant Site ("Routine Services"), MERCHANT will pay the then-standard fees charged by AOL for such Routine Services. 2. AOL ACCOUNTS. To the extent MERCHANT has been granted any AOL Service, or the CompuServe Service accounts, MERCHANT will be responsible for the actions taken under or through its accounts, which actions are subject to AOL's applicable Terms of Service and for any surcharges, including, without limitation, all premium charges, transaction charges, and any applicable communication surcharges incurred by any account issued to MERCHANT. Upon the termination of this Agreement, all such accounts, related screen names and any associated usage credits or similar rights, will automatically terminate. AOL will have no liability for loss of any data or content related to the proper termination of any such account. 3. TAXES. MERCHANT will collect and pay and indemnify and hold AOL harmless from, any sales, use, excise, import or export value added or similar tax or duty arising from the Merchant Site, including any penalties and interest, as well as any costs associated with the collection or withholding thereof, including attorneys' fees. 4. REPRESENTATIONS AND WARRANTIES. Each Party represents and warrants to the other Party that: (i) such Party has the full corporate right, power and authority to enter into the Agreement and to perform the acts required of it hereunder; (ii) the execution of the Agreement by such Party, and the performance by such Party of its obligations and duties hereunder, do not and will not violate any agreement to which such Party is a party or by which it is otherwise bound; (iii) when executed and delivered by such Party, the Agreement will constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms; and (iv) such Party acknowledges that the other Party makes no representations, warranties or agreements related to the subject matter hereof that are not expressly provided for in the Agreement. 5. LICENSE. MERCHANT hereby grants AOL a non-exclusive worldwide license to market, license, distribute, reproduce, display, perform, transmit and promote the Merchant Site and all content, products and services offered therein or otherwise provided by MERCHANT in connection herewith through the AOL Network. AOL Users will have the right to access and use the Merchant Site. Subject to such license, MERCHANT retains all right, title to and interest in the Merchant Site. During the Term, AOL will have the right to use MERCHANT's trademarks, trade names and service marks in connection with performance of this Agreement, subject to any written guidelines provided to AOL. 6. CONFIDENTIALITY. Each Party acknowledges that Confidential Information may be disclosed to the other Party during the course of this Agreement. Each Party agrees that it will take reasonable steps, at least substantially equivalent to the steps it takes to protect its own proprietary information, during the term of this Agreement, and for a period of three years following expiration or termination of this Agreement, to prevent the duplication or disclosure of Confidential Information of the other Party, other than by or to its employees or agents who must have access to such Confidential Information to perform such Party's obligations hereunder, who will each agree to comply with this provision. MERCHANT shall not make, publish, or otherwise communicate through the AOL Network any deleterious remarks concerning AOL or it Affiliates, directors, officers, employees, or agents (including, without limitation, AOL's business projects, business capabilities, performance of duties and services, or financial position) which remarks are based on the relationship established by this Agreement or information exchanged hereunder. This section is not intended to limit good faith editorial statements made by MERCHANT based upon publicly available information, or information developed by MERCHANT independent of its relationship with AOL and its employees and agents. 7. LIMITATION OF LIABILITY; DISCLAIMER; INDEMNIFICATION. (a) LIABILITY. UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM BREACH OF THE AGREEMENT, THE SALE OF PRODUCTS, THE USE OR INABILITY TO USE THE AOL NETWORK, THE AOL SERVICE, AOL.COM, THE COMPUSERVE SERVICE, THE NETSCAPE NETCENTER OR THE MERCHANT SITE, OR ARISING FROM ANY OTHER PROVISION OF THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS (COLLECTIVELY, "DISCLAIMED DAMAGES"); PROVIDED THAT EACH PARTY WILL REMAIN LIABLE TO THE OTHER PARTY TO THE EXTENT ANY DISCLAIMED DAMAGES ARE CLAIMED BY A THIRD PARTY AND ARE SUBJECT TO INDEMNIFICATION PURSUANT TO PARAGRAPH (C) BELOW. EXCEPT AS PROVIDED TO PARAGRAPH (C) BELOW, (I) LIABILITY ARISING UNDER THIS AGREEMENT WILL BE LIMITED TO DIRECT, OBJECTIVELY MEASURABLE DAMAGES, AND (II), AOL WILL NOT BE LIABLE TO MERCHANT UNDER THE AGREEMENT FOR MORE THAN THE AMOUNTS THEN PAID TO AOL BY MERCHANT HEREUNDER. (b) NO ADDITIONAL WARRANTIES. EXCEPT AS EXPRESSLY SET FORTH IN THE AGREEMENT, NEITHER PARTY MAKES ANY, AND EACH PARTY HEREBY SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING, THE AOL SERVICE, AOL.COM, THE COMPUSERVE SERVICE, THE NETSCAPE NETCENTER, THE AOL NETWORK, OR THE MERCHANT SITE, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, AOL SPECIFICALLY DISCLAIMS ANY WARRANTY REGARDING (I) THE PROFITABILITY OF THE MERCHANT SITE, (II) THE NUMBER OF PERSONS WHO WILL ACCESS OR "CLICK-THROUGH" THE PROMOTION, (III) ANY BENEFIT MERCHANT MIGHT OBTAIN FROM INCLUDING THE PROMOTION WITHIN THE AOL SERVICE, AOL.COM, THE NETSCAPE NETCENTER, OR THE COMPUSERVE SERVICE OR THE AOL NETWORK OR (IV) THE FUNCTIONALITY, PERFORMANCE OR OPERATION OF THE AOL SERVICE, AOL.COM, THE COMPUSERVE OR NETSCAPE NETCENTER WITH RESPECT TO THE PROMOTION. (c) Indemnity. Either Party will defend, indemnify, save and hold harmless the other Party and the officers, directors, agents, affiliates, distributors, franchisees and employees of the other Party from any and all third party claims, demands, liabilities, costs or expenses, including reasonable attorneys' fees ("Liabilities"), resulting from the indemnifying Party's breach of any duty, representation, or warranty of the Agreement, except where Liabilities result from the gross negligence or knowing and willful misconduct of the other Party. (d) Claims. If a Party entitled to indemnification hereunder (the "Indemnified Party") becomes aware of any matter it believes is indemnifiable hereunder involving any claim, action, suit, investigation, arbitration or other proceeding against the Indemnified Party by any third party (each an "Action"), the Indemnified Party will give the other Party (the "Indemnifying Party") prompt written notice of such Action. Such notice will (i) provide the basis on which indemnification is being asserted and (ii) be accompanied by copies of all relevant pleadings, demands, and other papers related to the Action and in the possession of the Indemnified Party. The Indemnifying Party will have a period of ten (10) days after delivery of such notice to respond. If the 30 31 Indemnifying Party elects to defend the Action or does not respond within the requisite ten (10) day period, the Indemnifying Party will be obligated to defend the Action, at its own expense, and by counsel reasonably satisfactory to the Indemnified Party. The Indemnified Party will cooperate, at the expense of the Indemnifying Party, with the Indemnifying Party and its counsel in the defense and the Indemnified Party will have the right to participate fully, at its own expense, in the defense of such Action. If the Indemnifying Party responds within the required ten (10) day period and elects not to defend such Action, the Indemnified Party will be free, without prejudice to any of the Indemnified Party's rights hereunder, to compromise or defend (and control the defense of) such Action. In such case, the Indemnifying Party will cooperate, at its own expense, with the Indemnified Party and its counsel in the defense against such Action and the Indemnifying Party will have the right to participate fully, at its own expense, in the defense of such Action. Any compromise or settlement of an Action will require the prior written consent of both Parties hereunder, such consent not to be unreasonably withheld or delayed. (e) Acknowledgment. AOL and MERCHANT each acknowledges that the provisions of this Agreement were negotiated to reflect an informed, voluntary allocation between them of all risks (both known and unknown) associated with the transactions contemplated hereunder. The limitations and disclaimers related to warranties and liability contained in the Agreement are intended to limit the circumstances and extent of liability. The provisions in paragraphs (a) through (d) above and this paragraph (e) will be enforceable independent of and severable from any other enforceable or unenforceable provision of this Agreement. 8. SOLICITATION OF SUBSCRIBERS. (a) During the term of the Agreement and for a two year period thereafter, MERCHANT will not use the AOL Network (including, without limitation, the e-mail network contained therein) to solicit AOL Users on behalf of another Interactive Service. MERCHANT will not send unsolicited, commercial e-mail or other online communication through or into AOL's products or services, absent a Prior Business Relationship. For purposes of this Agreement, a "Prior Business Relationship" will mean that the AOL User to whom commercial e-mail or other online communication is being sent has voluntarily either (i) engaged in a transaction with MERCHANT or (ii) provided information to MERCHANT through a contest, registration, or other communication, which included notice to the AOL User that the information provided could result in commercial e-mail or other online communication being sent to that AOL User by MERCHANT or its agents. More generally, any commercial e-mail or other online communication to be sent through or into AOL's products or services shall be subject to AOL's then-standard restrictions on distribution of bulk e-mail and the limitations set forth in Exhibit C. (b) MERCHANT shall ensure that its collection, use and disclosure of information obtained from AOL Users under this Agreement ("User Information") complies with (i) all applicable laws and regulations (ii) AOL's standard privacy policies, available on the AOL Service at the keyword term "Privacy", and (iii) AOL's applicable Terms of Service. (c) MERCHANT will not disclose User Information to any third party in a manner that identifies AOL User as end users of an AOL product or service or use User Information collected under this Agreement to market an Interactive Service competitive with AOL. 9. AOL User Communications. TO THE EXTENT MERCHANT IS OTHERWISE PERMITTED TO SEND COMMUNICATIONS TO AOL USERS (IN ACCORDANCE WITH THE OTHER REQUIREMENTS CONTAINED HEREIN):, (i) ANY SOLICITATIONS IN SUCH COMMUNICATIONS TO PURCHASE PRODUCTS OR SERVICES SHALL PROMOTE THE MERCHANT SITE AVAILABLE THROUGH THE AOL NETWORK AS THE PRINCIPAL MEANS THROUGH WHICH TO PURCHASE ANY SUCH PRODUCTS OR SERVICES; (ii) ANY DIRECT LINKS TO SPECIFIC OFFERS WITHIN SUCH COMMUNICATIONS SHALL LINK TO THE MERCHANT SITE; (iii) MERCHANT SHALL LIMIT THE SUBJECT MATTER OF SUCH COMMUNICATIONS TO THOSE CATEGORIES OF PRODUCTS, SERVICES AND/OR CONTENT WHICH ARE SPECIFICALLY CONTEMPLATED BY THIS AGREEMENT; AND (iv) MERCHANT WILL PROVIDE THE RECIPIENT WITH A PROMINENT AND EASY MEANS TO "OPT-OUT" OF RECEIVING ANY FUTURE COMMERCIAL E-MAIL COMMUNICATIONS FROM MERCHANT. IN ADDITION, IN ANY COMMUNICATION TO AOL USERS OR ON THE MERCHANT SITE, MERCHANT WILL NOT ENCOURAGE AOL USERS TO TAKE ANY ACTION INCONSISTENT WITH THE SCOPE AND PURPOSE OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION, THE FOLLOWING ACTIONS: (a) USING INTERACTIVE SITES OTHER THAN THE MERCHANT SITE; (b) BOOKMARKING OF OTHER INTERACTIVE SITES; (c) CHANGING THE DEFAULT HOME PAGE ON THE AOL BROWSER; OR (d) USING ANY INTERACTIVE SERVICE OTHER THAN THE AOL SERVICE, AOL.COM, THE COMPUSERVE SERVICE OR THE NETSCAPE NETCENTER. 10. KEYWORD SEARCH TERMS. Any Keyword Search Terms to be directed to Merchant's Site shall be (i) subject to availability and (ii) limited to the combination of the keyword search modifier combined with a registered trademark of MERCHANT. AOL reserves the right at any time to revoke MERCHANT's use of any keywords that are not registered trademarks of MERCHANT. MERCHANT acknowledges that its utilization of a Keyword Search Term will not create in it, nor will it represent it has, any right, title or interest in or to such Keyword Search Term, other than the right, title and interest MERCHANT holds in MERCHANT's registered trademark independent of the Keyword Search Term. Without limiting the generality of the foregoing, MERCHANT will not: (a) attempt to register or otherwise obtain trademark or copyright protection in the Keyword Search Term; or (b) use the Keyword Search Term, except for the purposes expressly required or permitted under this Agreement. To the extent AOL allows AOL Users to "bookmark" the URL or other locator for the Merchant Site, such bookmarks will be subject to AOL's control at all times. Upon the termination of this Agreement, MERCHANT's rights to any keywords and bookmarking will terminate. 11. MISCELLANEOUS. Neither Party will be liable for, or be considered in breach of or default under the Agreement on account of, any delay or failure to perform as required by the Agreement (except with respect to payment obligations) as a result of any causes or conditions which are beyond such Party's reasonable control and which such Party is unable to overcome by the exercise of reasonable diligence. MERCHANT's rights, duties, and obligations under the Agreement are not transferable. The Parties to the Agreement are independent contractors. Neither Party is an agent, representative or partner of the other Party. Neither Party will have any right, power or authority to enter into any agreement for or on behalf of, or incur any obligation or liability of, or to otherwise bind, the other Party. The failure of either Party to insist upon or enforce strict performance by the other Party of any provision of the Agreement or to exercise any right under the Agreement will not be construed as a waiver or relinquishment to any extent of such Party's right to assert or rely upon any such provision or right in that or any other instance; rather, the same will be and remain in full force and effect. Sections 2, 3, 6, 7, 8, 9, 10, and 11 of these Standard Legal Terms and Conditions, will survive the completion, expiration, termination or cancellation of the Agreement. Either Party may terminate the Agreement at any time with written notice to the other Party in the event of a material breach of the Agreement by the other Party, which remains uncured after thirty days written notice thereof. Any notice, approval, request, authorization, direction or other communication under this Agreement will be given in writing and will be deemed to have been delivered and given for all purposes (i) on the delivery date if delivered by electronic mail on AOL's network or systems (to screenname "AOLNotice@AOL.com" in the case of AOL) or by confirmed facsimile; (ii) on the delivery date if delivered personally to the Party to whom the same is directed; (iii) one business day after deposit with a commercial overnight carrier, with written verification of receipt; or (iv) five business days after the mailing date, whether or not actually received, if sent by U.S. mail, return receipt requested, postage and charges prepaid, or any other means of rapid mail delivery for which a receipt is available. In the case of AOL, such 31 32 notice will be provided to both the Senior Vice President for Business Affairs (fax no. 703-265-1206) and the Deputy General Counsel (fax no. 703-265-2208), each at the address of AOL set forth in the first paragraph of this Agreement. In the case of MERCHANT, except as otherwise specified herein, the notice address will be the address for MERCHANT set forth in the first paragraph of this Agreement, with the other relevant notice information, including the recipient for notice and, as applicable, such recipient's fax number or AOL email address, to be as reasonably identified by AOL. Except as otherwise specified herein, the Agreement sets forth the entire agreement between MERCHANT and AOL, and supersedes any and all prior agreements of AOL or MERCHANT with respect to the transactions set forth herein. No change, amendment or modification of any provision of the Agreement will be valid unless set forth in a written instrument signed by the Party subject to enforcement of such amendment. MERCHANT will promptly inform AOL of any information related to the Merchant Site which could reasonably lead to a claim, demand, or liability of or against AOL and/or its affiliates by any third party. MERCHANT will not assign this Agreement or any right, interest or benefit under this Agreement without the prior written consent of AOL. Assumption of the Agreement by any successor to MERCHANT (including, without limitation, by way of merger, consolidation or sale of all or substantially all of MERCHANT's stock or assets) will be subject to AOL's prior written approval. Subject to the foregoing, this Agreement will be fully binding upon, inure to the benefit of and be enforceable by the Parties hereto and their respective successors and assigns. Except where otherwise specified herein, the rights and remedies granted to a Party under the Agreement are cumulative and in addition to, and not in lieu of, any other rights or remedies which the Party may possess at law or in equity. In the event that any provision of the Agreement is held invalid by a court with jurisdiction over the Parties to the Agreement, (i) such provision will be deemed to be restated to reflect as nearly as possible the original intentions of the Parties in accordance with applicable law and (ii) the remaining terms, provisions, covenants and restrictions of this Agreement will remain in full force and effect. The Agreement may be executed in counterparts, each of which will be deemed an original and all of which together will constitute one and the same document. The Agreement will be interpreted, construed and enforced in all respects in accordance with the laws of the Commonwealth of Virginia, except for its conflicts of laws principles. MERCHANT hereby irrevocably consents to the exclusive jurisdiction of the courts of the Commonwealth of Virginia and the federal courts therein in connection with any action arising under this Agreement. 32 33 EXHIBIT G-5: SHOPPING OPERATIONS 1. Merchant Site Infrastructure. MERCHANT will be responsible for all communications, hosting and connectivity costs and expenses associated with the Merchant Site. MERCHANT will provide all hardware, software, telecommunications lines and other infrastructure necessary to meet traffic demands on the Merchant Site from the AOL Network. MERCHANT will design and implement the network between the AOL Service and Merchant Site such that (i) no single component failure will have a materially adverse impact on AOL Members seeking to reach the Merchant Site from the AOL Network and (ii) no single line under material control by the Merchant will run at more than 70% average utilization for a 5-minute peak in a daily period. In this regard, MERCHANT will provide AOL, upon request, with a detailed network diagram regarding the architecture and network infrastructure supporting the Merchant Site. In the event that MERCHANT elects to create a custom version of the Merchant Site in order to comply with the terms of this Agreement, MERCHANT will bear responsibility for all aspects of the implementation, management and cost of such customized site. 2. Optimization; Speed. MERCHANT will use commercially reasonable efforts to ensure that: (a) the functionality and features within the Merchant Site are optimized for the client software then in use by AOL Members; and (b) the Merchant Site is designed and populated in a manner that minimizes delays when AOL Members attempt to access such site. At a minimum, MERCHANT will ensure that the Merchant Site's data transfers initiate within fewer than fifteen (15) seconds on average. Prior to commercial launch of any material promotions described herein, MERCHANT will permit AOL to conduct performance and load testing of the Merchant Site (in person or through remote communications), with such commercial launch not to commence until such time as AOL is reasonably satisfied with the results of any such testing. 3. User Interface. MERCHANT will maintain a graphical user interface within the Merchant Site that is competitive in all material respects with interfaces of other similar sites based on similar form technology. AOL reserves the right to review and approve the user interface and site design prior to launch of the Promotions and to conduct focus group testing to assess compliance with respect to such consultation and with respect to MERCHANT's compliance with the preceding sentence. 4. Technical Problems. MERCHANT agrees to use commercially reasonable efforts to address material technical problems (over which MERCHANT exercises control) affecting use by AOL Members of the Merchant Site (a "MERCHANT Technical Problem") promptly following notice thereof. In the event that MERCHANT is unable to promptly resolve a MERCHANT Technical Problem following notice thereof from AOL (including, without limitation, infrastructure deficiencies producing user delays), AOL will have the right to regulate the promotions it provides to MERCHANT hereunder until such time as MERCHANT corrects the MERCHANT Technical Problem at issue. 5. Monitoring. MERCHANT will ensure that the performance and availability of the Merchant Site is monitored on a continuous basis. MERCHANT will provide AOL with contact information (including e-mail, phone, pager and fax information, as applicable, for both during and after business hours) for MERCHANT's principal business and technical representatives, for use in cases when issues or problems arise with respect to the Merchant Site. 6. Security. MERCHANT will utilize Internet standard encryption technologies (e.g., Secure Socket Layer-SSL) to provide a secure environment for conducting transactions and/or transferring private member information (e.g. credit card numbers, banking/financial information, and member address information) to and from the Merchant Site. MERCHANT will facilitate periodic reviews of the Merchant Site by AOL in order to evaluate the security risks of such site. MERCHANT will promptly remedy any security risks or breaches of security as may be identified by AOL's Operations Security team. 7. Technical Performance. i. MERCHANT will design the Merchant Site to support the AOL-client embedded versions of the Microsoft Internet Explorer 3.XX and 4.XX browsers (Windows and Macintosh), the Netscape Browser 4.XX, and make commercially reasonable efforts to support all other AOL browsers listed at: "http://webmaster.info.aol.com/". ii. To the extent MERCHANT creates customized pages on the Merchant Site for AOL Members, Merchant will develop and employ a methodology to detect AOL Members (e.g. examine the HTTP User-Agent field in order to identify the "AOL Member-Agents" listed at: "http://webmaster.info.aol.com/"). iii. MERCHANT will periodically review the technical information made available by AOL at http://webmaster.info.aol.com. iv. MERCHANT will design its site to support HTTP 1.0 or later protocol as defined in RFC 1945 and to adhere to AOL's parameters for refreshing or preventing the caching of information in AOL's proxy system outlined in the document provided at the following URL: http://webmaster.info.aol.com. The Merchant is responsible for the manipulation of these parameters in web based objects so as to allow them to be cached or not cached as outlined in RFC 1945. v. Prior to releasing material, new functionality or features through the Merchant Site ("New Functionality"), MERCHANT will use commercially reasonable efforts to: (i) test the New Functionality to confirm its compatibility with AOL Service client software and (ii) provide AOL with written notice of the New Functionality so that AOL can perform tests of the New Functionality to confirm its compatibility with the AOL Service client software. Should any new material, new functionality or features through the Merchant Site be released without notification to AOL. AOL will not be responsible for any adverse member experience until such time that compatibility tests can be performed and the new material, functionality or features qualified for the AOL Service. 8. AOL Internet Services MERCHANT Support. AOL will provide 33 34 MERCHANT with access to the standard online resources, standards and guidelines documentation, technical phone support, monitoring and after-hours assistance that AOL makes generally available to similarly situated web-based partners. AOL support will not, in any case, be involved with content creation on behalf of MERCHANT or support for any technologies, databases, software or other applications which are not supported by AOL or are related to any MERCHANT area other than the Merchant Site. Support to be provided by AOL is contingent on MERCHANT providing to AOL demo account information (where applicable), a detailed description of the Merchant Site's software, hardware and network architecture and access to the Merchant Site for purposes of such performance and the coordination of load testing as AOL elects to conduct. As described elsewhere in this Agreement, MERCHANT is fully responsible for all aspects of hosting and administration of the Merchant Site and must ensure that the site satisfies the specified access and performance requirements as outlined in this Exhibit E. 34 EX-10.8 3 SPECIAL DELIVERY/OFFER AGREEMENT 1 EXHIBIT 10.8 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS WITH ASTERISKS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. LYCOS, INC. SPECIAL DELIVERY/SPECIAL OFFER AGREEMENT THIS SPECIAL DELIVERY / SPECIAL OFFER AGREEMENT (this "Agreement") is entered into as of August 15, 1999 between Lycos, Inc., a Delaware corporation and Bolt.com, a New York corporation. SECTION 1. DEFINITIONS. 1.1 "MailCity" means Lycos' World Wide Web-based electronic mail service, currently commercially referred to as MailCity(TM), as the same may be updated or modified from time to time in Lycos' sole discretion. 1.2 "Private-Labeled E-Mail Systems" means any World Wide Web-based electronic mail services powered by Lycos. 1.3 "Subscribe or a Subscription" means when a MailCity User (as defined in Section 2.1) or a Private-Label User (as defined in Section 2.1) checks the appropriate box on the user interface designed by Lycos to receive one of Content Provider's Newsletter Products. SECTION 2. SERVICES OFFERED BY CONTENT PROVIDER. 2.1 E-Mail News Products. Content Provider shall produce the e-mail newsletter or promotional products described in Exhibit A to this Agreement (which may be amended from time to time upon the mutual consent of the parties) (the "Newsletter Products") for distribution during the Term of this Agreement, by Lycos to the users of MailCity (each, a "MailCity User") who Subscribe to such Newsletter Products, and solely at the election of Lycos, any of the users of any of the Private-Labeled E-Mail Systems (each, a "Private-Label User") who Subscribe to such Newsletter Products, as provided in Section 3. Content Provider shall produce such Newsletter Products no less frequently than once per month and no more frequently than four times per month. 2.2 Content. Content Provider's Newsletter Products shall not infringe or violate any third party's copyright, patent, trademark, trade secret, music, image, or other proprietary right, or constitute false advertising, unfair competition, defamation, invasion of privacy or rights of celebrity, violate any anti-discrimination law or regulation, or any, other right of any other person or entity. Additionally, Content Provider's Newsletter Products shall not include content that contains, or contains links to, nudity, sex, pornography, foul language or hate propaganda. Content Provider shall not send unsolicited special offers or marketing materials (e.g., "SPAM") to MailCity Users or Private-Label Users. 2 SECTION 3. SERVICES OFFERED BY LYCOS. 3.1 Subscriptions by Users. Lycos shall enable new and existing MailCity Users to Subscribe for Content Provider's Newsletter Products 3.2 Distribution of Newsletters. During the Term of this Agreement, Content Provider shall deliver to Lycos an electronic (to an address specified by Lycos) and hard copy of the standard form of each edition of the Newsletter Products to be distributed by Lycos to those users that subscribe for such Newsletter Products; provided that Lycos shall not be obligated to deliver more than [ * ] of each Newsletter Product each month and Lycos may decide which Lycos Site on which the Newsletter Products will be offered, in the event Content Provider exceed the limit of [ * ] Newsletter Products per month, then Content Provider shall pay (in accordance with Section 4.2) a special assessment of an additional [ * ]% of the fees that would otherwise be payable in such month. Lycos will not be required to customize the form of Newsletter Product distributed to its users. 3.2 Private-Label E-Mail Systems. Lycos may, at its option, enable new and existing Private-Label Users to Subscribe for Content Provider's Newsletter Products. SECTION 4. COMPENSATION. 4.1 Impression Fees. Content Provider shall pay to Lycos, on a quarterly basis within one month after the end of each quarter, $[*] net for each [ * ] copies of a Content Provider Newsletter Product emailed by Lycos to subscribers to the Newsletter Products (the "CPA Fees"); provided that in no event shall Content Provider pay Lycos on an annual basis in the aggregate less than $[ * ], pursuant in such cost-per-[ * ] calculation regardless of the number of actual emails sent to subscribers. If Content Provider fails to generate and pay Lycos at least $[ * ] within such year period, then Content Provider shall pay Lycos, within one month after the end of such year period, the difference between the amounts actually paid to Lycos in such year period and $[ * ]. 4.2 Billing. Lycos shall bill Content Provider on a quarterly basis for time aggregate fees due for the prior quarter. Each invoice shall be due and payable thirty (30) days after the date of the invoice. All invoices not paid within thirty (30) days of the date of invoice shall incur a finance charge in the amount of one and one half percent (1.5%) of the invoice amount per month until paid. SECTION 5. CONTENT OWNERSHIP AND LICENSE. Content Provider will retain all rights, title and interest in and to its content, subject to a limited license necessary to perform this Agreement. SECTION 6. TERMS. The term ("Term") of this Agreement shall commence on the Effective Date and continue for one year unless terminated earlier as provided in Section 12 below. This Agreement shall renew automatically for successive one-year period unless either party gives written notice of non-renewal to the other party at least thirty (30) days print to any such renewal date. 2 3 SECTION 7. MARKS. To the extent distribution of Content Provider's Newsletter Products is deemed a use, public display, transmission, distribution or reproduction of the Newsletter Products or the intellectual property of Content Provider, Content Provider hereby grants Lycos a non-transferable (except as provided herein), royalty-free, worldwide license to use, publicly display, transmit, distribute and reproduce the Newsletter Products and the intellectual property of Content Provider during the Term solely for the purposes described herein. In addition, Lycos hereby grants to Content Provider a non-exclusive, non-transferable license to reproduce and display Lycos' trademarks, service marks, logos and the like solely for the purposes specified in this Agreement. Content Provider hereby grants Lycos a non-exclusive, non-transferable license to reproduce and display Content Provider's trademarks, service marks, logos and the like solely for the purposes specified in this Agreement. Except as expressly stated herein, neither party shall make any other use of the other party's marks. Upon request of either party, the other party shall provide appropriate attribution of the use of the requesting party's marks. (e.g., "Go Get It(R) is a registered service mark of Lycos, Inc. All Rights Reserved."). Such licenses shall terminate automatically upon the effective date of expiration or termination of this Agreement. SECTION 8. REPRESENTATIONS AND WARRANTIES. Each party hereby represents and warrants as follows: 8.1 Corporate Power. Such party is duly organized and validly existing under the laws of the state of its incorporation and has full corporate power and authority to enter into this Agreement and to carry out the provisions hereof. 8.2. Due Authorization. Such party is duly authorized to execute and deliver this Agreement and to perform its obligations hereunder. 8.3. Binding Agreement. This Agreement is a legal and valid obligation binding upon it and enforceable with its terms. The execution, delivery and performance of this Agreement by such party does not conflict with any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound, nor violate any law or regulation of any court, governmental body or administrative or other agency having jurisdiction over it. 8.4. Intellectual Property Rights. a. Content Provider has the full and exclusive right to grant or otherwise permit Lycos to copy, distribute, display and use Content Provider's intellectual property associated with Content Provider's Newsletter Products, and Consent Provider is aware of no claims by any third parties adverse to any of such intellectual property rights. b. Lycos has the full and exclusive right to grant or otherwise permit Content Provider to scud its Newsletter Products to users of MailCity or Private-Labeled E-Mail Systems, and Lycos is aware of no claims by any third parties adverse to any of such intellectual property rights. 3 4 c. If either party's (the "Infringing Party") intellectual property rights are alleged or held to infringe the intellectual property rights of a third party, the Infringing Party shall, at its own expense, and in its sole discretion, (1) procure for the non-Infringing Party the right to continue to use the allegedly infringing intellectual property or (2) replace or modify the intellectual property to make it non-infringing; provided, however, if neither option is possible or economically feasible and if the inability to use such intellectual property would cause a material breach of this Agreement (as determined by the non-Infringing Party), the infringing Party may terminate this Agreement. The representations and warranties and covenants in this Section 8 are continuous in nature and shall be deemed to have been given by each party at execution of this Agreement and at each stage of performance hereunder. These representations, warranties and covenants shall survive termination or expiration of this Agreement. SECTION 9. LIMITATION OF WARRANTY. EXCEPT AS EXPRESSLY WARRANTED IN SECTION 8 ABOVE, EACH PARTY EXPRESSLY DISCLAIMS ANY FURTHER WARRANTIES, EXPRESS, IMPLIED, OR STATUTORY, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LYCOS MAKES NO EXPRESS OR IMPLIED WARRANTIES OR REPRESENTATIONS WITH RESPECT TO THE LYCOS SITE, AND LYCOS SHALL NOT BE LIABLE FOR THE CONSEQUENCES OF ANY INTERRUPTIONS OR ERRORS RELATED THERETO. LYCOS SPECIFICALLY DISCLAIMS ALL LIABILITY FOR THE CONTENT PROVIDER SITE, THE CONTENT PROVIDER NEWSLETTER PRODUCTS AND THE CONTENT THEREIN, AND CONTENT PROVIDER SPECIFICALLY DISCLAIMS ALL LIABILITY FOR THE LYCOS SITE AND THE CONTENT THEREIN (NOT PROVIDED BY CONTENT PROVIDER). SECTION 10. INDEMNIFICATION. 10.1. Content Provider Indemnity. Content Provider will at all times defend, indemnify and hold harmless Lycos and its officers, directors, shareholders, employees, accountants, attorneys, agents, successors and assigns from and against any and all third party claims, damages, liabilities, costs and expenses, including reasonable legal fees and expenses, arising out of or related to any breach of any warranty, representation, covenant or agreement made by Content Provider in this Agreement. Lycos shall give Content Provider prompt written notice of any claim, action or demand for which indemnity is claimed. Content Provider shall have the right, but not the obligation, to control the defense and/or settlement of any claim in which it is named as a party and which arises as a result of Content Provider's breach of any warranty, representation, covenant or agreement under this Agreement. Lycos shall have the right to participate in any defense of a claim, by Content Provider with counsel of Lycos' choice at Lycos' own expense. The foregoing indemnity is conditioned upon: prompt written notice by Lycos to Content Provider of any claim, action or demand for which indemnity is claimed; complete control of the defense and settlement thereof by content Provider; and such reasonable cooperation by Lycos in the defense as Content Provider may request. 4 5 10.2 Lycos Indemnity. Lycos will at all times defend, indemnify and hold harmless Content Provider and its officers, directors, shareholders, employees, accountants, attorneys, agents, successors and assigns from and against any and all third party claims, damages, liabilities, costs and expenses, including reasonable legal fees and expenses, arising out of or related to any breach of any warranty, representation, covenant or agreement made by Lycos in this Agreement. Content Provider shall give Lycos prompt written notice of any claim, action or demand for which indemnity is claimed. Lycos shall have the right, but not the obligation, to control the defense and/or settlement of any claim in which it is named as a party. Content Provider shall have the right to participate in any defense of a claim by Lycos with counsel of Content Provider's choice at Content Provider's own expense. The foregoing indemnity is conditioned upon prompt written notice by Content Provider to Lycos of any claim, action or demand for which indemnity is claimed; complete control of the defense and settlement thereof by Lycos; and such reasonable cooperation by Content Provider in the defense as Lycos may request. 10.3 Settlement. Neither party shall, without the prior written consent of the other party, settle, compromise or consent to the entry of any judgment with respect to any pending or threatened claim unless the settlement, compromise or consent provides for and includes an express, unconditional release of all claims, damages, liabilities, costs and expenses, including reasonable legal fees and expenses, against the indemnified party. SECTION 11. CONFIDENTIALITY, PRESS RELEASES 11.1 Non-Disclosure Agreement. The parties agree and acknowledge that, as a result of negotiating, entering into and performing this Agreement, each party has and will have access to certain of the other party's Confidential Information (as defined below). Each party also understands and agrees that misuse and/or disclosure of that information could adversely affect the other party's business. Accordingly, the parties agree that, during the Term of this Agreement and thereafter, each party shall use and reproduce the other party's Confidential Information only for purposes of this Agreement and only to the extent necessary for such purpose and shall restrict disclosure of the other party's Confidential Information to its employees, consultants or independent contractors with a need to know and shall not disclose the other party s Confidential Information to any third party without the prior written approval of the other party. Notwithstanding the foregoing, it shall not be a breach of this Agreement for either party to disclose Confidential Information of the other party if required to do so under law or in a judicial or other governmental investigation or proceeding, provided the other party has been given prior notice and the disclosing party has sought all available safeguards against widespread dissemination prior to such disclosure. 5 6 11.2. Confidential Information Defined. As used in this Agreement, the term "Confidential Information" refers to: (i) the terms and conditions of this Agreement; (ii) each party's trade secrets, business plans, strategies, methods and/or practices; and (iii) other information relating to either party that is not generally known to the public, including information about either party's personnel, products, customers, marketing strategies, services or future business plans. Notwithstanding time foregoing, the term "Confidential Information" specifically excludes (A) information that is now in the public domain or subsequently enters the public domain by publication or otherwise through no action or fault of the other party; (B) information that is known to either party without restriction, prior to receipt from the other party under this Agreement, from its own independent sources as evidenced by such party's written records, and which was not acquired, directly or indirectly, from the other party; (C) information that either party receives from any third party reasonably known by such receiving party to have a legal right to transmit such information and not under any obligation to keep such information confidential; and (D) information independently developed by either party's employees or agents provided that either party can show that those same employees or agents had no access to the Confidential Information received. 11.3. Press Releases. Lycos and Content Provider may jointly prepare press releases concerning the existence of this Agreement and the terms hereof. Otherwise, no public statements concerning the existence or terms of this Agreement shall be made or released to any medium except with the prior approval of Lycos and Content Provider or as required by law. SECTION 12. TERMINATION. Either party may terminate this Agreement if (a) the other party files a petition for bankruptcy or is adjudicated bankrupt; (b) a petition in bankruptcy is filed against the other party and such petition is not dismissed within sixty (60) days of the filing date; (c) the other party becomes insolvent or makes an assignment for the benefit of its creditors pursuant to any bankruptcy law; (d) a receiver is appointed for the other party or its business; (e) upon the occurrence of a material breach of a material provision by the other party if such breach is not cured within thirty (30) days after written notice is received by the breaching party identifying time matter constituting the material breach; (f) upon thirty (30) days written notice if the other party's service, viewed as a whole, ceases to the competitive with substantially similar services then being offered by third parties; (g) by mutual consent of the parties; or (h) with 60 days written notice by the Content Provider. In addition, Lycos may terminate this Agreement upon thirty (30) days written notice to Content Provider in the event that Content Provider is subject to a Change in Control (as defined below) by an entity whose primary business is a provider of search, directory, navigation or community services on the Internet, or an affiliate of such an entity. "Change in Control" means the direct or indirect acquisition of 50% or more of the outstanding voting shares of an entity, or the acquisition of the ability, by contract or otherwise, to direct or control the management of that entity. Upon at least ninety (90) days prior written notice to the other party, either party may terminate this Agreement if any change occurs in the legal or regulatory requirements applicable to the topic of this Agreement that would render performance of a material obligation of the terminating party hereunder illegal or otherwise subject to legal challenge, unless performance of such material obligation is waived by the non-terminating party. 6 7 SECTION 13. FORCE MAJEURE. In the event that either party is prevented from performing, or is unable to perform, any of its obligations under this Agreement due to any cause beyond the reasonable control of the party invoking this provision, the affected party's performance shall be excused and the time for performance shall be extended for the period of delay or inability to perform due to such occurrence. SECTION 14. RELATIONSHIP OF PARTIES. Content Provider and Lycos are independent contractors under this Agreement, and nothing herein shall be construed to create a partnership, joint venture or agency relationship between Content Provider and Lycos. Neither party has authority to enter into agreements of any kind out behalf of the other. SECTION 15. ASSIGNMENT, BINDING EFFECT. Neither Lycos nor Content Provider may assign this Agreement or any of its rights or delegate my of its duties under this Agreement without the prior written consent of the other. Notwithstanding the foregoing, Lycos may assign this Agreement to any successor of Lycos. SECTION 16. CHOICE OF LAW AND FORUM. This Agreement, its interpretation, performance or any breach thereof, shall be construed in accordance with, and all questions with respect thereto shall be determined by, the laws of the Commonwealth of Massachusetts applicable to contracts entered into and wholly to be performed within said state. Content Provider hereby consents to the personal jurisdiction of the Commonwealth of Massachusetts, acknowledges that venue is proper in any state or Federal court in the Commonwealth of Massachusetts, agrees that any action related to this Agreement must be brought in a state or Federal court in the Commonwealth of Massachusetts, and waives any objection Content Provider has or may have in the future with respect to any of the foregoing. SECTION 17. GOOD FAITH. The parties agree to act in good faith with respect to each provision of this Agreement and any dispute that may arise related hereto. SECTION 18. ADDITIONAL DOCUMENTS/INFORMATION. The parties agree to sign and/or provide such additional documents and/or information as may reasonably be required to carry out the intent of this Agreement and to effectuate its purposes. SECTION 19. COUNTERPARTS AND FACSIMILE SIGNATURES. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Facsimile signatures will be considered original signatures. SECTION 20. NO WAIVER. The waiver by either party of a breach or a default of any provision of this Agreement by the other party shall not be construed as a waiver of any succeeding breach of the same or any other provision, nor shall any delay or omission on the part of either party to exercise or avail itself of any right, power or privilege that it has, or may have hereunder, operate as a waiver of any right, power or privilege by such party. SECTION 21. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and assigns. 7 8 SECTION 22. SEVERABILITY. Each provision of this Agreement shall be severable from every other provision of this Agreement for the purpose of determining the legal enforceability of any specific provision. SECTION 23. NOTICES. All notice required to be given under this Agreement must be given in writing and delivered either in hand, by certified mail, return receipt requested, postage pre-paid, or by Federal Express or other recognized overnight delivery service, all delivery charges pre-paid, and addressed: If to Lycos: Lycos, Inc. 400-2 Totten Pond Road Waltham, MA 02154 Fax No.: (781) 370-2600 Attention: General Counsel If to Content Provider: Bolt Media, Inc. 304 Hudson Street, 7th, floor New York, NY 10013 Fax No.: (212) 620.4315 Tel No.: (212) 620-3800 Attention: General Counsel SECTION 24. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties hereto with respect to the transactions and matters contemplated hereby, supersedes all previous agreements between Lycos and Content Provider concerning time subject matter, and cannot be amended except by a writing signed by both parties. No party hereto has relied on any statement, representation or promise of any other party or with any other officer, agent, employee or attorney for the other party in executing this Agreement except as expressly stated herein. SECTION 25. LIMITATIONS OF LIABILITY. UNDER NO CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF SUCH DAMAGES ARE FORESEEABLE OR THAT PARTY HAS BEEN ADVISED OR HAS CONSTRUCTIVE KNOWLEDGE OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM SUCH PARTY'S PERFORMANCE OR NON-PERFORMANCE PURSUANT TO ANY PROVISION OF THIS AGREEMENT OR THE OPERATION OF SUCH PARTY'S SITE (INCLUDING SUCH DAMAGES INCURRED BY THIRD PARTIES), SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR DAMAGES IN EXCESS OF THE AMOUNT RECEIVED BY SUCH PARTY UNDER THIS AGREEMENT. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, HOWEVER, THIS SECTION SHALL NOT LIMIT EITHER PARTY'S LIABILITY TO THE OTHER FOR (A) WILLFUL AND MALICIOUS MISCONDUCT; (B) DIRECT DAMAGES TO REAL OR TANGIBLE PERSONAL PROPERTY; (C) BODILY INJURY OR DEATH CAUSED BY NEGLIGENCE; OR (D) INDEMNIFICATION OBLIGATIONS HEREUNDER. 8 9 SECTION 26. SURVIVAL. All terms of this Agreement which by their nature extend beyond its termination remain in effect until fulfilled, and apply to respective successors and assigns. This Special Delivery/Special Offer Agreement has been executed by the parties effective as of the Effective Date. LYCOS, INC. "CONTENT PROVIDER" Name of Entity: Bolt Media, Inc. By: Amy Weinberg Name: /s/ Amy Weinberg By:/s/ Frank M. Harrison Title: Account Manager Name: Frank M. Harrision Title: CFO Address: Address: Lycos, Inc. Attn: Attn: General Counsel Address: 400-2 Totten Pond Road Waltham, MA 02154 Tel: Tel: (650)983-4400 Fax: Fax: (781) 370-2600 Effective Date: August 15, 1999 9 EX-10.9 4 AGREEMENT 1 EXHIBIT 10.9 [*]= CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS AND ASTERICKS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. AGREEMENT This document entered into between the Parties as of the 17th day of November, 1999, constitutes a valid and binding agreement between Ford Motor Company, a Delaware corporation with its principal place of business at The American Road, Dearborn, Michigan 49121 ("Ford") and BOLT, Inc., a Delaware corporation with its principal place of business at 304 Hudson Street, New York , New York 10013 ("Bolt") (Ford and Bolt herein being referred to as the "Parties"). The Parties have agreed as follows: 1. Scope Ford has agreed to purchase media from Bolt on the Bolt.com web site, which purchase will include: having Bolt create and maintain a Cars.Bolt.com component of Bolt's web site; purchasing from Bolt certain interactive content and interactive service elements; having Bolt provide certain exclusive interactive features; and having Bolt conduct certain market research through Bolt's Business Intelligence Group. 2. Term The term of this agreement ("Term") shall commence on January 1, 2000 and will continue through December 31, 2002 unless terminated earlier pursuant to paragraph 4.(c), below; provided, however, that Ford and Bolt will both have the option to terminate this agreement (i) effective December 31, 2000 or (ii) December 31, 2001, by giving the other party written notice of termination at least 60 days prior to December 31, 2000 (in the case of (i) above) or at least 60 days prior to December 31, 2001 (in the case of (ii) above). 3. Exclusivity During the Term hereof Bolt agrees that Ford [*] and that Bolt [*]. For purposes of this Agreement, the term 'affiliates' shall be deemed to include any wholly or partially owned subsidiary of Ford as well as any Ford, Lincoln, Mercury, Volvo, Jaguar, Aston Martin, Mazda, or Think! new or used vehicle dealer. Furthermore, Ford shall have exclusivity within the automotive category on "bolt.com" and its affiliated websites and Bolt shall 2 2 not accept content and/or advertising from any third parties with respect to any and all promotion of cars, trucks, or other motor vehicles; motor vehicle parts and accessories; services for motor vehicles; credit or financing for motor vehicles; and the sale or leasing of motor vehicles. [*]. In addition, for one (1) year following the expiration or termination of this agreement, Bolt agrees that any automotive website that it is associated with will not duplicate specific applications developed for or by Ford, or distinctive elements that are solely and exclusively used by (for example, the "Build Your Own Dream Car" feature) the Ford/Bolt Cars.Bolt.com website. 4. Payment Terms and Minimum Impressions Guarantee (a) Ford will pay Bolt the sums set forth below for all media, services, rights and materials provided by Bolt: (1) the sum of $[*] within 45 days following the execution and delivery of this agreement by both parties, (2) the sum of $[*] for the calendar year 2000, payable in equal monthly installments of $[*] to be invoiced at the end of each month and payable by Ford within 20 business days of receipt of Bolt's invoice, (3) the sum of $[*] for the calendar year 2001 (provided this Agreement is not terminated pursuant to Section 2), payable in equal monthly installments of $[*] to be invoiced at the end of each month and payable by Ford within 20 business days of receipt of Bolt's invoice, (4) the sum of $[*] for the calendar year 2002 (provided this Agreement is not terminated pursuant to Section 2), payable in equal monthly installments of $[*] to be invoiced at the end of each month and payable by Ford within 20 business days of receipt of Bolt's invoice. (5) (b) The payment of all sums by Ford shall be conditioned upon Bolt meeting certain impression guarantee levels. An impressions breakdown for calendar year 2000 has been provided by Ford to Bolt 3 3 and is included in Exhibit A and serves as further definition to Bolt's Insertion Order in Exhibit B. At least 60 days before the end of calendar year 2000 Ford shall provide Bolt with an impressions breakdown for calendar year 2001 and such impressions breakdown will then become fully incorporated into this agreement; and at least 60 days before the end of calendar year 2001 Ford shall provide Bolt with an impressions breakdown for calendar year 2002 and such impressions breakdown will then become fully incorporated into this agreement. It is understood and agreed that distribution/banner delivery may not increase or decrease by more than +/- 10% margin bi-weekly. It is further understood and agreed that no overages for any two-week period may be applied by Bolt against a shortfall in any succeeding two-week period and no shortfalls for any two-week period may be applied by Ford against an overage in any succeeding two-week period. In the event impression guarantees are not achieved as determined by Ford, Bolt will provide Ford with make-goods with a [*]% bonus or at Ford's option, Ford may take a credit against the next monthly payment due under 4(a) above; provided, however, that the calculation of impression guarantees with respect to Interactive Service Elements and Exclusive Interactive Features shall be made only after the launch of such elements and features. Not withstanding the foregoing, the impressions guaranteed for the first year, as detailed in Exhibit A, are to be to be delivered prorated on a minimum, cumulative basis of 15%, 35%, 65% and 100% for each of the quarters ended March 31, June 30, September 30, and December 31. (c) It is understood and agreed that all impression guarantees will be measured against a third party adserver to be selected by Ford, to track this buy, and measurement by this third party will be used to conclusively determine if impression guarantees have been met/ Tracking reports (proof of performance) must be sent bi-weekly to Doug Weiland at Ford's media buying agency Ford Motor Media, via fax to 313-964-2315 or e-mailed to doug.weiland@fordmotormedia.com, with copies of tracking reports to be sent to Jamie Allison, Internet & New Media Group, Ford Motor, via fax to 313-323-8170 or e-mailed to jalliso1@ford.com. Subject to Section 5(a) herein, Ford reserves the right to terminate this agreement in its entirety immediately in the event impression 4 4 guarantees are not met by Bolt for four (4) consecutive tracking periods, i.e., 8 weeks, such periods of calculation, as they relate to a particular element or feature set forth on Exhibit A attached hereto, to commence upon the launch of such element or feature. (d) Amounts paid after their due date shall bear interest at the rate of one and-one half percent (1 1/2%) per month (or the highest rate permitted by law, if less) until paid in full. In the event of any failure by Ford to make payment, Ford will be responsible for all reasonable expenses (including attorneys' fees) incurred by Bolt in collecting such amounts. All payment amounts in this Agreement are in U.S. dollars and are exclusive of any applicable taxes and shall be made free and clear of, without reduction for, (and Advertiser shall be responsible for and shall indemnify Bolt against) any applicable taxes pertaining to the payments under this Agreement (excluding taxes based upon the net income of Bolt), provided that Bolt notifies Ford in writing of such taxes within 6 months after the applicable invoice date. Ford shall promptly furnish Bolt with tax receipts evidencing the payment of any taxes referred to in the preceding sentence. 5. Design, Implementation and and Content of "Cars.bolt.com" Website (a) Creation of the "Cars.bolt.com" Website. Bolt shall be primarily responsible for the creation of the "Cars.bolt.com" website. Bolt agrees that it will consult with Ford concerning the design, implementation, maintenance and initial content of the "Cars.bolt.com" website; which shall be subject to approval rights as set forth below, and will ensure that the "Cars.bolt.com" website contains the general topics set forth in the attached Exhibit A or other features that the parties may agree upon from time to time. Notwithstanding and without limiting the foregoing, the Parties agree that the "Cars.bolt.com" website shall (i) display the "Ford Oval" and/or other trademarks designated by Ford "above the fold" and in a manner approved by Ford, and (ii) shall contain privacy related statements and links to privacy policies mutually agreed upon by the Parties and consistent with other portions of this Agreement. Further, Bolt agrees to use its best efforts to ensure that no Bolt supplied content appearing on the "Cars.bolt.com" website adversely impacts Ford's brand in any material respect. Prior to the initial launch of, and any modifications to, the "Cars.bolt.com" 5 5 website, Bolt shall place such pages on a non-public server and provide such individual as is designated by Ford with notice thereof and access thereto. Ford shall have the right to notify Bolt of its disapproval of any changes to content (which shall include, without limitation, links to other sites) and any material changes to other content which Ford reasonably believes is harmful or detrimental to Ford or its brand for a period of two business days (at least 48 hours) from the time of receipt of notice from Bolt. Upon Bolt's receipt of any such disapproval notice from Ford, Bolt will delay the implementation of such disapproved changes until the Parties resolve the appropriate issues raised in such disapproval notice. (b) Interactive Content Elements. Bolt will develop certain chat rooms, moderated message boards, and other interactive content in the normal course of business and as otherwise mutually agreed upon by the Parties. All such chat rooms, message boards and the like shall be located on Bolt's servers and Bolt shall retain all responsibility for maintenance, liability and support therefore. Bolt expressly acknowledges and agrees that it will not develop or endorse any message board, chat room, other interactive element that contains any of Ford's trademarks in its name (or that uses a trademark which is likely to be confused with any of Ford's trademarks) or otherwise undermines Ford's intellectual property rights. (c) Launch Date The site will be launched in accordance with the timetable set forth in Exhibit A. (d) Consumer Questions and Complaints Bolt shall be responsible for all customer service relative to the operation of the Cars.bolt.com website (which shall include handling and resolution of any customer questions or complaints) which it will perform in a prompt, courteous and professional manner. Bolt will provide Ford with periodic summaries of the nature of complaints received. Notwithstanding the foregoing, any automotive product or service related issues or concerns shall remain the responsibility of Ford. 6 6 (e) Availability The Cars.bolt.com website shall be publicly available to users approximately twenty-four (24) hours each day, excepting necessary website maintenance and Internet performance issues outside the reasonable control of Bolt. (f) Traffic Reporting Bolt shall provide Ford with aggregate periodic traffic/website performance reports in a manner mutually agreed upon by both Parties. (g) Security Each Party shall take all reasonable measures to prevent unauthorized access to consumer data obtained through the operation of the website, and any databases or other sensitive material generated from or used in conjunction with the website. Each Party shall immediately notify the other Party of any known security breaches, and take all necessary actions to promptly notify affected consumers and to remedy such breach. (h) Website Backup Bolt.com will provide daily and permanent backups of the information detailed in this Agreement and housed on its servers. All data shall be backed up daily to two locations - network storage and DAT. The DATs shall be stored off-site in a fire-proofed, secure tape library. The network data shall be stored for three weeks, and be available for content replacements. Each Party shall also maintain a development environment copy of web data for rapid content replacement. 6. Accuracy of Information Published on Bolt.com and Cars.Bolt.com Each Party shall be responsible for the quality and accuracy of information and content supplied by it contained on Bolt.com and Cars.Bolt.com and any additional related sites or links which may be created from time to time by Bolt.com. Ford shall use its commercially reasonable efforts to provide content and advertising media for the Cars.Bolt.com website in order to facilitate the impression guarantees set 7 7 forth on Exhibit A attached hereto. Ford acknowledges that it will forfeit its right to terminate the agreement pursuant to Section 4(c) herein in the event that it fails to provide such content and advertising media. 7. Information Obtained From Consumers [*]. Notwithstanding the foregoing, Bolt will not sell, transfer, or otherwise provide such information to any third parties without the prior written consent of Ford. All information shall be used only as authorized by the user that provided the information, and in strict compliance with Bolt's and Ford's privacy policies, as it may be amended from time to time. Bolt will provide a link to such policies governing the protection and use of user data on the "home page" of the website as well as on those pages of the website where users are required to provide personally identifying information. Any non-conforming use of such information by either party shall constitute a material breach of this Agreement and shall give such party due cause to terminate this Agreement. 8. Intellectual Property (a) Bolt Intellectual Property As between the Parties, Bolt is, and shall remain, the owner of all right, title and interest in and to the Bolt.com website and the Cars.Bolt.com website (the "Bolt Intellectual Property"), including, without limitation, all trademarks and copyrights claimed by Bolt and all software, programs, text, audio, images, graphics, "look and feel", animation, sound, video, and other content associated with the Bolt Intellectual Property, other than the Ford Content (as defined below). (b) Ford Intellectual Property As between the parties, Ford is, and shall remain, the owner of all right title and interest in and to all materials (such as research reports) provided to Bolt by Ford in the course of this Agreement (the "Ford Intellectual Property"), including without limitation, all custom templates, and all software, programs, text, images, graphics, "look and feel", animation, sound, video, and other content associated with the Ford Intellectual Property (the "Ford Content"). Upon execution and delivery of this Agreement, Bolt assigns to Ford all right, title and interest in and to the content created by Bolt (i.e., its employees, agents, or contractors), and intellectual property 8 8 rights thereto (but will not be construed to include software to develop such content) used solely and exclusively in the Cars.Bolt.com channel in the course of this Agreement. Bolt agrees to execute any and all necessary further documents that Ford may reasonably request to fully vest any intellectual property rights created in furtherance of this Agreement and, if requested, to reasonably assist Ford, at Ford's expense, to register such rights. Bolt expressly agrees that any trademarks or applications developed for use solely in association with the Cars.Bolt.com website (i) will not combine any trademark of Ford's with and trademark of Bolt (or of any third party), and (ii) shall be the property of Ford, other than the Cars.Bolt.com trademark (for example, any trademark that is developed to identify a feature unique to this site and which is not applicable to other Bolt channels, such as the "Design Your Own Dream Car" feature). (c) Trademark Licenses Each Party grants to the other, during the Term of this Agreement, a royalty-free, non-exclusive license to use, reproduce and display the trademarks, service marks, and design marks listed on the attached Exhibit E (collectively, the "Marks") in connection with this Agreement. Each Party may amend the list of trademarks it is licensing to the other, at any time, upon written notice to the other Party. Use of all Marks licensed pursuant to this Agreement shall reflect the licensor's standards of quality. Furthermore, the Party licensing the Marks shall have the right from time-to-time, by prior arrangement of the Parties, to assess the quality of services offered under the Marks and to review advertising and promotional materials bearing the Marks to ensure that these quality standards are upheld. Each of Bolt and Ford expressly acknowledges and agrees that except as expressly provided herein, no right, title, license or interest in or to any mark owned by the other Party (or the other party's Affiliates) is intended to be given to or acquired by the other Party by the execution of or performance of this Agreement. Each of Bolt and Ford expressly agrees that it will not use any Mark of the other Party for any purpose or activity except as expressly authorized or contemplated herein. 9. Representations and Warranties 9 9 Each of Bolt and Ford represents and warrants that: (1) it is a corporation duly organized and validly existing and in good standing under the laws of the state of its incorporation, (2) it has the full power and authority to enter into and perform its obligations under this Agreement, (3) it has obtained all permits, licenses, and other governmental authorizations and approvals required for its performance under this Agreement, and (4) the services to be rendered and the materials provided by each Party neither infringe nor violate any patent, copyright, trade secret, trademark, or other proprietary right of any third party. 10. Provision of Advertising Materials The content of all Ford advertisements will be supplied, or must be approved in advance, by Ford. It is further understood and agreed that no Ford advertisements may appear on any pages with content that in Ford's judgment is inappropriate or otherwise inconsistent with Ford's advertising and business policies. Bolt reserves the right to reject or cancel any advertisement at any time if in Bolt's reasonable judgment such advertisement may subject Bolt to civil or criminal liability. In such case Bolt will discuss the matter with Ford and allow Ford the opportunity to revise or replace the advertisement. All banners from which minimum guaranteed impressions are calculated shall be placed "above the scroll" at a screen resolution of 800 x 600 using the Netscape or MSIE browsers v. 3.0 or better; provided, however, that Bolt may place additional advertising "below the scroll". The positioning of advertisements on any and all web pages shall be mutually agreed upon by Bolt and Ford. Bolt agrees that in addition to the restrictions set forth in this agreement, it will not place any advertisements or links for "adult sites" or advertisements, or sites that are generally considered offensive, on any page containing a Ford advertisement. If Ford determines that an advertisement is offensive, Bolt shall remove such advertisement from such page within 4 hours of receiving notice from Ford during normal business hours and 24 hours of receiving notice from Ford at all other times. 11. Additional Bolt Obligations (a) Bolt.com will place a static front page link to Cars.Bolt.com prominently on the front page of Bolt.com throughout the Term of this Agreement. 10 10 (b) Bolt will provide Ford with quarterly market research studies conducted by the BOLT Media, Inc. market research team working closely with the Ford (or its designated advertising/buying agency) market research team to ensure optimum methodology before field work commences; provided, that Ford will collaborate with Bolt.com on initial approach and methodology and that such methodology shall require a minimum sampling of 1,000 online interviews. (c) Cars.bolt.com will place a static link to YoungDrivers.com or its designated affiliates as identified by Ford for the purposes of encouraging participation in drivers education. (d) Bolt.com will render the disclaimer listed in Exhibit D on a user's screen prior to any user entering the Design Your Own Dream Car section of the cars.bolt.com channel. The user will have to accept these terms before they are allowed access to content in the Design Your Own Dream Car section. 12. Limitation of Liability In the event that Bolt fails to publish an advertisement in accordance with this Agreement, in the event that Bolt fails to deliver the number of guaranteed impressions required herein, or in the event of any other failure, technical or otherwise of such advertisement to appear as provided herein, to the extent that such failures are not due to a breach, directly or indirectly, of the terms herein by Ford, the sole liability of Bolt and exclusive remedy of Ford shall be limited to, at Ford's discretion, either the immediate termination of this agreement, or placement of the advertisement at a later time in a comparable position, or extension of the Term hereof until the total impressions are delivered. SUBJECT TO SECTION 14 HEREOF, IN NO EVENT SHALL BOLT BE LIABLE UNDER THIS AGREEMENT FOR ANY CONSEQUENTIAL SPECIAL LOST PROFITS, INDIRECT OR OTHER DAMAGES, WHETHER BASED IN CONTRACT, TORT OR OTHERWISE, EVEN IF BOLT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. BOLT'S AGGREGATE LIABILITY UNDER THIS AGREEMENT FOR ANY CLAIM IS LIMITED TO THE AMOUNT RECEIVED BY BOLT FROM FORD PURSUANT TO THIS AGREEMENT. NOR SHALL FORD BE LIABLE UNDER THIS AGREEMENT FOR ANY CONSEQUENTIAL SPECIAL LOST PROFITS, INDIRECT OR OTHER DAMAGES, WHETHER BASED IN CONTRACT, TORT OR OTHERWISE, EVEN IF FORD HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. FORD'S AGGREGATE LIABILITY UNDER THIS 11 11 AGREEMENT FOR ANY CLAIM IS LIMITED TO THE AMOUNT PAYABLE BY FORD TO BOLT PURSUANT TO THIS AGREEMENT. 13. Confidentiality During the Term of this Agreement, and for a period of two years following any end date, neither party will use or disclose any Confidential Information of the other party, except as specifically contemplated herein. The foregoing restriction does not apply to information that (i) has been independently developed by the receiving party without access to the other party's Confidential Information; (ii) has become publicly known through no breach of this Section 11 by the receiving party, (iii) has been rightfully received from a third party authorized to make such disclosure, or (iv) is required to be disclosed by law; provided that the disclosing party shall use its best efforts to redact from such disclosure all information not necessary to comply with such law. "Confidential Information" shall mean (i) advertisements, prior to publication: (ii) the financial terms of this Agreement and any Bolt statistics marked as "Confidential" or "Proprietary" that shall be deemed Bolt Confidential Information; and/or (iii) any information designated in writing or identified orally at time of disclosure, by the disclosing party as "confidential" or "proprietary" and confirmed as such by the furnishing party in a written instrument delivered to the receiving party within ten (10) working days after such oral delivery (such confirmatory instrument specifically describing the relevant Confidential Information and the date of its oral delivery). 14. Indemnification Bolt and Ford agree to indemnify, defend, and hold harmless the other Party (and its parents, subsidiaries, affiliates, successors, and assigns) from and against all losses, liabilities, damages, actions, claims, expenses and costs (including reasonable attorneys' fees) which result or arise out of or in connection with any breach of this Agreement or out of or in connection with any material supplied to the other in furtherance of this Agreement. 15. Publicity The Parties agree that no press releases, announcements or statements of any kind will be made regarding this Agreement without the prior written consent of the other Party, which consent shall not be unreasonably withheld. 12 12 16. Dispute Resolution If a dispute arises between the parties that cannot be resolved otherwise, the following procedure shall be implemented before either Party pursues other available remedies except that nothing contained herein shall prevent either Party from seeking injunctive relief from a court where appropriate in order to maintain the status quo while this procedure is being followed or to seek injunctive relief or any other equitable or judicial remedy, in any applicable forum which either Party deems necessary to protect its intellectual property rights: (a) Initial Meeting The Parties shall hold a meeting promptly, attended by persons with decision-making authority regarding the dispute, to attempt in good faith to negotiate a resolution of the dispute; provided, however, that no such meeting shall be deemed to vitiate or reduce the obligations and liabilities of the Parties hereunder or be deemed a waiver by a Party hereto of any remedies to which such Party would otherwise be entitled hereunder. (b) Mediation If, within ten (10) business days after such meeting, the Parties have not succeeded in negotiating a resolution of the dispute, they agree to submit the dispute to mediation in accordance with the then-current rules of the Center for Public Resources ("CPR"). The Parties will jointly appoint a mutually acceptable mediator, seeking assistance in such regard from the CPR if they have been unable to agree upon such appointment within 10 days from the conclusion of the negotiation period. (c) Arbitration The Parties agree to participate in good faith in the mediation and negotiations related thereto for a period of ten (10) business days. If the Parties are not successful in resolving the dispute through the mediation, then the Parties agree to submit the matter to binding arbitration in accordance with the then-current commerical rules of the American Arbitration Association, by a sole arbitrator. 13 13 (d) Procedure Mediation or arbitration shall take place in Dearborn, Michigan unless otherwise agreed by the Parties. The substantive and procedural law of the State of Michigan shall apply to the proceedings, to the extent not inconsistent with the then current commercial rules of the American Arbitration Association. Equitable remedies shall be available in any arbitration. Punitive damages shall not be awarded. This clause is subject to the Federal Arbitration Act, 9 U.S.C.A. Section 1 et seq. and judgment upon the award rendered by the Arbitrator, if any, may be entered by any court having jurisdiction thereof. 17. Miscellaneous (a) No Agency or Partnership Relationship In no event shall the Parties be deemed to have any agency or partnership relationship between them as a result of this Agreement. (b) Assignment This Agreement has been executed in consideration of the Parties involved and therefore may not be assigned or transferred to a third party without the prior written consent of the other Party, such approval not be unreasonably withheld. Notwithstanding the foregoing, Ford may assign this Agreement without the prior consent of Bolt to any wholly or partially owned subsidiary of Ford Motor Company. (c) Entire Agreement, Amendment, Waiver This Agreement embodies the entire agreement of the Parties and supersedes any other agreements or understandings between them, whether oral or written, relating to this subject matter. No amendment or modification or waiver of a breach of any term or condition of this Agreement shall be valid unless in a writing signed by each of the Parties. The failure of either Party to enforce, or the delay by either of them in enforcing, any of their respective rights under this Agreement will not be deemed a continuing waiver or a modification of any rights hereunder and either Party may, within the time provided by applicable law and consistent with the provisions of 14 14 this Agreement, commence appropriate legal proceedings to enforce any or all of its rights. (d) Notices Any notice or other communication hereunder must be given in writing and either (a) delivered in person, (b) transmitted by facsimile transmission or other telecommunications mechanism, (c) sent by nationally recognized overnight courier service or (d) mailed by certified mail, postage prepaid, receipt requested as follows: If to Ford: Ford Motor Company Attn: Corporate Secretary The American Road Dearborn, MI 48121 If to Bolt: Bolt, Inc. Attn: Corporate Secretary 304 Hudson Street New York, NY 10013 All notices personally delivered shall be deemed received on the date of delivery. Any notice sent via facsimile transmission shall be deemed received on the date shown on the confirmation advice. Any notice by certified mail shall be deemed to have been given on the date of receipt or refusal thereof. The date of any notice by overnight mail service shall be the date the airbill is signed by the recipient. Either Party may change its address for the receipt of notices by giving notice thereof to the other. (e) Excusable Delays Neither Party shall be liable for a failure to perform any of its obligations hereunder that arise from causes or events beyond its reasonable control and without its fault or negligence. (f) Partial Invalidity Any provision of this Agreement which is found to be invalid or unenforceable by any court in any jurisdiction will, as to that 15 15 jurisdiction, be ineffective to the extent of such invalidity or unenforceability, and the invalidity or unenforceability of such provision will not affect the validity or enforceability of the remaining provisions hereof. (g) Title and Headings Titles and headings of articles and sections of this Agreement are for convenience only and will not affect the construction of any provision of this Agreement. (h) Survival Notwithstanding anything to the contrary contained herein, any representations and warranties made by the Parties shall survive the term of this Agreement for a period of six (6) years. (i) Counterparts This Agreement may be executed in counterparts each of which will be deemed an original, but all of which taken together will constitute one and the same instrument. (j) Governing Laws This Agreement is governed by the internal laws of the State of Michigan. 16 16 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first above written. BOLT Media, Inc. FORD MOTOR COMPANY By: /s/ Frank M. Harrison By: /s/ James C. Schroer ------------------------------ ------------------------------ Name: Frank M. Harrison Name: James C. Schroer ---------------------------- ---------------------------- Title: Sr. VP Finance Title: VP-Marketing --------------------------- --------------------------- 17 17 EXHIBIT A
--------------------------- Bolt Revised -------- --------------------------- Guaranteed Minimum Launch Page Section Date CPM Loads Price - ------- -------- --------------------------- ($) (M) ($) CARS.BOLT.COM / FRONT PAGE 1/1/2000 $[*] [*] [*] - -------------------------- INTERACTIVE CONTENT ELEMENTS: - ----------------------------- [*] 1/1/2000 $[*] [*] [*] [*] 7/1/2000 $[*] [*] [*] [*] 1/1/2000 $[*] [*] [*] [*] 1/1/2000 $[*] [*] [*] INTERACTIVE SERVICE ELEMENTS: - ----------------------------- [*] 3/1/2000 $[*] [*] [*] [*] 3/1/2000 $[*] [*] [*] [*] 4/1/2000 $[*] [*] [*] [*] 4/1/2000 $[*] [*] [*] [*] 3/1/2000 $[*] [*] [*] [*] 2/1/2000 $[*] [*] [*] EXCLUSIVE INTERACTIVE FEATURES: - ------------------------------- [*] 5/1/2000 $[*] [*] [*] [*] 4/1/2000 $[*] [*] [*] BOLT.COM TARGETED UNITS: - ------------------------ [*] 1/1/2000 $[*] [*] [*] BOLT.COM ROS: - ------------- [*] 1/1/2000 $[*] [*] [*] $[*] [*] [*]
18 18 EXHIBIT B [BOLT LOGO] INSERTION ORDER ORDER NUMBER: 99101 BOLT REPRESENTATIVE: Josh Weil DATE: 11/1/1999 ADVERTISER Ford Motor Company Internet & New Media Group Attn: Jamie Allison Telephone: (313) 845-8202 Fax: (313) 845-8399 Email: jallison@ford.com - -------------------------------------------------------------------------------- BILL TO (CHECK ONE) ADVERTISER: X AGENCY: _____ IN-HOUSE AGENCY: _____
- ----------------------------------------------------------------------------------------------------------------------- END AGENCY REVENUE START DATE DATE RATE DISCOUNT TOTAL DUE PAYMENT SCHEDULE SHARE - ----------------------------------------------------------------------------------------------------------------------- 01/1/2000 12/31/2002 n/a n/a $[*] Please see payment schedule attachment n/a - -----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------- GUARANTEED LINK TO NUMBER OF CREATIVE POSITION TEXT OF LINK URL IMPRESSIONS - ----------------------------------------------------------------------------------------------------------------------- Please see creative [*]* specification and brand impression impressions, guarantee attachment [*]** brand interactions - -----------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- TERMS AND CONDITIONS: This insertion order is subject to the terms and conditions ("Standard Terms") appearing on both sides of this Insertion Order, and such Standard Terms are made a part of this insertion order by reference. The signatory of this Insertion Order represents that he has read and agrees to such Standard Terms. AUTHORIZED BY: PHONE: DATE: ------------------------------- ------------------------------ ------------------- PRODUCTION CONTACT: PHONE: DATE: -------------------------- ------------------------------ -------------------
PLEASE SIGN RETURN WITH DEPOSIT TO BOLT MEDIA, INC., AT 304 HUDSON STREET, NEW YORK, NY 10003 *3 year impression levels are projected over 3 years based on year 1 CPMs (per 11/17/99 agreed terms) 19 19 EXHIBIT C [*] 20 20 EXHIBIT D I UNDERSTAND AND AGREE THAT WHEN I SUBMIT MY DREAM CAR IDEA THROUGH THE "DESIGN YOUR OWN DREAM CAR" FEATURE ON CARS.BOLT.COM, I AM GIVING UP ALL COPYRIGHT AND OTHER INTELLECTUAL PROPERTY RIGHT CLAIMS (OTHER THAN PATENT RIGHTS) I MAY HAVE AGAINST FORD MOTOR COMPANY'S COPYING OR OTHERWISE USING MY DREAM CAR IDEA. I FURTHER UNDERSTAND AND AGREE THAT FORD MOTOR COMPANY AND ITS SUBSIDIARIES ARE UNDER NO OBLIGATION TO USE MY IDEA OR TO HOLD IT IN CONFIDENCE. 21 21 EXHIBIT E Ford Trademarks, Service Marks, Design Marks - - Ford Oval - - Ford Motor Company Script - - Others to be added and amended as appropriate EX-10.10 5 ANCHOR PROVIDER AGREEMENT 1 EXHIBIT 10.10 [ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS WITH ASTERISKS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. ANCHOR PROVIDER AGREEMENT This agreement (the "Agreement") is made and entered into as of August 27, 1999 (the "Effective Date"), between Microsoft Corporation ("Microsoft"), with offices at One Microsoft Way, Redmond, WA 98052-6399, and Bolt.com (the "Company"), with offices at 304 Hudson Street, New York, NY 10013. Microsoft and Company agree as follows: SECTION 1. DEFINITIONS "COMPANY LOGO" means the Company logo(s) and trademark(s) provided to Microsoft for use in connection with the Service. "COPY" means a single email delivered to a specific Subscriber consisting of a reproduction (in whole or in part) of, and/or hypertext link to, a specific version of the Newsletter. "IPRs" means trade secrets, patents, copyrights, trademarks, service marks, trade names, know-how, moral rights, rights of publicity and privacy, and similar rights of any type under the laws of any governmental authority, domestic or foreign, including all applications and registrations relating to any of the foregoing. "NEWSLETTER" means the publication to be provided by Company to Microsoft, Copies of which will be distributed to Subscribers via the Service. "REGISTRATION PAGES" means those web pages that are displayed to users of the U.S. English language Hotmail service in a manner to permit such users to register to receive the Copies and other third party content via the Service. "SERVICE" means the WebCourier Service whereby a person registering or registered for a U.S. English language Hotmail email account may also register to receive generic third party content via the Hotmail service. "SUBSCRIBER" means a Hotmail account that has consented to receiving the Newsletter. SECTION 2. MICROSOFT OBLIGATIONS 2.1 Service. Microsoft will provide Company with placement on the first page of the Registration Pages consisting of Company or Newsletter name (at Company's option) and a link to the Company Logo and a text description of the Newsletter. Company will be listed in the Teens/Young Adults category (the "Category"). Microsoft may modify the Registration Pages from time to time, provided that Company receives reasonably comparable placement on the revised pages as specified herein. 2.2 Providers. The Newsletters of not more than four (4) "Anchor Providers" and one (1) "Premier Provider" may be referenced in the Category (with the "Premier Provider" receiving the most prominent placement in the Category). The "Anchor Providers" will be placed within the Category in descending order based upon the level of compensation paid by each "Anchor Provider" to Microsoft to appear in such Category. 2.3 Distribution. Subject to paragraph 3.1, Microsoft will deliver Copies to Subscribers according to such schedules as mutually agreed upon by Company and Microsoft. 2.4 Promotional Banners. Microsoft will provide Company with a monthly credit of [ * ] promotional banners to be used in the Hotmail service. Such promotional credits will be specified for use in particular months, and may not be transferred to any other month or redeemed for cash. Unused promotional banner credits will expire at the end of the month specified for use. Company will create and deliver to Microsoft all promotional banners for review at least ten (10) days prior to the first run date for such banner as designated by Company. All promotional banners shall meet all specifications and submission requirements provided by Microsoft, and will contain a link to such Hotmail URL as Microsoft may designate. 2.5 Hotmail Promotion. Microsoft will use reasonable efforts to promote the Newsletter to new and current Hotmail users through Hotmail standard promotional vehicles. SECTION 3. COMPANY OBLIGATIONS 3.1 Delivery and Specifications. Company will make the Newsletter available to Microsoft at a specified URL and on a delivery schedule agreed upon by the parties in writing. The Company Logo, Newsletter text description and the 1 2 Newsletters are all subject to specifications and submission deadlines (as applicable) established by Microsoft and set forth in Appendix A, as the same may be modified from time to time by Microsoft upon notice. Company will deliver the Company Logo and Newsletter text description to Microsoft in the manner directed by Microsoft. Company acknowledges that time is of the essence in providing the foregoing to Microsoft, and the Company's failure to meet the foregoing timing requirements or any applicable specifications may delay or prevent delivery of Copies hereunder. 3.2 License. Company hereby grants Microsoft a world-wide, non-exclusive, royalty-free license to: (a) reproduce, promote, market, distribute, display, transmit, download, upload, edit, modify and otherwise use the Newsletter as reasonably anticipated to fulfill Microsoft's obligations under this Agreement; and (b) reproduce, display, transmit and otherwise use the Company Logo and Newsletter text description in connection with (i) providing the Service and Newsletter to Subscribers, and (ii) marketing and promoting the Service and Newsletter. 3.3 MSN Ad Buy. Prior to September 30, 1999, Company will purchase from Microsoft an aggregate of [*] of advertising on Microsoft properties, at an average CPM rate of [*], to be displayed during the Term (the "Media Buy"). Terms of Media Buy (including the location, number of ad requests, ad types, and dates), will be agreed upon by both parties in writing or by Microsoft Insertion Order. The Media Buy will be made pursuant to Microsoft's standard terms and conditions and must be completed during the Term. If Company fails to complete the Media Buy prior to termination or expiration of the Term, Company will immediately pay such amount to Microsoft all remaining unpaid amounts of the Media Buy. 3.4 Limitations. The Newsletter may not contain, promote, market, advertise, distribute, offer to distribute, link (either directly or, if with the knowledge of Company, indirectly) to or otherwise be related to content that: (a) promotes, markets or advertises competing e-mail, newsletter and/or other communication products whether offered by Company or a third party (e.g., Lycos, Excite and other services designated by Microsoft); (b) is inappropriate, obscene, defamatory, libelous, slanderous, profane, indecent or unlawful; (c) infringes or misappropriates third party IPRs; (d) constitutes "hate speech", whether directed at an individual or a group, and whether based upon the race, sex, creed, national origin, religious affiliation, sexual orientation or language of such individual or group; (e) promotes or contains viruses, worms, corrupted files, cracks or other materials that are intended to or may damager or render inoperable software, hardware or security measures of Microsoft, Subscribers or any third party; (f) facilitates or promotes gambling, or the sale or use of liquor, tobacco products or illicit drugs; (g) facilitates, promotes or forwards illegal contests, pyramid schemes or chain letters; or (h) otherwise restricts or inhibits any person's use or enjoyment of Hotmail or the Service. Microsoft may, but is under no obligation to, review the Newsletter, and may refuse to host or make the Newsletter available to Subscribers in whole or in part if Microsoft determines that the Newsletter violates the foregoing limitations or such other limitations as Microsoft may adopt from time to time. 3.5 Subscriber Information. All information regarding Subscribers collected through the Service constitutes Confidential Information (as that term is used in Section 9) of Microsoft, and is subject to the confidentiality requirements of Section 9. Notwithstanding the foregoing, information obtained by Company directly from Subscribers will not constitute Confidential Information of Microsoft and may be used by Company from time to time; provided, Company does not collect, use or disclose such information in any manner that identifies the subject as a Subscriber or Hotmail customer. 3.6 Changes to Newsletter. Company will provide Microsoft with thirty (30) days' prior written notice of any material change to the nature or intended audience of the Newsletter. Microsoft will have the option to terminate this Agreement with respect to each Newsletter for which such a change is anticipated or implemented upon written notice. SECTION 4. CONSIDERATION 4.1 Advance. Company will prepay Microsoft an advance of the fees set forth in paragraph 4.2 in an amount equal to [*] (the "Advance"). The Advance is a non-refundable, 2 3 guaranteed payment to Microsoft. The Advance will be rendered to Microsoft in four (4) equal installments on a quarterly basis (i.e., every three (3) months during the Term). The first payment hereunder is due when this Agreement is signed and returned to Microsoft. Microsoft will invoice Company for the three (3) remaining payments approximately thirty (30) days prior to the beginning of each subsequent quarter, and Company will pay such invoiced amounts on or before the first day of each such subsequent quarter. Notwithstanding the foregoing, upon termination or expiration of this Agreement, other than by Company pursuant to paragraph 5.2 or Microsoft pursuant to paragraph 5.3, Company will immediately pay Microsoft any amounts of the Advance not yet paid. 4.2 Fee. Company will pay Microsoft the following fees as consideration for Microsoft distributing the Newsletter to Subscribers: (a) for Newsletters scheduled to be distributed two (2) to seven (7) times per week, [ * ] per Copy distributed to a Subscriber; and (b) for Newsletters scheduled to be distributed one (1) time per week, [ * ] per Copy distributed to a Subscriber. 4.3 Distribution Adjustment. On a quarterly basis (including, at the end of the Term), Microsoft will compare the number of Copies actually distributed hereunder against the Advance paid for such quarter (or the Term). If the fees incurred pursuant to paragraph 4.2 for the number of Copies actually distributed during such quarter (or the Term) are greater than the portion of the Advance paid for such quarter (or the Term), Microsoft will invoice Company for the difference at the applicable rates noted in paragraph 4.2. If at the end of the Term the fees (including the Advance) received by Microsoft hereunder exceed the amount of the fees incurred by Company for distribution of Copies hereunder, Microsoft will refund the difference to Company; except that in no event will Microsoft be required to refund or otherwise return to Company any portion of the Advance. 4.4 Invoice and Payment. Within thirty (30) days after the date of an invoice, Company will pay Microsoft all amounts owing pursuant to such invoice in readily available funds. Amounts not paid when due under this Agreement will accrue interest at a rate of one and one-half percent (1.5%), compounded on a monthly basis. Microsoft reserves the right to immediately suspend distribution of the Newsletter if Company fails to make timely payment of any amounts owing hereunder. All payments of amounts owing to Microsoft will be made at the following location or such other location designated by Microsoft in writing: Microsoft Corporation PO Box 7247 - 7123 Philadelphia PA 19170-7123 4.5 Reports. Microsoft will provide Company with monthly reports setting forth the number of Subscribers receiving Copies and the total number of Copies delivered per month. 4.6 Taxes. The fees, advances and other amounts owing to Microsoft pursuant to this Agreement do not include taxes or other governmental fees. Company will pay all taxes and other governmental fees arising out of or related to all transactions undertaken pursuant to this Agreement, other than taxes on Microsoft income and revenue, and will provide Microsoft with appropriate evidence of such payment upon request. 4.7 Audits. Microsoft will maintain during the Term and for at least twelve (12) months thereafter all of its regular books of account relating to Copies distributed via the Service and amounts owing to Microsoft hereunder. If Company believes in good faith that Microsoft invoiced Company in excess of amounts actually owing pursuant to paragraph 4.2, Company will have the right at Company's sole expense to audit such books of account, subject to the following: (a) Company will provide Microsoft with at least thirty (30) days' prior written notice of such audits; (b) audits may occur only during Microsoft's regular business hours, and at the location where such books of account are maintained by Microsoft or such other location reasonably specified by Microsoft; (c) Company will cooperate with Microsoft in good faith to avoid and limit any disruption of such audits to Microsoft's business and operations; (d) such audit will be conducted by an independent accounting firm, acceptable to Microsoft and compensated by Company in a manner that is not affected by the outcome of the audit (e.g., no contingency fees); (e) the auditors provide Microsoft with all results and other communications to Company related to the audit at the same time such auditors provide such communications to Company; (f) audits may not occur more than once during the Term, may not exceed three (3) consecutive days and must be completed within twelve (12) months after the end of the Term; (g) the auditors provide their final conclusions of the audit to Company and Microsoft simultaneously and within thirty (30) days after the last day of the audit. Any information disclosed to or otherwise learned by Company or its auditors in connection with an audit conducted pursuant to this paragraph constitutes Confidential Information (as the term is used in Section 9) of Microsoft and subject to the limitations on use set forth in paragraph 9.1. 3 4 SECTION 5. TERM AND TERMINATION 5.1 Term. This Agreement will be in effect for a period of twelve (12) months commencing upon the Effective Date ("Term"). 5.2 Termination. Either party may immediately terminate this Agreement upon written notice if the other party breaches the Agreement in any material respect, and the breach remains uncured for a period of ten (10) days following the breaching party's receipt of written notice of the breach from the non-breaching party. If Company terminates the Agreement pursuant to this paragraph, Microsoft will refund to Company a pro rata portion of the Advance, less any fees owing by Company to Microsoft. 5.3 Microsoft Termination. Notwithstanding paragraph 5.1, Microsoft may terminate this Agreement upon thirty (30) days' prior written notice if Microsoft ceases to offer the Service. In such a case, Microsoft will return to Company a pro rata portion of the Advance actually paid to Microsoft (less any additional fees incurred by Company hereunder), and at Company's option will refund to Company any amounts for advertising purchased by Company pursuant to paragraph 3.3, but not used as of the date of such termination. If fees incurred by Company hereunder exceed the amount of the pro rated Advance actually paid by to Microsoft as of the date of termination, Microsoft will invoice, and Company will promptly pay, any additional amounts owing hereunder. 5.4 Survival. This paragraph and Sections 4 (Consideration), 6 (Representations and Warranties), 7 (Indemnification), 8 (Limitation of Liability), 9 (Confidentiality), and 10 (General) shall survive any termination of this Agreement, together with all obligations, rights and causes of action that may have accrued prior to termination, along with any other provisions that might reasonably be deemed to survive such termination. SECTION 6. REPRESENTATIONS AND WARRANTIES 6.1 Company. Company represents and warrants that: (a) Company has the full corporate rights, power and authority to enter into this Agreement and to perform the acts required of it hereunder; (b) Company's execution and performance of this Agreement do not and will not violate any agreement to which Company is a party or by which Company is otherwise bound, or any applicable law, rule or regulation; (c) the Newsletter does not and will not violate any third party IPRs or give rise to any obligation for the payment of any sums to any third party by Microsoft or Microsoft's successors in interest; (d) the Newsletter (in whole or in part) does not and will not violate the limitations set forth in paragraph 3.4; (e) it will not harvest or otherwise collect through the Service information about Subscribers, including e-mail addresses, without Subscribers' express consent; (f) it will not link the Service or Hotmail to any unsolicited communication sent to any third party, or otherwise use or mention the Service or Hotmail in connection with any such unsolicited communication; and (g) it is a member in good standing of an industry recognized online privacy organization (e.g., the TRUST-E Program), and it will adhere to the information gathering, dissemination, privacy protection and other practices specified by such organization. 6.2 Microsoft: Microsoft represents and warrants to the Company that has the full corporate rights, power and authority to enter into this Agreement and to perform the acts required of it hereunder. 6.3 WARRANTY DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE SERVICE, NEWLETTER, HOTMAIL, AND ANY MATERIALS OR OTHER SERVICES PROVIDED BY OR ON BEHALF OF MICROSOFT PURSUANT TO THIS AGREEMENT ARE PROVIDED "AS IS" AND WITH ALL DEFECTS. MICROSOFT HEREBY DISCLAIMS ALL REPRESENTATIONS, WARRANTIES AND CONDITIONS, EXPRESS OR IMPLIED, OF FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, TITLE, NONINFRINGEMENT, COMPATIBILITY, SECURITY, AND CONDITION OR OPERATION OF THE FOREGOING. MICROSOFT DOES NOT WARRANT THE CONTINUED OR UNINTERRUPTED OPERATION OF THE INTERNET, SERVICE, OR HOTMAIL. 4 5 SECTION 7. INDEMNIFICATION 7.1 Company. The Company will indemnify and hold harmless Microsoft against, and will defend or settle at the Company's expense, any and all actions, claims, liabilities, losses, damages, costs, expenses, judgments and penalties, including but not limited to reasonable attorneys' fees, or other proceeding brought by third parties against Microsoft to the extent based on a claim that, if true would (a) result from any misrepresentation or breach of representation or warranty of the Company contained herein, or (b) result from any breach of any covenant or agreement to be performed by Company hereunder. 7.2 Microsoft. Microsoft will indemnify and hold harmless the Company against, and will defend or settle at Microsoft's expense, any action actions, claims, liabilities, losses, damages, costs, expenses, judgments and penalties, including but not limited to reasonable attorneys' fees, or other proceeding brought by third parties against Company to the extent based on a claim that, if true would (a) result from any misrepresentation or breach of representation or warranty of Microsoft contained herein, or (b) result from any breach of any covenant or agreement to be performed by Microsoft hereunder. 7.3 Procedure. The party to be indemnified , defended and held harmless pursuant to paragraph 7.1 or 7.2 will: (a) provide the indemnifying party with prompt written notice of any such claim, (b) permit the indemnifying party to assume and control the defense of such action, and (c) not enter into any settlement or compromise of any such claim without the indemnifying party's prior written consent (not to be unreasonably withheld). The indemnifying party will pay any and all costs, damages, and expenses (including but not limited to reasonable attorneys' fees and costs) awarded against or incurred by the indemnified party in any such action or proceeding attributable to any such claim. The indemnified party may also retain counsel at its own expense in connection with the defense or settlement of any such claim. SECTION 8. LIMITATION OF LIABILITY 8.1 Limitation of Remedies. EXCEPT TO THE EXTENT ARISING PURSUANT TO SECTION 7 OR A BREACH OF SECTION 9, UNDER NO CIRCUMSTANCE SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM OR OTHERWISE RELATED TO THIS AGREEMENT, SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE, PROFITS, ACCOUNTS OR LOST BUSINESS, AND WHETHER ARISING IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE. 8.2 Limitation of Damages. EXCEPT TO THE EXTENT ARISING PURSUANT TO SECTION 7 OR A BREACH OF SECTION 9, UNDER NO CIRCUMSTANCE SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR DAMAGES IN EXCESS OF AMOUNTS ACTUALLY PAID AND OWING TO MICROSOFT HEREUNDER. SECTION 9. CONFIDENTIALITY The parties acknowledge and agree that the Microsoft Non-Disclosure Agreement dated as of ________________ ("NDA") entered into by and between the parties applies to this Agreement as if fully set forth herein and that all of the terms of this Agreement (including but not limited to its existence) and all discussions and negotiations related thereto are considered Confidential Information (as that term is defined in the NDA) of Microsoft under the NDA. If Company has not executed a NDA, Company agrees to sign the NDA attached hereto as Exhibit B and return it to Microsoft with this Agreement. Upon termination or expiration of this Agreement, each party will destroy (or upon the other party's request return) any and all Confidential Information of the other party in its possession or control. 5 6 SECTION 10. GENERAL. 10.1 Notices. All notices and requests in connection with this Agreement will be deemed given (a) when personally delivered, (b) when delivered by facsimile or telex, (c) the next business day following delivery to a nationally recognized courier service guarantying next-day delivery, or (d) five (5) business days after being placed in the United States mail, postage prepaid, certified or registered, return receipt requested, as follows: Notices to Company: Notices to Microsoft: - ------------------- --------------------- Bolt.com Microsoft Corporation 304 Hudson Street One Microsoft Way New York, NY 10013 Redmond, WA 98052-6399 Attn.: Justin Nesci Attn.: Chuck Frizelle Telephone: (212) 620-5900 x250 Telephone: (425) 705-2179 Fax: (212) 620-4315 Fax: (425) 936-7329 Copy to: Microsoft Law & Corporate Affairs One Microsoft Way Redmond, WA 98052 Fax: (425) 936-7329 Attn.: Gregory Ritts or to such other address as the party to receive the notice or request so designates by at least ten (10) days prior written notice to the other party. 10.2 Independent Contractor. Company is an independent contractor, and nothing in this Agreement will be construed as creating an employer-employee relationship, partnership, or joint venture between the parties. 10.3 Governing Law. This Agreement will be governed by the laws of the State of Washington. Company hereby irrevocably consents to the personal jurisdiction of, and exclusive venue for any legal proceeding commenced by or on behalf of Company in, the state and federal courts sitting King County, Washington, USA. In any suit or action to enforce any right or remedy under this Agreement or to interpret any provision of this Agreement, the prevailing party will be entitled to recover its costs, including reasonable attorneys' fees. 10.4 Assignment. Company may not assign, sub-license, transfer, encumber or otherwise dispose of this Agreement without Microsoft's prior written approval. Any attempted assignment, sub-license, transfer, encumbrance or other disposal of this Agreement by Company without Microsoft's prior written approval will be void and will constitute a material default and breach of this Agreement. Except as otherwise provided, this Agreement will be binding upon and inure to the benefit of the parties' successors and lawful assigns. 10.5 Headings. The section headings used in this Agreement are intended for convenience only and will not be deemed to affect in any manner the meaning or intent of this Agreement or any provision hereof. 10.6 Modification. This Agreement may not be modified except by a written agreement dated subsequent to the date of this Agreement and signed on behalf of Company and Microsoft by their respective duly authorized representatives. 10.7 Waiver. No waiver of any breach of this Agreement will constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof, and no waiver will be effective unless made in writing and signed by the waiving party. 10.8 Severability. To the extent that any provision of this Agreement conflicts with governing law or any provision is held to be null, void or otherwise ineffective or invalid by a court of competent jurisdiction, (a) such provision will be deemed to be restated to reflect as nearly as possible the original intentions of the parties in accordance with applicable law, and (b) the remaining terms, provisions, covenants and restrictions of this Agreement will remain in full force and effect. 10.9 Counterparts. This Agreement may be executed in one or more counterparts, all of which taken together will constitute one agreement 10.10 Entire Agreement. Subject to Section 9, this Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements or communications between the parties. The parties have caused this Agreement to be executed by their duly authorized representatives as of the date written above. 6 7 Microsoft Company MICROSOFT CORPORATION BOLT.COM One Microsoft Way 304 Hudson Street Redmond, WA 98052-6399 New York, NY 10013 By /s/ Gordon E. Wood /s/ Frank M. Harrison -------------------------- ------------------------------------ (Sign) (Sign) Gordon E. Wood - ----------------------------- ------------------------------------ Name (Print) Name (Print) Director - ----------------------------- ------------------------------------ Title Title 9/9/99 - ----------------------------- ------------------------------------ Date Date ------------------------------------ Company's Federal Employer ID Number 7 8 EXHIBIT A SPECIFICATIONS A. Specifications for Anchor Providers a. Company logo: 100x 30, 1.5K file size, gif, non-animated, non-clickable b. Newsletter description: 215 Latin characters(including spaces) that briefly describes the newsletter c. Company name: 20 characters d. Promotional banners i. 468x60, 12K file size, gif or jpeg ii. At Microsoft discretion, Company must include Hotmail and/or WebCourier logo, making it clear to the user that the banner is a co-branded banner. iii. URL determined by Microsoft iv. Banner must meet standard Microsoft guidelines set forth in Standard Terms and Conditions B. Hosting Schedule a. Company will make the newsletter content available to Microsoft according to a schedule agreed upon by Microsoft and Company. b. Company will run newsletter content through an HTML validator program to catch any errors before posting it for pickup. c. Company will provide Microsoft with the URL of the newsletter content for Microsoft pick-up. d. Company may not alter the newsletter content more than once each day. C. Delivery Schedule a. Microsoft will distribute the Newsletter to Subscribers according to the schedule agreed upon by Microsoft and Company. NEWSLETTER TECHNICAL REQUIREMENTS 1. Code must be syntactically correct, and resemble the following; [HTML] [BODY] ............ [/BODY] [/HTML] Note: Tables are good if you want the page to retain its attributes, but if any of the above tags are missing, it WILL NOT work. Code that is not clean will run into problems with WebCourier automated content pickups and page display. 2. No Relative Links. The following are examples of relative links [a href="/hotmail/link.html"] [img src="../../../../hotmail/img.gif"] All links must have full headings similar to these: [a href="http://www.hotmail.com/hotmail.html"] [img src="http://www.hotmail.com/hotmail/img.gif"] 3. Use NO JavaScript/DHTML. For security reasons, we do not allow JavaScript or DHTML. 4. We accept only the GET method instead of the POST method in Form tags (i.e., [FORM] tags should have "METHOD=GET". Scripts receiving [FORM] input must accept the "GET" method. 5. Links may NOT open new browser windows. 6. Tags that are opened must be closed. 7. Suggestion: Code for a maximum resolution screen size of 800 x 600. For best results across all platforms, use a minimum of 600 pixels. 8. Setting Background Colors: If you wish to set a background color, then set it in a table around your HTML, rather than using body tags. DO NOT USE BODY TAGS. DO NOT USE GLOBAL STYLE TO SPECIFY COLORS. DO NOT SET A BODY BACKGROUND. Use nested styles within the table. Anything with body tags will be stripped out or ignored. 1 9 Example of what NOT to do: [body bgcolor="#FFFFFF" text="#000000" link="#003366" vlink="#003366" alink="#003366"] What you can do: - create CSS classes specific to your content, or - create all styles in-line 9. Variable Subject Lines: (You must inform the Program Manager to turn ON this feature.) Subject must be enclosed in the [title]...[/title] tags on same line. 46 character max, including spaces. SUBJECT LINE MUST BEGIN WITH YOUR NEWSLETTER NAME. (Ex. MSNBC: followed by subject). 10. Content: maximum of 512 characters per line. If it's longer than 512 characters, people using email clients will not be able to retrieve your WebCourier newsletter. SERVER RULES 11. Server Accessibility: The server on which your HTML resides must be accessible via telnet client. We will retrieve the HTML by "telnet"ing into the site and using the GET command to retrieve the material. telnet www.hotmail.com 80 Trying 207.82.250.251... Connected to www.hotmail.com. Escape character is '[CARAT]]'. GET /hotmail/test.html HTTP/1.0 The server can reside on any port as long as it is not a secure server. SID's are supported. 12. No Password Protected Pages. 13. Note: Some codes that may work in a browser alone may not be permissible in WebCourier content. 14. Please run your newsletters through an HTML validator program to catch any errors before posting it for pickup. PICKUP RULES 15. The URL where the page resides for pickup cannot be changed. If it must be changed, Hotmail must be notified as far in advance as possible. 16. Content must be ready at the time of pickup. Materials that have not been changed from the previous pickup will not be delivered. SUBSCRIBER CUSTOMER SUPPORT: 17. If subscribers have problems with their WebCourier subscription, please have them send a blank email to wchelp@hotmail.com. This alias will send the user some troubleshooting instructions. If a subscriber continues to have problems after following the autoresponder directions, there is another email alias provided for a personal response. 18. Company must maintain WebCourier delivered newsletter content pages, links, and images for a minimum of six (6) months. 2 10 EXHIBIT B MICROSOFT CORPORATION NON-DISCLOSURE AGREEMENT THIS AGREEMENT (the "Agreement") is made between MICROSOFT CORPORATION, a Washington corporation, and Bolt.com (the "Company") and entered into this ______ day of ________________, 19_____. In consideration of the mutual promises and covenants contained in this Agreement, the mutual disclosure of confidential information to each other, the parties hereto agree as follows: 1. Confidential Information and Confidential Materials (a) "Confidential Information" means nonpublic information that Disclosing Party designates as being confidential or which, under the circumstances surrounding disclosure ought to be treated as confidential. "Confidential Information" includes, without limitation, information relating to released or unreleased Disclosing Party software or hardware products, the marketing or promotion of any Disclosing Party product, Disclosing Party's business policies or practices, and information received from others that Disclosing Party is obligated to treat as confidential. Confidential Information disclosed to Receiving Party by any Disclosing Party Subsidiary and/or agents is covered by this Agreement. (b) Confidential Information shall not include any information that: (i) is or subsequently becomes publicly available without Receiving Party's breach of any obligation owed Disclosing Party; (ii) became known to Receiving Party prior to Disclosing Party's disclosure of such information to Receiving Party; (iii) became known to Receiving Party from a source other than Disclosing Party other than by the breach of an obligation of confidentiality owed to Disclosing Party; or (iv) is independently developed by Receiving Party. (c) "Confidential Materials" shall mean all tangible materials containing Confidential Information, including without limitation written or printed documents and computer disks or tapes, whether machine or user readable. 2. Restrictions (a) Receiving Party shall not disclose any Confidential Information to third parties for five (5) years following the date of its disclosure by Disclosing Party to Receiving Party, except to Receiving Party's consultants as provided below. However, Receiving Party may disclose Confidential Information in accordance with judicial or other governmental order, provided Receiving Party shall give Disclosing Party reasonable notice prior to such disclosure and shall comply with any applicable protective order or equivalent. (b) Receiving Party shall take reasonable security precautions, at least as great as the precautions it takes to protect its own confidential information, to keep confidential the Confidential Information. Receiving Party may disclose Confidential Information or Confidential Material only to Receiving Party's employees or consultants on a need-to-know basis. Receiving Party will have executed or shall execute appropriate written agreements with its employees and consultants sufficient to enable it to comply with all the provisions of this Agreement. (c) Confidential Information and Confidential Materials may be disclosed, reproduced, summarized or distributed only in pursuance of Receiving Party's business relationship with Disclosing Party, and only as otherwise provided hereunder. Receiving Party agrees to segregate all such Confidential Materials from the confidential materials of others in order to prevent commingling. (d) Receiving Party may not reverse engineer, decompile or disassemble any software disclosed to Receiving Party. 3. Rights and Remedies (a) Receiving Party shall notify Disclosing Party immediately upon discovery of any unauthorized use or disclosure of Confidential Information and/or Confidential Materials, or any other breach of this Agreement by Receiving Party, and will cooperate with Disclosing Party in every reasonable way to help Disclosing Party regain possession of the Confidential Information and/or Confidential Materials and prevent its further unauthorized use. (b) Receiving Party shall return all originals, copies, reproductions and summaries of Confidential Information or Confidential Materials at Disclosing Party's request, or at Disclosing Party's option, certify destruction of the same. (c) Receiving Party acknowledges that monetary damages may not be a sufficient remedy for unauthorized disclosure of Confidential Information and that Disclosing Party shall be entitled, without waiving any other rights or remedies, to such injunctive or equitable relief as may be deemed proper by a court of competent jurisdiction. (d) Disclosing Party may visit Receiving Party's premises, with reasonable prior notice and during normal business hours, to review Receiving Party's compliance with the terms of this Agreement. 1 11 4. Miscellaneous (a) All Confidential Information and Confidential Materials are and shall remain the property of Disclosing Party. By disclosing information to Receiving Party, Disclosing Party does not grant any express or implied right to Receiving Party to or under Disclosing Party patents, copyrights, trademarks, or trade secret information. (b) If either party provides pre-release software as Confidential Information or Confidential Materials under this Agreement, such pre-release software is provided "as is" without warranty of any kind. Receiving Party agrees that neither Disclosing Party nor its suppliers shall be liable for any damages whatsoever relating to Receiving Party's use of such pre-release software. (c) All software provided to the U.S. Government pursuant to solicitations issued on or after December 1, 1995 is provided with the commercial rights and restrictions described elsewhere herein. All software provided to the U.S. Government pursuant to solicitations issued prior to December 1, 1995 is provided with RESTRICTED RIGHTS as provided for in FAR, 48 CFR 52.227-14 (JUNE 1987) or DFAR, 48 CFR 252.227-7013 (OCT 1988), as applicable. Manufacturer is Microsoft Corporation/One Microsoft Way/Redmond, WA 98052-6399. (d) Both parties agree that they do not intend nor will they, directly or indirectly, export or re-export (i) any Confidential Information or Confidential Materials, or (ii) any product (or any part thereof), process or service that is the direct product of the Confidential Information or Materials to (A) any country that is subject to U.S. export restrictions (currently including, but not necessarily limited to, Iran, Iraq, Syria, Cuba, North Korea, Libya, the Federal Republic of Yugoslavia (Serbia and Montenegro) and Sudan), or to any national of any such country, wherever located, who intends to transmit or transport the products back to such country; (B) to any end-user who either party knows or has reason to know will utilize them in the design, development or production of nuclear, chemical or biological weapons; or (C) to any end-user who has been prohibited from participating in U.S. export transactions by any federal agency of the U.S. government. (e) The terms of confidentiality under this Agreement shall not be construed to limit either party's right to independently develop or acquire products without use of the other party's Confidential Information. Further, either party shall be free to use for any purpose the residuals resulting from access to or work with such Confidential Information, provided that such party shall maintain the confidentiality of the Confidential Information as provided herein. The term "residuals" means information in non-tangible form, which may be retained by persons who have had access to the Confidential Information, including ideas, concepts, know-how or techniques contained therein. Neither party shall have any obligation to limit or restrict the assignment of such persons or to pay royalties for any work resulting from the use of residuals. However, the foregoing shall not be deemed to grant to either party a license under the other party's copyrights or patents. (f) This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof. It shall not be modified except by a written agreement dated subsequent to the date of this Agreement and signed by both parties. None of the provisions of this Agreement shall be deemed to have been waived by any act or acquiescence on the part of Disclosing Party, its agents, or employees, but only by an instrument in writing signed by an authorized officer of Disclosing Party. No waiver of any provision of this Agreement shall constitute a waiver of any other provision(s) or of the same provision on another occasion. (g) If either party employs attorneys to enforce any rights arising out of or relating to this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees. This Agreement shall be construed and controlled by the laws of the State of Washington, and both parties further consent to jurisdiction by the state and federal courts sitting in the State of Washington. Process may be served on either party by U.S. Mail, postage prepaid, certified or registered, return receipt requested, or by such other method as is authorized by the Washington Long Arm Statute. (h) Subject to the limitations set forth in this Agreement, this Agreement will inure to the benefit of and be binding upon the parties, their successors and assigns. (i) If any provision of this Agreement shall be held by a court of competent jurisdiction to be illegal, invalid or unenforceable, the remaining provisions shall remain in full force and effect. (j) All obligations created by this Agreement shall survive change or termination of the parties' business relationship. 2 12 5. Suggestions and Feedback Either party may from time to time provide suggestions, comments or other feedback to the other party with respect to Confidential Information provided originally by the other party (hereinafter "Feedback"). Both parties agree that all Feedback is and shall be entirely voluntary and shall not, absent separate agreement, create any confidentiality obligation for the Receiving Party. However, the Receiving Party shall not disclose the source of any feedback without the providing party's consent. Feedback shall be clearly designated as such and, except as otherwise provided herein, each party shall be free to disclose and use such Feedback as it sees fit, entirely without obligation of any kind to the other party. The foregoing shall not, however, affect either party's obligations hereunder with respect to Confidential Information of the other party. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. Microsoft Company MICROSOFT CORPORATION BOLT.COM One Microsoft Way 304 Hudson Street Redmond, WA 98052-6399 New York, NY 10013 By /s/ Gordon E. Wood /s/ Frank M. Harrison ------------------ --------------------- (Sign) (Sign) Gordon E. Wood Frank M. Harrison - --------------------- --------------------- Name (Print) Name (Print) Director CFO - --------------------- --------------------- Title Title 9/9/99 - --------------------- --------------------- Date Date 3 EX-10.11 6 ADVERTISING INSERTION ORDER 1 EXHIBIT 10.11 [*] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS WITH ASTERISKS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 406 OF THE SECURITIES ACT OF 1933, AS AMENDED. YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM ORDER# 51042 SALES CONTACT Beth Walter CUSTOMER PHONE 212-508-0276 ORDER EMAIL bethw@yahoo-inc.com REVISION DATE 05-AUG-1999 FAX 212-750-5917 ADVERTISER BOLT.COM AGENCY CONCRETE MEDIA CAMPAIGN ADDRESS 304 Hudson Ave URL 7th Floor North ADDRESS New York, NY 10013 CONTACT CONTACT Justin Nesci FAX 212.620.4315 PHONE FAX PHONE 212.620.3800 x250 EMAIL EMAIL Justin@boltmediainc.com START DATE 01-SEP-1999 END DATE 31-MAY-2000 CONTRACT LENGTH 274 days BILL TO Agency
- ------------------------------------------------------------------------------------------------------------------------------------ ORDER TOTALS: TOTAL IMPRESSIONS TOTAL AMOUNT [*] $[*] AGENCY DISCOUNT [*]: $[*] SUB-TOTAL: $[*] ----------------- NET COST $[*] ----------------- - ------------------------------------------------------------------------------------------------------------------------------------ TERMS Net 30 Days BILLING MONTHLY
MATERIALS: Banners: Banner requirements are posted at http://www.yahoo.com/docs/advertising. DELIVERY: ALL MATERIALS AND ANY CHANGES MUST BE DELIVERED AT LEAST 4 BUSINESS DAYS IN ADVANCE TO THE EMAIL ADDRESS SPECIFIED FOR YOUR REGION AT HTTP: //WWW.YAHOO.COM/DOCS/ADVERTISING. A Yahoo! Insertion order number and flight dates must be referenced in all correspondence. Yahoo! will not issue any credit or makegood due to late or incorrectly submitted banners and/or late or incomplete information. TERMS AND CONDITIONS: The insertion order is subject to the terms and conditions ("Standard Terms") attached hereto as Exhibit A of this Insertion Order, and such Standard Terms are made a part of this insertion order by reference. The signatory of this Insertion Order represents that he has read and agrees to such Standard Terms. This Insertion Order is valid for three (3) business days from the date of this order. This agreement is non-cancelable. Authorized By: /s/ Justin Nesci Phone: 212-620-3900x701 Date: 9/1/99 -------------------------- ------------------ --------------- Production Contact: Justin Nesci Phone: 212-620-3800 x250 Email: justin@boltmediainc.com ------------ ----------------- -----------------------
YAHOO! INC. SANTA CLARA (PC) 3400 CENTRAL EXPRESSWAY SUITE 201 PLEASE RETURN TO YAHOO SALES OPERATIONS DEPT. FAX # 408-530-5130 SANTA CLARA, CA 95051 - ----------------------------------------------------------------
2 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM
- ----------------------------------------------------------------------------------------------------------------------------------- LINE# LINE TYPE START DATE END DATE PAGE VIEWS AMOUNT - ----------------------------------------------------------------------------------------------------------------------------------- 1 CPI 01-SEP-1999 31-MAY-2000 [ * ] Run Of /room/teen (N) - ----------------------------------------------------------------------------------------------------------------------------------- 2 CPI 01-SEP-1999 31-MAY-2000 [ * ] Categories /channels/Teen (WP) - ----------------------------------------------------------------------------------------------------------------------------------- 3 CPI 01-SEP-1999 31-MAY-2000 [ * ] Categories /channels/Teen (NN) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL FOR CHAT PROPERTY: [ * ] $[ * ] - ----------------------------------------------------------------------------------------------------------------------------------- 4 CPI 01-SEP-1999 30-SEP-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 5 CPI 01-OCT-1999 31-OCT-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 6 CPI 01-JAN-2000 31-JAN-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 7 CPI 01-FEB-2000 29-FEB-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 8 CPI 01-MAR-2000 31-MAR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 9 CPI 01-APR-2000 30-APR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 10 CPI 01-MAY-2000 31-MAY-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 11 CPI 01-SEP-2000 30-SEP-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 12 CPI 01-OCT-2000 31-OCT-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 13 CPI 01-JAN-2000 31-JAN-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 14 CPI 01-FEB-2000 29-FEB-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 15 CPI 01-MAR-2000 31-MAR-2000 [ * ] Run of /(N) - -----------------------------------------------------------------------------------------------------------------------------------
3 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM
- ----------------------------------------------------------------------------------------------------------------------------------- LINE# LINE TYPE START DATE END DATE PAGE VIEWS AMOUNT - ----------------------------------------------------------------------------------------------------------------------------------- 16 CPI 01-APR-2000 30-APR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 17 CPI 01-MAY-2000 30-MAY-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL FOR ENTERTAINMENT PROPERTY: [ * ] $[ * ] - ----------------------------------------------------------------------------------------------------------------------------------- 18 CPI 01-NOV-1999 30-NOV-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 19 CPI 01-DEC-1999 31-DEC-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL FOR FINANCE PROPERTY: [ * ] $[ * ] - ----------------------------------------------------------------------------------------------------------------------------------- 20 CPI 01-SEP-1999 30-SEP-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 21 CPI 01-OCT-1999 31-OCT-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 22 CPI 01-JAN-2000 31-JAN-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 23 CPI 01-FEB-2000 29-FEB-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 24 CPI 01-MAR-2000 31-MAR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 25 CPI 01-APR-2000 30-APR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 26 CPI 01-MAY-2000 31-MAY-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 27 CPI 01-SEP-1999 30-SEP-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 28 CPI 01-OCT-1999 31-OCT-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 29 CPI 01-JAN-2000 31-JAN-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 30 CPI 01-FEB-1999 29-FEB-1999 [ * ] Run of - -----------------------------------------------------------------------------------------------------------------------------------
4 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM
- ----------------------------------------------------------------------------------------------------------------------------------- LINE# LINE TYPE START DATE END DATE PAGE VIEWS AMOUNT - ----------------------------------------------------------------------------------------------------------------------------------- /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 31 CPI 01-MAR-2000 31-MAR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 32 CPI 01-APR-2000 30-APR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 33 CPI 01-MAY-2000 31-MAY-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 34 CPI 01-NOV-1999 30-NOV-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 35 CPI 01-DEC-1999 31-DEC-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 36 CPI 01-NOV-1999 30-NOV-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 37 CPI 01-DEC-1999 31-DEC-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 38 CPI 01-NOV-1999 30-NOV-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 39 CPI 01-DEC-1999 31-DEC-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 40 CPI 01-NOV-1999 30-NOV-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 41 CPI 01-DEC-1999 31-DEC-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL FOR MAIL PROPERTY: [ * ] $[ * ] - ----------------------------------------------------------------------------------------------------------------------------------- 42 CPI 01-OCT-1999 31-OCT-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 43 CPI 01-JAN-2000 31-JAN-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 44 CPI 01-FEB-2000 29-FEB-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 45 CPI 01-MAR-2000 31-MAR-2000 [ * ] Run of - -----------------------------------------------------------------------------------------------------------------------------------
5 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM
- ----------------------------------------------------------------------------------------------------------------------------------- LINE# LINE TYPE START DATE END DATE PAGE VIEWS AMOUNT - ----------------------------------------------------------------------------------------------------------------------------------- /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 46 CPI 01-APR-2000 30-APR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 47 CPI 01-MAY-2000 31-MAY-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 48 CPI 01-SEP-1999 30-SEP-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 49 CPI 01-OCT-1999 31-OCT-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 50 CPI 01-JAN-2000 31-JAN-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 51 CPI 01-FEB-2000 29-FEB-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 52 CPI 01-MAR-2000 31-MAY-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 53 CPI 01-APR-2000 30-APR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 54 CPI 01-MAY-2000 31-MAY-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 55 CPI 01-SEP-1999 30-SEP-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL FOR MOVIES PROPERTY: [ * ] $[ * ] - ----------------------------------------------------------------------------------------------------------------------------------- 56 CPI 01-SEP-1999 30-SEP-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 57 CPI 01-OCT-1999 31-OCT-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 58 CPI 01-JAN-2000 31-JAN-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 59 CPI 01-FEB-2000 29-FEB-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 60 CPI 01-MAR-2000 31-MAR-2000 [ * ] Run of - -----------------------------------------------------------------------------------------------------------------------------------
6 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM
- ----------------------------------------------------------------------------------------------------------------------------------- LINE# LINE TYPE START DATE END DATE PAGE VIEWS AMOUNT - ----------------------------------------------------------------------------------------------------------------------------------- /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 61 CPI 01-APR-2000 30-APR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 62 CPI 01-MAY-2000 31-MAY-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 63 CPI 01-SEP-1999 30-SEP-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 64 CPI 01-OCT-1999 31-OCT-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 65 CPI 01-JAN-2000 31-JAN-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 66 CPI 01-FEB-2000 29-FEB-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 67 CPI 01-MAR-2000 31-MAR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 68 CPI 01-APR-2000 30-APR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 69 CPI 01-MAY-2000 31-MAY-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 70 CPI 01-SEP-1999 30-SEP-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 71 CPI 01-OCT-1999 31-OCT-1999 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 72 CPI 01-JAN-2000 31-JAN-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 73 CPI 01-FEB-2000 29-FEB-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 74 CPI 01-MAR-2000 31-MAR-2000 [ * ] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 75 CPI 01-APR-2000 30-APR-2000 [ * ] Run of /(N) - -----------------------------------------------------------------------------------------------------------------------------------
7 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM
- ----------------------------------------------------------------------------------------------------------------------------------- LINE# LINE TYPE START DATE END DATE PAGE VIEWS AMOUNT - ----------------------------------------------------------------------------------------------------------------------------------- 76 CPI 01-MAY-2000 31-MAY-2000 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 77 CPI 01-SEP-1999 30-SEP-1999 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 78 CPI 01-OCT-1999 31-OCT-1999 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 79 CPI 01-JAN-2000 31-JAN-2000 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 80 CPI 01-FEB-2000 29-FEB-2000 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 81 CPI 01-MAR-2000 31-MAR-2000 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 82 CPI 01-APR-2000 30-APR-2000 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 83 CPI 01-MAY-2000 31-MAY-2000 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 84 CPI 01-NOV-1999 30-NOV-1999 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 85 CPI 01-DEC-1999 31-DEC-1999 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 86 CPI 01-NOV-1999 30-NOV-1999 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 87 CPI 01-DEC-1999 31-DEC-1999 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 88 CPI 01-NOV-1999 30-NOV-1999 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 89 CPI 01-DEC-1999 31-DEC-1999 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 90 CPI 01-NOV-1999 30-NOV-1999 [*] Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- 91 CPI 01-DEC-1999 31-DEC-1999 [*] - -----------------------------------------------------------------------------------------------------------------------------------
8 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM
- ----------------------------------------------------------------------------------------------------------------------------------- LINE# LINE TYPE START DATE END DATE PAGE VIEWS AMOUNT - ----------------------------------------------------------------------------------------------------------------------------------- Run of /(N) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL FOR NETWORK PROPERTY: [*] $[*] - ----------------------------------------------------------------------------------------------------------------------------------- 92 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 93 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 94 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 95 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 96 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 97 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 98 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 99 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 100 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 101 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 102 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 103 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 104 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 105 CPI 01-SEP-1999 31-MAY-2000 [*] Search Words [*] (N) - -----------------------------------------------------------------------------------------------------------------------------------
9 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM
- ----------------------------------------------------------------------------------------------------------------------------------- LINE# LINE TYPE START DATE END DATE PAGE VIEWS AMOUNT - ----------------------------------------------------------------------------------------------------------------------------------- 106 CPI 01-SEP-1999 31-MAY-2000 [ * ] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 107 CPI 01-SEP-1999 31-MAY-2000 [ * ] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- 108 CPI 01-SEP-1999 31-MAY-2000 [ * ] Search Words [*] (N) - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL FOR YAHOO PROPERTY: [ * ] $[*] - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL IMPRESSIONS TOTAL AMOUNT ORDER TOTAL: [ * ] $[ * ] AGENCY DISCOUNT [*]: $[ * ] SUB TOTAL: $[ * ] ------------------- NET COST: $[ * ] - -----------------------------------------------------------------------------------------------------------------------------------
COMMENTS: 20-AUG-1999 Advertiser shall reserve the right to cancel the agreement with 90 days written notice. [*] Yahoo guarantees Bolt a minimum monthly impression figure of [ * ] /month for its sponsorship of the teen chat channel Please refer to Addendum A for targeting of Yahoo! Properties and Run of Yahoo Network. Note: New west module size 125 x 125 10 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM BOLT ADDENDUM A
ROC DEMO 10 mos Sep-May Nov Dec (excludes Nov & Dec) 10,000,000 1000000 Movies (18-20) 20% Email 35-49 40% 40% Movies (21-24) 20% Email teen 30% 30% Email (18-20) 10% Entertainment 35-49 10% 10% Email (21-24) 10% Entertainment teen 10% 10% Entertainment (18-20) 10% Finance 35-49 10% 10% Entertainment (21-24) 10% Astrology (18-20) 10% Astrology (21-24) 10%
ROC DEMO 10 mos Sep-May Nov Dec (excludes Nov & Dec) 13,000,000 1,300,000 ROS (18-20 Female) 25% ROS 35-49 men 25% 30% ROS (18-20 male) 25% ROS 35-49 women 25% 30% ROS (21-24 female) 25% Ros teen 25% 20% ROS (21-24 male) 25% ROS 18-20 25% 20%
11 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM Standard Terms and Conditions for Yahoo! Advertising The following terms and conditions (the "Standard Terms") shall be deemed to be incorporated into the attached insertion order (the "Insertion Order"): 1. Terms of Payment. Advertiser must submit completed credit application to determine terms of payment. If no credit application is submitted or the request for credits is denied by Yahoo! Inc. ("Yahoo") in its sole discretion, the Insertion Order must be paid in advance of the advertisement start date. Major credit cards 9VIA, M/C and American Express) are accepted. If Yahoo approves credit, Advertiser will be involved on the first day of the contract period set forth on the Insertion Order and payment shall be made to Yahoo within thirty (30) days from the date of Invoice ("Due Date"). Amounts paid after the Due Date shall be increased at the rate of one percent (1%) per month (or the highest rate permitted by law, if less). In the event Advertiser fails to make timely payment, Advertiser will be responsible for all reasonable expenses (including attorneys' fee) incurred by Yahoo in collecting such amounts. Yahoo reserves the right to suspend performance of its obligations hereunder (or under any other agreement with Advertiser) in the event Advertiser fails to make timely payment hereunder or under any other agreement with Yahoo. 2. Positioning. Except as otherwise expressly provided in the Insertion Order, positioning of advertisements within the Yahoo properties or on any page is at the sole discretion of Yahoo. Yahoo may, at is sole discretion, remove from the insertion order (and substitute with similar inventory) any keyword or category page that it believes to be a trademark, trade name, company name, product name or brand name belonging to or claimed by a third party. 3. Renewal. Except as expressly set forth in the Insertion Order, any renewal of the Insertion Order and acceptance of any additional advertising order shall be at Yahoo's sole discretion, pricing for any renewal period is subject to change by Yahoo from time to time. 4. No Assignment or Resale of Ad Space. Advertiser may not resell, assign or transfer any of its rights hereunder, and any attempt to resell, assign or transfer such rights shall result in immediate termination of this contract, without liability to Yahoo. 5. Limitation of Liability. In the event (i) Yahoo fails to publish an advertisement in accordance with the schedule provided in the Insertion Order, (ii) Yahoo fails to deliver the number of total page views specified in the Insertion Order (if any) by the end of the specified period, or (iii) of any other failure, technical or otherwise, of such advertisement to appear as provided in the Insertion Order, the sole liability of Yahoo to Advertiser shall be limited to, at Yahoo's sole discretion, a pro rata refund of the advertising fee representing undelivered page views, placement of the advertisement at a later time in a comparable position, or extension of the term of the Insertion Order until total page views are delivered. In no event shall Yahoo be responsible for any consequential, special, punitive or other damages, including without limitation, lost revenue or profits, in any way arising out of or related to the Insertion Order/Standard Terms or publication of the advertisement, even if Yahoo has been advised of the possibility of such damages. Without limiting the foregoing, Yahoo shall have no liability for any failure or transportation interruption of any kind, work slowdown or any other condition beyond the control of Yahoo affecting production or delivery in any manner. 6. Advertisers Representation; Indemnification. Advertisements are accepted upon the representation that Advertiser has the right to publish the contents of the advertisement without infringing the rights of any third party and without violating any law. In consideration of such publication, Advertiser agrees, at its own expense, to indemnify, defend and hold harmless Yahoo, and its employees, representatives, agents and affiliates, against any and all expenses and losses of any kind (including reasonable attorneys' fees and costs) incurred by Yahoo in connection with any claims, administrative proceedings or criminal investigations of any kind arising out of publication of the advertisement and/or any material of Advertiser to which users can link through the advertisement (including without limitation, any claim of trademark or copyright infringement, defamation, breech of confidentiality, privacy violation, false or deceptive advertising or sales practices). 7. Provision of Advertising Materials. Advertiser will provide all materials for the advertisement in accordance with Yahoo's policies in effect from time to time, including (without limitation) the manner of transmission to Yahoo and the lead-time prior to publication of the advertisement. Yahoo shall not be required to publish any advertisement that is not received in accordance with such policies and reserves the right to charge Advertiser, at the rate specified in the Insertion Order for inventory held by yahoo pending receipt of acceptable materials from Advertiser which are past due. Advertiser hereby grants to Yahoo non-exclusive, worldwide, fully paid license to use, reproduce and display the advertisement (and the contents, trademarks and brand features contained therein) in accordance herewith. 12 YAHOO!. ADVERTISING INSERTION ORDER HTTP://WWW.YAHOO.COM 8. Right to Reject Advertisement. All contents of advertisements are subject to Yahoo's approval. Yahoo reserves the right to reject or cancel any advertisement, insertion order, URL link, space reservation or position commitment, at any time, for any reason whatsoever (including belief by Yahoo that placement of advertisement, URL link, etc., may subject Yahoo to criminal or civil liability). 9. Cancellations. Except as otherwise provided in the Insertion Order, the Insertion Order is non-cancelable by Advertiser. 10. Construction. No conditions other than those set forth in the Insertion Order on these Standard Terms shall be binding on Yahoo unless expressly agreed to in writing by Yahoo. in the event of any inconsistency between the Insertion Order and the Standard Terms, the Standard Terms shall control. 11. Miscellaneous. These Standard Terms, together with the Insertion Order, (i) shall be governed by and construed in accordance with, the laws of the State of California, without giving effect to principles of conflicts of laws; (ii) may be amended only by a written agreement executed by an authorized representative of each party; and (ii) constitute the complete and entire expression of the agreement between the parties, and shall supersede any and all other agreements, whether written or oral, between the parties. Advertiser shall make no public announcement regarding the existence or content of the Insertion Order without Yahoo's written approval, which may be withheld at Yahoo's sole discretion. Both parties consent to the jurisdiction of the courts of the State of California with respect to any legal proceeding arising in connection with the Insertion Order/Standard Terms. EX-23.1 7 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to the Registration Statement No. 333-93235 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 30, 1999 -----END PRIVACY-ENHANCED MESSAGE-----