-----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, PqsYrsfcdxURjx26zq/cfFEWnPjXsuw0v1PclV2Cun29t2eK8fRS7UeDbVf4i3EW E5WGxmw4s+gMG5DMnJ6Onw== 0001015402-99-000702.txt : 19990714 0001015402-99-000702.hdr.sgml : 19990714 ACCESSION NUMBER: 0001015402-99-000702 CONFORMED SUBMISSION TYPE: 10SB12G PUBLIC DOCUMENT COUNT: 39 FILED AS OF DATE: 19990713 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHOTOLOFT COM CENTRAL INDEX KEY: 0001086722 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 870431036 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G SEC ACT: SEC FILE NUMBER: 000-26693 FILM NUMBER: 99663705 BUSINESS ADDRESS: STREET 1: 300 ORCHARD CITY DRIVE STREET 2: SUITE 142 CITY: CAMPBELL STATE: CA ZIP: 95008 BUSINESS PHONE: 4083648777 MAIL ADDRESS: STREET 1: 300 ORCHARD CITY DRIVE STREET 2: SUITE 142 CITY: CAMPBELL STATE: CA ZIP: 95008 10SB12G 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1999 Registration No.__________ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-SB GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUER UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934 ____________________ PHOTOLOFT.COM (Name of Small Business Issuer in its Charter) NEVADA 87-0431036 (State or Other Jurisdiction of (I.R.S. Employer Identification Number) Incorporation or Organization) 300 ORCHARD CITY DRIVE, SUITE 142 CAMPBELL, CALIFORNIA 95008 (Address of Principal Executive Offices and Zip Code) Issuer's Telephone Number: (408) 364-8777 Securities to be registered pursuant to Section 12(b) of the Act: Securities to be registered pursuant to Section 12(g) of the Act: Common Stock, par value $.001 per share
PHOTOLOFT.COM FORM 10-SB Table of Contents Item 1 Description of Business 2 Item 2 Management's Discussion and Analysis or Plan of Operations 21 Item 3 Description of Properties 36 Item 4 Security Ownership of Certain Beneficial Owners and Management 38 Item 5 Directors, Executive Officers, Promoters and Control Persons 40 Item 6 Executive Compensation 44 Item 7 Certain Relationships and Related Transactions 49 Item 8 Legal Proceedings 52 Item 9 Market For Common Equity and Related Stockholder Matters 52 Item 10 Recent Sales of Unregistered Securities 54 Item 11 Description of Registrant's Securities to be Registered 58 Item 12 Indemnification of Directors and Officers 62 Item 13 Financial Statements 63 Item 14 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 63 Item 15 Financial Statements and Exhibits 64
2 INFORMATION REQUIRED IN REGISTRATION STATEMENT "Photoloft" and "HOWDY" are trademarks and service marks of PhotoLoft.com. All other trademarks, service marks or tradenames referred to in this Registration Statement on Form 10-SB ("Registration Statement") are the property of their respective owners. Except as otherwise required by the context, all references in this Registration Statement to (a) "we," "us," "our" or "PhotoLoft.com" refer to the consolidated operations of PhotoLoft.com, a Nevada corporation, and its wholly-owned subsidiary, PhotoLoft.com, Inc., a California corporation, (b) "you" refer to prospective investors in our common stock and other readers of this Registration Statement, (c) the "Web" refer to the World Wide Web, and (d) the "site" refer to our Web site. This Registration Statement contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and Section 27A of the Securities Act of 1933, as amended ("Securities Act"), and is subject to the safe harbors created by those sections. These forward-looking statements are subject to significant risks and uncertainties, including information included under Items 1 and 2 of this Registration Statement, which may cause actual results to differ materially from those discussed in such forward-looking statements. The forward-looking statements within this Registration Statement are identified by words such as "believes," "anticipates," "expects," "intends," "may," "will" and other similar expressions regarding our intent, belief and current expectations. However, these words are not the exclusive means of identifying such statements. In addition, any statements which refer to expectations, projections or other characterizations of future events or circumstances and statements made in the future tense are forward-looking statements. Readers are cautioned that actual results may differ materially from those projected in the forward looking statements as a result of various factors, many of which are beyond our control. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements which may be made to reflect events or circumstances occurring subsequent to the filing of this Registration Statement with the Securities and Exchange Commission ("SEC"). Readers are urged to carefully review and consider the various disclosures made by us in this Registration Statement. This Registration Statement includes statistical data regarding Photoloft.com and the markets in which it operates. Such data is based on our records or are taken or derived from information published by various sources, including Dataquest, Reuters Technology Survey, New Media, Jupiter Communications, and International Data Corporation. Although these companies specialize in providing market and strategic information for the information technology industry, and we believe that data from these companies is generally reliable, this type of data is inherently imprecise. You are cautioned not to place undue reliance on this data. 1 ITEM 1. DESCRIPTION OF BUSINESS PhotoLoft.com is a leading photo-sharing and digital imaging e-commerce community. Our revolutionary viewing and printing technology allows users to view, share, and print personal images quickly, easily and inexpensively. Users can choose from over 90 categories in which to catalogue their images and view others. This growing list provides users with a quick reference point to access images of interest to them, while at the same time giving potential advertisers and sponsors on the site the opportunity to ultra-target their audience. We are also developing a multi-faceted e-commerce program, including a complete line of photo-personalized gifts and customized electronic greeting cards, consumables such as ink, paper and other digital imaging items, and photos offered by professional photographers. BACKGROUND Our predecessor company, AltaVista Technology, Inc. ("AltaVista"), was formed in November 1993 to take advantage of the burgeoning need for fun and creative applications for the Internet. The market place was rapidly leaving behind cumbersome computers that required highly trained operators and was turning to PC-based computing that allowed people with average computer skills to enter a new world. AtlaVista began developing imaging software that made computing even more fun, and the various products that the company designed and marketed brought images to life on the computer. In 1995 the company introduced Howdy!, the world's first ever multi-media e-mail tool. Still being shipped today, the software was an instant success because it was engaging, fun and easy to use. As a component of this product, AltaVista also established web pages via e-mail. Over the years, AltaVista developed and marketed the following products: Howdy! - an electronic postcard maker for Windows PCs Howdios - additional postcards for Howdy! owners available on line Webcannon! - a template-driven Web page authoring "system" Media Wrangler - a multimedia authoring tool SmartNet Singles - thematic Internet access kits (27 titles) Internet Suite - a suite of products designed to get users up and Running quickly and easily on the Internet As a software developer, AltaVista followed the traditional revenue model of bundling its software with Original Equipment Manufacturers ("OEMs"). As that market evolved into a non-revenue source, we began exploring new ways to bring products to market at a profit. This coincided with the phenomenal growth of the Internet and the evolution of Internet users who were rapidly beginning to utilize the medium as a source of entertainment as well as information. The expertise of the company was clearly in Internet imaging technology and the decision was made to aggregate images into a photo-sharing community. 2 We adopted our new business model in June 1998. In August 1998 we sold our URL (AltaVista.com) to Digital Equipment (Compaq Computer) and changed our name to PhotoLoft.com, Inc. ("PhotoLoft-California"). The official launch of our new Web site was in February 1999, the same month that PhotoLoft-California entered into a reorganization with Data Growth, Inc. ("DGI"), a non-operating public company incorporated in Nevada. Under the terms of the reorganization, PhotoLoft-California shareholders received shares of DGI in exchange for their shares of PhotoLoft-California common stock, PhotoLoft-California became a wholly-owned subsidiary of DGI, all of the executive officers and directors of DGI resigned and the executive officers and directors of PhotoLoft-California became the executive officers and directors of DGI, and DGI changed its name to PhotoLoft.com. See "Item 7. Certain Relationships and Related Transactions." All of our business is currently conducted through PhotoLoft-California, and our principal executive offices are located at 300 Orchard City Drive, Suite 142, Campbell, California. Our telephone number at this address is (408) 364-8777. Photo Processing Technology The continuing evolution of the Internet as an entertainment medium coupled with rapid advances in technology are working together to create a very different photo processing model that the traditional chemical film based model. Typically, photographers drop their used film at a photo processor, return at a later date to retrieve it, make decisions for additional copies of certain photos and then return several days later to get those as well. Digital photography, the Internet and advances in printing technology are making that model obsolete. According to Dataquest Inc. nearly 50% of all U.S. households owned a PC at the end of 1998, versus 43% and 36% in 1997 and 1996, respectively. Two thirds of new PC buyers purchase for entertainment purposes. The Ziff-Davis Technology User Profile estimates that 61% of those households with a PC also access the Internet. Reuters Technology Survey reports that Internet usage doubles every 100 days. The digital capture market continues to explode as well. Digital camera prices dropped 40 percent to 50 percent during 1998, making them more accessible to more people. According to New Media, the digital camera market is currently enjoying a boom that is expected to reach $5.4 billion in sales by 2002. In Japan today, sales of digital cameras exceed those of film-based cameras. Printer technology continues to focus on crisp, clear prints delivered via the home printer at affordable prices. Companies like Hewlett-Packard derive more revenue from ink sales than printer sales, and printers that provide consumers with excellent images (and use a lot of ink in the process) help to drive the technology. In this new world, digital images are directly uploaded to the Internet where the owner can view and share them with others. Traditional photos can easily be scanned onto the Internet. The owner can then choose to print the photo(s) of his choice from the comfort of his own PC. This avoids getting unwanted photos, provides an excellent storage place for the images, and ensures that photos can be found and reprinted at any time. Using our revolutionary software, the prints made will be to the highest resolution of the printer, which typically provides photo-finish quality prints. All printers shipped by Epson and Hewlett-Packard in the U.S. in 1999 have this capability. The printer prices start at $250. In addition, users can designate what standard photographic size they prefer, anything from wallet to 8"x10". 3 The Internet The move from a chemical-based photo solution to a digital one coincides with the explosive growth of the Internet into a significant global medium for entertainment, communications, news, information and commerce. Commercialization of the Internet began in the mid-1980s, with e-mail providing the primary means of communication. However, it was the Internet's World Wide Web, which provided a means to link text and pictures, that has led to the blossoming of e-commerce and sparked the explosive growth of the Internet in the 1990s. Today, at least 100 million people in 135 countries send and receive information, and purchase products and services, through the Internet. While a number of factors have contributed to the continued growth of the Internet, several specific trends have been particularly important. The first has been the emergence of community Web sites. Community sites provide a platform for publishing and aggregating the rapidly increasing volume of personalized content created by Internet users. Online communities also provide a single online destination where like-minded users can interact and quickly find pertinent information, products and services related to their particular needs. Community sites generally offer free services including access to e-mail accounts, chat rooms, message boards, news and entertaining. Through these features, community sites can provide Internet users with the same opportunities for expression, interaction, sharing, support and recognition that they seek in the everyday world. A successful community will accomplish these goals and create a base of loyal members who will collaborate in the evolution of the site as their needs and interests change and expand. Online communities also provide advertisers an attractive means of promoting and selling products and services. According to Jupiter Communications, the amount of advertising dollars spent on the Web is expected to grow from approximately $1.8 billion in 1998 to $7.7 billion by 2002, a compound annual growth rate of 42%. To date, advertisers have typically used traditional navigational sites and professionally created content sites to promote their products and services online. However, online communities allow them to reach highly targeted audiences within a more personalized context, thus providing the opportunity to increase advertising efficiency and improve the likelihood of a successful sale. Moreover, advertisers can track more accurately the effectiveness of their advertising messages by receiving reports of the number of advertising "impressions" delivered to consumers and the resulting "click-through" rate to their Web sites. According to Jupiter Communications, traditional on-line banner advertising, while still strong, is beginning to give way to sponsorships. In 1998, 61% of ad inventory sold was banners and 27% was sponsorships. Jupiter expects sponsorships to gain in popularity at the expense of banner advertising for the next few years. 4 The second trend of interest in the Internet world has been the advent of e-commerce. According to International Data Corporation, worldwide commerce revenue on the Internet is expected to increase from approximately $32 billion in 1998 to approximately $130 billion in 2000. Surveys indicate that 35% of people utilizing the Internet to purchase goods driven by price - shopping for the best deal. The remaining 65% of the users are driven by convenience and selection. OUR SOLUTION For Internet consumers, PhotoLoft.com provides a photo-sharing community that continues to meet the evolving needs of the marketplace. It is attractive to photographers of all types, from professional to neophyte, who want to share their images, solicit comments on their photos, browse others' pictures and participate in photo-personalized e-commerce or simply take advantage of a convenient solution for purchasing digital imaging supplies. In addition, our advanced viewing technology allows users to study photos from a number of different angles and our printing technology allows them to print photo-finish quality prints from their home or office printers. For business partners, PhotoLoft.com brings a unique solution to the questions of how to make their sites more interesting and ultimately more appealing to their users. No other photo-sharing web site on the Internet offers this broad combination of products and services to meet all of these needs. Consumers Our solution is well timed to take advantage of the growing popularity of online communities. Jupiter Communications has reported that facilitating the sharing of photos among communities will be the primary application for on-line consumer digital imaging. Our response has been to offer a vertical portal for digital imaging, replete with photo-sharing opportunities, photo chats, contests, targeted advertising and a unique e-commerce solution. In addition, our efforts to develop an entertaining community site are positioning us well to capture a share of the next generation of Internet users who will be looking to the Internet for reasons other than information. Internal statistics show that as an entertainment medium and Web site, we are not only successful at attracting users, but we also keep them on the site for long periods of time and keep members once they upload their images. Sharing photos with family and friends; being able to browse other photos and comment on them; and enjoying a community of photography buffs, all combine to make us a popular community with a promising future with new members. In addition, PhotoLoft.com offers a highly focused Web site, which is particularly attractive to advertisers. Through our 98 different categories, advertisers can choose to target their audience as much or little as possible. Combined with PhotoLoft.com's community, which sponsors contests and provides information and news about digital imaging, the Web site is a very attractive option for advertisers, that can choose traditional banner advertising on ultra-targeted pages or sponsorships of the various activities available at the site. 5 We have also developed a multi-faceted e-commerce solution that will appeal to users looking for photo-personalized gifts and greeting cards, as well as those choosing to take advantage of the "ease of doing business" that PhotoLoft.com affords them. The first component of the e-commerce program is in place today and offers customers a choice of over 150 photo-personalized gift items. Because these gifts are always unique, they can never be commoditized and are proving to be an excellent opportunity for repeat sales to users. The second component of the e-commerce program is photo-personalized cards, which have the additional feature of customized greetings. The unique design of this program allows PhotoLoft.com to generate both advertising and e-commerce revenues. The third component of the e-commerce solution includes on-line sales of digital imaging products such as cameras, scanners and printers. In addition, we will offer printing paper and ink cartridges for sale at costs competitive with more traditional retail outlets. Business Partners Jupiter Communications research also indicates the photos "anchor" a community. As a photo-sharing community, PhotoLoft.com attracts members that are actively looking for the "community" experience with a "photographic" slant. As members join PhotoLoft.com they upload images and remain with us, as opposed to some communities where it is easy to switch to a competitive site. In addition, statistics show that PhotoLoft.com is an extremely "sticky" site, a very important point for advertisers on the web site. Examining photos takes more time than simply scanning most web sites. Also, PhotoLoft.com users then zoom in on or pan the image they have chosen an average of three times. This feature is very important because each time it is accessed it increases the total amount of time a user is on the site. These two factors combined have made PhotoLoft.com very attractive to other Web sites that are constantly looking for ways to increase the potential of their communities. Utilizing PhotoLoft.com's unique co-branding and private label opportunities, sites like PowWow (owned by Tribal Voice) are able to further cement their relationship with users. The final component of the e-commerce solution involves PhotoLoft.com-enabled e-commerce. This product was developed on demand from professional photographers, who will utilize PhotoLoft.com to display photos taken for events. Potential customers can browse the photos in a PhotoLoft.com album created by the photographer and then print directly from the web site. The photographer will be reimbursed based upon the number of photos printed. Technology What makes our site truly popular with all users is the technology. Our leading-edge software greatly simplifies the task of displaying images on the Internet, offering automatic creation of thumb-nails; auto-generation of a perfectly sized viewable image; transparent image compression; the photo album metaphor, and many other uses. We have also taken Internet digital imaging a step further with our advanced viewing capabilities. Users can zoom in on or pan an image, allowing them to observe even the tiniest details or enjoy the full panorama of a photo. This technology, which is compatible with all on-line auction sites, makes us particularly popular with bidders closely scrutinizing their potential purchases. In addition, to take full advantage of the digital revolution, we allow users to print their pictures at home. This home photo processing is comparable to the current photo finish quality, and is cost competitive with the traditional model of film processing with the added advantages of allowing users the convenience of printing only the photos they want, at the sizes they designate from the comfort of their homes. 6 STRATEGY In order to achieve our goal of becoming the most complete photo-sharing e-commerce community on the Internet, we have implemented a multi-faceted strategy to enhance the content and features available on our Web site, increase the amount of traffic on our site, expand advertising sales and sponsorships, and develop a variety of e-commerce solutions. Enhance Our Online Community We continue to evolve our site to offer the latest in technology as well as the latest trends in Internet communities. To be successful in the rapidly developing market, we need to be pacesetters at all times. Recently, we began to aggressively upgrade the look and feel of our site, creating new and popular contests, encouraging users to comment on photos via the "guest books" feature, and bringing new users to the site through an e-invitation e-mail program. By virtue of the photos, our site is inherently "sticky," meaning that users visiting the site tend to be there a while. Users study photos for a period of time before moving on and, due to the company'' advanced viewing technology, for every image served on our site, users zoom or pan the image an average of three times. In addition, once users upload their photos to the Loft, they are reluctant to move them. These are extremely important features for potential partners as well as advertisers. New developments trend into two distinct arenas: technology and entertainment. Technically, we are working to add new features that enhance our current product, such as advanced image editing - cropping, red eye, image manipulation, etc., -- simplified image uploading, and the addition of audio. We realize that to be successful, we must have an extremely easy, user-friendly site. We recently instituted a "feedback" page on the site that allows users to communicate their ideas easily and quickly with the company. Many of our new enhancements will be derived from this user interface. We are also working to cut the costs of technology. As our Web site continues to grow we can achieve many cost efficiencies. In addition, our engineers are working to lower the cost even more through new developing technologies for image hosting. Finally, we are devoted to Internet image hosting, and as that develops, we plan to remain on the forefront of the technology. For example, we are constantly monitoring the state of web-based video. 7 Perhaps even more important is the entertainment component of the site. We are constantly on the lookout for new ideas that will enhance the community experience for our users. In the very near term we anticipate adding additional contests, an automated address book for emailing purposes and private chat (communication) between members versus the public forum available today through Guest Books. Traffic Generation We have made a strategic decision to make traffic generation our top priority. In order to accomplish this, we intend to enter into co-branding relationships with original equipment manufacturers (OEMs) of digital imaging equipment. We currently enjoy successful partnerships with OEMs of digital cameras, scanners, printers and other digital photography equipment, including UMAX, Epson, and Hewlett-Packard. Our partners ship copies of our software with new equipment; advertise PhotoLoft.com on their boxes; feature our site in box inserts and/or user guides; and create links from their Web sites. Typically OEM relationships are manifested as co-branded Web sites, whereby users on the OEM partner's home page can click through to a page featuring the OEM's branding along with PhotoLoft.com. As users browse through the site and take advantage of all our unique features, they constantly see both brands-the OEM and PhotoLoft.com. This solution, unique to PhotoLoft.com, is very popular with OEM's that are understandably are reluctant to send potential customers to another Web site. PhotoLoft.com, the OEM and the user are all winners: we grow our user base and image bank; the OEM is perceived as offering a value-added service; both companies share in the revenue generated by advertising sales and e-commerce; and the user has an opportunity to join our community. See "Marketing and Promotion--Co-Branding Agreements." Another promising strategy for traffic generation is the development of private label sites. This concept was pioneered when we developed a private label site for the Walt Disney Company in conjunction with Disney's launch of "A Bug's Life." Under this concept, a partner company, such as Disney, can commission us to create a Web site that is branded exclusively for them, giving users the impression they have never left the original site. As an added feature, the private label partner can specify parameters for the site, including content and advertising. The advantages of a private label site are numerous for both the partner and us. The partner has total control over the site, including tight security, the chance to communicate with visitors and reinforce its brand. We add to our image bank, enjoy additional traffic and participate in revenues generated via e-commerce and advertising sales. Our private label program allows partners to choose how to feature PhotoLoft.com or offer its services. That way, we are not a competitor, but a value-added supplier and partner. As we add private label agreements, PhotoLoft.com will quickly become the digital imaging host for the Internet. See "Marketing and Promotion--Private Labeling Agreements." 8 We are also maximizing relationships with other Web sites to drive traffic from an entirely different population - Internet surfers. We already have agreements in place with Compaq Computer; Lycos; Hylas; Tribal Voice and Netopia, and are actively pursuing additional agreements with high traffic Web sites. See "Marketing and Promotion--Web Site Partnering." Advertising Sales As advertising costs continue to spiral upward, savvy advertisers are constantly on the look out for innovative ways to deliver their message to increasingly targeted audiences. The Internet is an excellent medium for this ultra-targeted advertising and we are an ideal Web site, acting as an electronic alternative to printed photo magazines. Our unique design allows users to generate numerous impressions based on just one image. Users publishing complete albums create an exponential number of impressions. Each impression allows advertisers to reach an increasingly targeted audience, an advantage not lost upon cost-conscious advertisers looking for value. Also, the unique nature of our greeting card program creates multiple impressions as users create their own cards. In addition, the community nature of our Web site creates opportunities to further segment the audience, giving advertisers an even more targeted buy. To further our advertising strategy, we have partnered with Adsmart as our advertising representation company. Adsmart is the industry's largest site-focused on-line advertising representation firm, and the relationship provides us with a tremendous opportunity to grow advertising sales. In addition, we are aggressively pursuing partnering arrangements with advertisers interested in sponsorship opportunities on our Web site. See "Advertising." E-Commerce E-commerce is a growing phenomenon of the Internet and we intend to take advantage of this opportunity by offering convenience and quality to buyers. We currently offer a wide selection of photo-personalized gifts, and plans are in place for phased introduction of additional products and services, including photo-personalized greeting cards, consumables, and photos offered by professional photographers. See "Products and Services--E-Commerce." PRODUCTS AND SERVICES Our Web Site Our Web site at Photoloft.com was created to give our members a place to store their pictures; a way to categorize their memories; and a mechanism for sharing their photos. Members can store photos; utilize the site's album metaphor to organize the photos; and either view them on-line, through high quality output devises such as television, or print them using our revolutionary print technology. 9 Once users arrive at our site, navigating the different areas is quite simple. Immediately, users can opt to sign up, upload their photos or search for a specific album. Following this lead navigation bar, users can scroll through the 98 photographic categories ranging from animals to news to travel. Views of photos are only a click away. Users choosing to upload a photo must first join PhotoLoft.com by completing a very brief registration form and agreeing to the site's terms and conditions. Once that is handled, users can load their images three ways, via the digital camera, scanning or emailing the image. They are automatically stored in an "album" which can be edited and manipulated very easily at any time. Also available on the home page are buttons to display the current stock quote (through a link with Yahoo Finance); contest winners; contest entries; and gift ordering. One of the unique and attractive features of our Web site is the community experience. The importance of community cannot be underestimated: Internet users are looking for interaction and the "community" experience fulfills that need. The longer users stay on the site, the more opportunity Web sites have to be successful. Our site currently features 98 categories of images that users can browse through. These categories represent the top subjects that photographers typically photograph. In addition to giving users a convenient way to view photos, the segmentation is attractive to potential advertisers that can use the categories to ultra-target audiences. For example, pet food ads can be featured on the "Pet" section of our site. The categories also help draw viewers deeper into the site, increasing the number of impressions received and the number of images served. This, in turn, makes our site particularly attractive for advertisers, thereby increasing opportunities for advertising revenues. See "Advertising." Other features on our site that contribute to the community experience include photo comments, photo sharing, and user participation via contests. Using our Guest Books feature, users can comment on various images throughout the site. Those comments can then be viewed by anyone accessing the photo. This is a particularly popular feature for professional models, who use the site to post their portfolios, and professional photographers. A unique component to the Guest Books feature that is scheduled to launch during the third quarter of 1999, is an e-mail service that will alert users when comments about their images have been received. According to a Jupiter Communications study, sharing is one of the top reasons that people choose digital images. Our site provides the perfect vehicle to do that easily through its e-invitation feature. Members simply e-mail their friends and family when they post a photo or album they want to share. Rather than tie up the recipient's computer with large e-mail files carrying photos, our system invites the recipient to "click here" to view the photo or album. This system is extremely easy and popular; is very fast since it does not download actual photos to the recipient's PC; and brings more users to our site. Another important aspect of our community experience is the contents and other forms of entertainment on our site. Currently, our users can participate in two contests on our site: "image of the week" and "album of the week." Users are invited to submit their work for these contests and all interested users are allowed to vote. These contests offer substantial promotional opportunities for advertisers willing to "sponsor" a contest on our site. See "Advertising." 10 Technology One of our competitive advantages is our unique advanced viewing and printing technologies. They are both based on Hewlett-Packard's FlashPix technology, but take the concept a step further, allowing for the simplicity of viewing and ease of printing. Our advanced viewing capability is unique to our site and allows users to zoom in on or out of a photo and examine the tiniest details of an image. Conversely, users can also pan an image to enjoy the full panorama of the photo. These features are available directly from the user's browser, requiring no special down loads or add-ons and are particularly popular with users of on-line auction sites. Our proprietary printing technology allows users to print to the highest quality of their printer, giving them crisp, clear photos. Most technology only allows users to print 72 dots per inch (dpi) using the "screen print" feature on their PCs. With our technology and the appropriate printer (prices for these printers start at $250; every Hewlett-Packard printer shipped after 1998 has this ability) users can easily print photos that rival those printed at the top photo finishers. In addition, the technology allows users to grab and print the identified image (versus printing the entire page) and gives users a variety of size options ranging from 8"x10" to wallet sizes. This technology directly rivals the traditional photo processing model. It is revolutionizing photo printing, allowing photographers to bypass the local photo finishers. E-commerce We have taken a multi-faceted approach to e-commerce and expect that it will become an important revenue stream in the future. The first phase of our e-commerce solution, photo-personalized gifts, is already in place. Users currently have a choice of over 120 gift items, ranging from T-shirts to coffee mugs, all emblazoned with the image of their choice. This service is currently provided to us through an arrangement with Pix.com, a leader in Web-based e-commerce. Under terms of the agreement, we share the generated revenues with Pix.com; however, we retain the right to utilize other services or implement this program itself at any time. The next phase of our e-commerce solution is photo-personalized greeting cards. Other sites offering online greeting cards have generated a significant amount of traffic, and printed photo-personalized greeting cards have also become quite popular. Our greeting card solution will combine both of these successful approaches into an easy Internet solution. Initially our members will be able to choose from over 140 exclusive card designs, ranging from birthdays to bar mitzvahs, that can not only be photo-personalized, but also customized with the greeting of the members' choice. The cards can be e-mailed or printed and mailed. Because of our proprietary printing technology, the home printed greeting cards will be of the same quality as those purchased in stores with the added bonus of being photo-personalized. In addition, the user can provide us with the appropriate address and we will print and mail the card for them. Users can order up to 500 copies of a greeting card to be printed and either mailed to them or distributed to a mailing list provided to us. Adding to the convenience is a value-added service that will trigger an e-mail reminder when an important "card giving" occasion, such as a birthday or anniversary, is approaching. Our greeting card products and services will be rolled out in stages over the next three month and should be fully operational by the end of the third quarter of 1999. 11 The next phase of our e-commerce solution will be a wide array of consumables. By simply clicking a mouse button, users will be able to order paper, ink, cameras, scanners and other digital imaging and photo sharing equipment on our site. A helpful reminder service will prompt users to periodically check their ink and paper volumes to ensure they have a continuous supply. Once ordered, the item will be delivered to the address indicated within a specified time frame. We expect to launch this service during the fourth quarter of 1999 and anticipate entering into resale agreements with wholesalers of digital imaging products. Prior to the end of 1999, we will expand our e-commerce opportunities to professional photographers choosing to partner with us. Under this scenario, professional photographers will upload photos from a specific event to their album and utilize our e-invitation email system to notify customers that the photos are available for viewing. Customers can then view the photos, choose those they'd like to purchase, indicate the size and number they want and place the order, all on-line. This option is particularly attractive to wedding and special event photographers. This component of our service will have a "lock out" provision on the printing technology to deter users from simply printing their own images. Product Development Product development on our site continues at a rapid pace. We hired a site producer in May 1999 and have identified 58 additional features that will be added to the community by the end of the third quarter 1999. These include advanced image editing (cropping, "red eye," spinning); introduction of additional contests, such as a Treasure Hunt; an audio feature for slide shows; introduction of a newsletter focusing on digital imaging and photography; customized album designs; and much more. Membership Plans We currently offer two membership plans. Our free membership allows members to access up to 20 megabytes of storage (approximately 200 photos). We also offer members a premium account at a price of $29.95 annually. This service gives users an additional 30 megabytes of storage, password protection if the user opts for privacy; and merchandise discounts. The true benefit of the Premium Account to us is that is allows partners (such as co-brand partners) to bundle the Premium Account (which brings value to the co-brand and branding to our site) with the other products creating a perception of value for the consumer. See "Marketing and Promotion--Co-Branding Agreements." 12 ADVERTISING As advertising costs continue to spiral upward, savvy advertisers are constantly on the lookout for innovative ways to deliver their message to increasingly targeted audiences. The Internet is an excellent medium for this ultra-targeted advertising and our Web site an ideal program, acting as an electronic alternative to printed photo magazines. Our unique design allows users to generate numerous impressions based on just one picture. Users publishing complete albums create an exponential number of impressions. Each impression allows advertisers to reach an increasingly targeted audience, an advantage not lost upon cost-conscious advertisers looking for value. Also, the unique nature of our site brings a virtually unlimited number of viewers to the site each day to view the photos. In addition, the community nature of Web site creates opportunities to further segment the audience, giving advertisers an even more targeted buy. Similar to the already successful community sites, our community encompasses 98 categories of popular targets ranging from astrology to zoos. Enthusiasts simply post their photo albums to these communities, where they can share images while seeing the latest from advertisers in that field. We have recently entered into an agreement with Adsmart, an advertising representation firm, to ensure that we maximize the opportunities available via advertising sales. Adsmart is the industry's largest site-focused online advertising representation firm. It has more than 175 premier Web brands totaling 1.2 billion impressions per month. The contract guarantees that 100% of our inventory will be sold each month. The CPM (cost per thousand) impressions is based on a sliding scale. This number will increase as we continue to increase the volume of traffic to our site. In addition, we can receive more revenue per CPM by providing numerous ultra-targeted channels, such as the categories. Working with Adsmart, we have begun to target key affinity networks that will utilize our site as an advertising venue. Recognizing that the traditional banner advertising will, by definition, eventually reach a cap, we are beginning to explore more creative advertising sales opportunities. Forrester Research speculates that over the next five years, between 50%-70% of Internet marketing budgets will be spent on promotional activities versus traditional banner advertising. Our promotions are primarily taking the form of sponsorship opportunities. Under this scenario, advertisers can "sponsor" a contest or other form of entertainment on our Web site. The advantages to the sponsor are that it gets a more focused audience, since visitors want to participate in the event and will not "click through" the message; the message can be more advertorial, usually carrying more credibility with the target audience; and it is not "competing" with the myriad of other messages typically found on Web sites. The advantage to us is that it allows us to work in conjunction with advertisers as business partners to create venues that will enhance the community facet of our Web site and, ultimately, increase our membership. Sponsorships also have the potential to generate more revenue than most banner ads. 13 Typical advertisers and sponsors on our site include Visa, Intel, About.com, TravelNow, and Hewlett-Packard. Our contract with Adsmart will increase the number of advertisers and allow us to target certain advertisers that will benefit by the site's unique community set up. MARKETING AND PROMOTION We market our site through three primary channels: links to other sites (Web site partnering); co-branding agreements; and private labeling agreements. Web Site Partnering Web site partnering arrangements allow us to recruit members from the broadest of populations - Internet surfers. We already have agreements in place with Compaq Computer (through the AltaVista search service); Hylas, Tribal Voice, and Netopia, guaranteeing exposure to approximately 30 million potential users per day, and we are actively pursuing additional agreements with high traffic Web sites. To that end, we are actively utilizing banner swaps in our advertising program. Under this scenario, we gain advertising space on targeted Web sites in exchange for running that Web site's banner ads for free. This barter arrangement allows us to advertise without incurring the expense that is usually associated with Internet advertising. Co-Branding Agreements Co-branding agreements are particularly popular with original equipment manufacturers (OEMs). Typically these agreements call for a co-branded home page, featuring the look and feel of our site along with the brand of the partner company. Usually this brand is found in the upper right corner of the home page. The partner companies also advertise PhotoLoft.com through their packaging by including our logo on the box, inserts in the packaging, and mentions in the users' manuals or newsletters. Users are directed to our site via a link at the partner company's Web site. As an added inducement to utilize our site, all purchasers are offered premium accounts at no extra charge. We share with our partners any revenues generated via advertising sales and e-commerce from the co-branded site. The OEM views adding our software to its package of products as a value added benefit for the consumer. In addition, depending upon the OEM partner, we can help to increase sales (as in the case of Hewlett-Packard, which can increase sales of ink as consumers print high resolution photos--enabled by our proprietary printing technology--on their HP printers). Currently we have co-brand agreements in place with UMAX (which ships approximately 50% of the scanners sold in the U.S.), Epson, Casio, Hewlett-Packard and others. We are actively engaged in discussions to develop additional co-branding agreements with other Web sites and Internet companies. 14 As our business development team grows, co-branding agreements are being marketed to other sectors as well. A recently signed agreement is with PowWow, a fully integrated instant messaging and online community with over four million users, that was developed by Tribal Voice. Under terms of the arrangement, PowWow users will be notified that they have received a free one-year Premium Account with PhotoLoft.com. Announcements in the online newsletter will further explain the program and a direct link from the PowWow Web site will bring users to our site. Tribal Voice was searching for a photo sharing solution for its site, photos being a critical component in the success of a community site. PhotoLoft.com was an excellent solution as our model of co-branded sites allowed PowWow to keep its branding program in tact while offering an additional value added service to its users. Private Label Agreements Our unique web site architecture allows the company to offer private label agreements to partner companies. To date, no other photo sharing community has integrated this component into its marketing strategy. In these agreements, the partner company pays an initial development fee and we create a private photo sharing community for that company. While the entire space is branded by the partner company, a tag line reads "powered by PhotoLoft.com" and the uploaded images become part of the our image bank. Typically we share with the partner company any revenues generated by advertising sales and e-commerce on the private label site. The most prominent example of a private label site is the one created by PhotoLoft.com for the Walt Disney Company in conjunction with its launch of "A Bug's Life." As our marketing efforts mature, we are finding more and more opportunities to create private label sites. They are particularly appealing to online portals that are reluctant to lose their branding but want a photo sharing community as a component of their portfolio. OPERATIONS AND SYSTEMS Administrative Operations To provide our members with the most efficient, flexible, and innovative services possible, our administrative operations combine in-house and outsourced services and functions. Our strategy is to keep our in-house staff small, with a focus on core competencies in technical and research and development areas, and to outsource other functions and projects on an as-needed basis. Internal functions currently include account management, traffic management, and managerial projects focusing on the development and management of business partnerships with appropriate parties. At this point, outsourced functions include e-commerce business services and maintenance of network hardware and Internet connections. 15 Systems Our Web site is located in a secured individual "cage" space at the San Jose, California site hosting site operated by AboveNet Communications, Inc. AboveNet is the architect of the global, one-hop Internet Service ExchangeTM (ISXTM), a network delivering Internet connectivity and co-location solutions for high-bandwidth, mission-critical applications. AboveNet's major networking equipment includes Cisco 12000 and 7500 series routers and Cisco Catalyst switches. The following carriers currently have fiber cabinets and connections at the AboveNet San Jose Network Center: Brooks Fiber (OC-48 Connection), Pacific Bell (OC-48 Connection), TCG (OC-12 Connection), and MFS (OC-48 Connection). Our site is served on a series of Intel Pentium II - Dual Processor Servers with high availability disk arrays for maximum uptime guarantee. Our site currently utilizes several Single Processor Pentium 400's with 1Gb RAM for the web servers. The Image servers are hosted by several Dual Processor Pentium 400's with 1Gb RAM. Currently, there is one dual Processor Pentium 400 with 512M RAM for the database engine. The combination of a database server, several image servers, and several web servers is called a POD, and we add pods as our community grows. PhotoLoft.com's secure data management is through SQL Server version 7.0. SQL Server Logs are generated every 24 hours to facilitate database reconstruction in the case of hardware or software failure. These files are written to the hard disk and the CD-ROM that is generated nightly. All data is backed up on a daily basis utilizing CD-ROM Burner and software developed in house. Currently, the average Photoloft.com web site serves .8 page views/sec and the average peak load is 1.13 page views/sec. With the above referenced software and hardware configurations, it has been determined that the current peak load served is 15 page views per second per image server. With 6 image servers, the site is capable of 90 page views per second. To scale the system, additional web servers and image servers are added as needed. To scale the database, a mirror copy is made of the database server and dedicated to a particular account. Since January 1998, our site has maintained an uptime service record of 99.6+%. This service time excludes outages that were due to "act of god" or catastrophic failure of the hosting service unrelated to any specific PhotoLoft.com software or hardware issues. COMPETITION Competition is the Internet photo sharing and digital imaging arena is intensifying. When we began development of our site in 1998 there were virtually no competitors. By the time that our site was officially launched in February 1999, several potential competitors had emerged and we are aware of new companies planning to enter the market in the near future. As one of the first photo sharing communities in the marketplace, we have laid the groundwork for many competitors to follow. In doing internal competitive analysis, it is clear that we are seen as a leader in the space and that competitors have mimicked our technology and marketing strategies in a number of ways. However, to date, none of the competitors have successfully duplicated the unique combinations of features and advanced technology that we offer. 16 PhotoNet, PhotoHighway, PhotoPoint.com, and ClubPhoto are among the first wave of companies engaged in activities similar to ours. These companies allow users to upload their images and share them via e-mail, and some offer online greeting cards and photo-personalized gifts. Some of these sites have followed the online community business model. These companies are also forging valuable marketing relationships and some enjoy significant financial backing. However, they have not introduced advanced viewing and high resolution printing capabilities comparable to ours. Also, at present, PhotoNet, which is 50% owned by Kodak, is primarily designed to help Kodak protect the traditional chemical film based photography industry. But, we anticipate that this will change in the future as the popularity of digital imaging increases. There are many other smaller photo-sharing Web sites in various stages of development. In a recent competitive analysis, we identified at least 15 additional companies beginning to get into the photo sharing/digital imaging Internet business. The barriers to entry for a photo storing Web site are few. However, to develop an interactive site with a large database of images that also offers advanced technology is more costly and time consuming. A more real threat could be traditional media companies, a number of which, including Disney, CBS and NBC, have recently made significant acquisitions or investments in Internet companies. We believe that the principle competitive factors in our market are community development, technology (easy uploading, fun manipulation of images, the ability to host huge image files, etc.) number of images in the database, rate of adding members, ability to partner with companies that can bring large groups of pre-qualified (already interested in digital imaging) users to our site. Certain of our current and many of our potential competitors have longer operating histories, larger customer bases, greater brand recognition in other business and Internet markets and significantly greater financial, marketing, technical and other resources than us. In addition, other online services may be acquired by, receive investments from or enter into other commercial relationships with larger, well-established and well-financed companies as use of the Internet and other online services increases. Therefore, certain of our competitors with other revenue sources may be able to devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing policies and devote substantially more resources to Web site and systems development than us or may try to attract traffic by offering services for free. Increased competition may result in reduced operating margins, loss of market share and diminished value of our brand. See "Item 2. Financial Information--Factors Affecting Our Business, Operating Results and Financial Condition--We May Not Be Able To Compete Successfully." 17 INTELLECTUAL PROPERTY We have registered our trademark "Howdy" with, and our application for registration of the mark "Photoloft" is currently pending before, the United States Patent and Trademark Office. We regard the protection of our copyrights, service marks, trademarks, trade dress and trade secrets as critical to our future success and rely on a combination of copyright, trademark, service mark and trade secret laws and contractual restrictions to establish and protect our proprietary rights in products and services. We have entered into confidentiality and invention assignment agreements with our employees and contractors, and nondisclosure agreements with its suppliers and strategic partners in order to limit access to and disclosure of its proprietary information. There can be no assurance that these contractual arrangements or the other steps taken by us to protect our intellectual property will prove sufficient to prevent misappropriation of our technology or to deter independent third-party development of similar technologies. While we intend to pursue registration of our trademarks and service marks in the U.S. and internationally, effective trademark, service mark, copyright and trade secret protection may not be available in every country in which our services are made available online. We also rely on certain technologies that we license from third parties, such as the suppliers of key database technology, the operating system and specific hardware components for our products and services. There can be no assurance that these third-party technology licenses will continue to be available to us on commercially reasonable terms. The loss of such technology could require us to obtain substitute technology of lower quality or performance standards or at greater cost, which could materially adversely affect our business, results of operations and financial condition. Although we do not believe that we infringe the proprietary rights of third parties, there can be no assurance that third parties will not claim infringement by us with respect to past, current or future technologies. We expect that participants in our markets will be increasingly subject to infringement claims as the number of services and competitors in our industry segment grows. Any such claim, whether meritorious or not, could be time-consuming, result in costly litigation, cause service upgrade delays or require us to enter into royalty or licensing agreements. Such royalty or licensing agreements might not be available on terms acceptable to us or at all. As a result, any such claim could have a material adverse effect upon our business, results of operations and financial condition. GOVERNMENTAL REGULATION Our company, operations and products and services are all subject to regulations set forth by various federal, state and local regulatory agencies. We take measures to ensure our compliance with all such regulations as promulgated by these agencies from time to time. The Federal Communications Commission sets certain standards and regulations regarding communications and related equipment. There are currently few laws and regulations directly applicable to the Internet. It is possible that a number of laws and regulations may be adopted with respect to the Internet covering issues such as user privacy, pricing, content, copyrights, distribution, antitrust and characteristics and quality of products and services. The growth of the market for online commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business online. Tax authorities in a number of states are currently reviewing the appropriate tax treatment of companies engaged in online commerce, and new state tax regulations may subject us to additional state sales and income taxes. 18 Several states have also proposed legislation that would limit the uses of personal user information gathered online or require online services to establish privacy policies. The Federal Trade Commission has also initiated action against at least one online service regarding the manner in which personal information is collected from users and provided to third parties. Changes to existing laws or the passage of new laws intended to address these issues, including some recently proposed changes, could create uncertainty in the marketplace that could reduce demand for our products and services or increase the cost of doing business as a result of litigation costs or increased service delivery costs, or could in some other manner have a material adverse effect on our business, results of operations and financial condition. In addition, because our services are accessible worldwide and we facilitate sales of goods to users worldwide, other jurisdictions may claim that we are required to qualify to do business as a foreign corporation in a particular state or foreign country. Our failure to qualify as a foreign corporation in a jurisdiction where it is required to do so could subject us to taxes and penalties for the failure to qualify and could result in our inability to enforce contracts in such jurisdictions. Any such new legislation or regulation, or the application of laws or regulations from jurisdictions whose laws do not currently apply to our business, could have a material adverse effect on our business, results of operations and financial condition. EMPLOYEES As of May 31, 1999, we had 17 full time employees, including 2 in marketing and advertising sales and customer support; 2 in business development; 2 in administration; and 11 in product development (this includes engineering and support; and e-commerce). We recently embarked on an active search to hire up to six additional product development employees; three additional advertising sales and customer support professionals; three additional business development experts; and one administration employee. Although talented and qualified employees are difficult to find in the current tight job market, we have experienced relative success in attracting and retaining highly motivated and talented employees. Digital imaging is a growing field and many employees working in the Internet arena are attracted to a start-up company with a record of success in such a dynamic field. 19 We believe that the future success of the company will depend in part on our continued ability to attract, integrate, retain and motivate highly qualified technical and managerial personnel, and upon the continued service of our senior management and key technical personnel. The competition for qualified personnel in our industry and graphical location is intense, and there can be no assurance that we will be successful in attracting, integrating, retaining and motivating a sufficient number of qualified personnel to conduct its business in the future. From time to time, we also employ independent contractors to support our research and development, marketing, sales and support and administrative organizations. We have never had a work stoppage, and no employees are represented under collective bargaining agreements. We consider our relations with our employees to be good. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS SELECTED FINANCIAL DATA The following table contains certain selected financial data of the Company and is qualified by the more detailed financial statements and the notes thereto provided in this Registration Statement. The financial data as of and for the years ended December 31, 1998 and 1997, have been derived from the Company's financial statements, which statements were audited by BDO Seidman, LLP. The financial data as of March 31, 1999 and for the three-month periods ended March 31, 1999 and 1998, has been derived from the Company's unaudited financial statements. The comparisons made between the noted periods should be evaluated in light of the following significant factors: (1) During 1997 and 1998, the Company's primary source of revenue was derived from selling software. As the gross margin from selling software began to decline, the Company explored other means of generating revenue. Beginning in early 1998, the Company shifted focus and began selling advertising on the AltaVista web page, (2) The sale of the AltaVista URL in July 1998 resulted in a significant increase to net income but eliminated the advertising revenue generated by the web site, which is calculated based on the number of impressions the web site receives. With the sale of AltaVista, the Company began developing PhotoLoft.com as a new source of generating advertising revenue, (3) During 1999, the Company has begun to focus on building the PhotoLoft.com brand name and increasing the number of daily impressions to the site. As a means of achieving this, the Company has made a strategic decision to focus on increasing traffic to the PhotoLoft.com web site instead of generating revenue. To accomplish this, the Company has increased its marketing efforts by trading advertising space with other Internet companies and attending trade shows. As a result, the number of impressions to the PhotoLoft.com web site has increased, which should ultimately increase revenues. 21 Statement of Operations Data
Three Months Ended Fiscal Year Ended March 31, December 31, ------------------------ ---------------------- 1999 1998 1998 1997 -------------- -------- ---------- ---------- (unaudited) (unaudited) Revenues $ 21,800 $204,100 $ 674,300 $ 574,200 Net Income (loss) (360,500) 300 1,663,600 (165,500) Net Income (loss) per share to Common Shareholders: Basic $ (0.04) $ 0.00 $ .26 $ (0.03) Diluted $ (0.04) $ 0.00 $ .18 $ (0.03) Balance Sheet Data March 31, December 31, ------------------------ ---------------------- 1999 1998 1998 1997 -------------- -------- ---------- ---------- (unaudited) (unaudited) Current Assets $ 2,093,000 $103,800 $1,211,100 $ 93,900 Total Assets $ 3,651,200 $132,700 $2,939,000 $ 123,900 Current Liabilities $ 542,400 $131,700 $ 502,900 $ 151,000 Long Term Debt Total Liabilities $ 1,122,900 $131,700 $1,169,600 $ 151,000 Shareholders Equity $ 2,528,300 $ 1,000 $1,769,400 $ (27,100)
22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes thereto appearing elsewhere in this Registration Statement. The matters discussed in this Registration Statement contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below in "Factors Affecting Our Business, Operating Results, and Financial Condition" as well as those discussed in this section and elsewhere in this Registration Statement. Overview PhotoLoft.com is an Internet web site community that is revolutionizing data imaging and photo processing. PhotoLoft.com is the fastest growing photographic imaging community on the Internet, and its unique software allows consumers to share and print personal images quickly, easily and inexpensively. Users can create a "virtual photo album," which is impossible to lose; instantly accessible and easily reproducible; easily transported; easily displayed on high quality output devices, such as television; and completely personalized. Members can automatically invite others to view their albums via e-mail and give users the opportunity to comment on other images. PhotoLoft.com is also taking advantage of the rise in e-commerce, offering a wide array of gift items that have been imprinted with a PhotoLoft.com image selected by the user. The site has been carefully designed to be user friendly and the community aspect of PhotoLoft.com makes for a highly entertaining experience for visitors and members. PhotoLoft.com was founded in 1993 as AltaVista Technology, Inc. ("AltaVista"). In July 1998, the URL (AltaVist.com) was sold to Digital Equipment (Compaq) and the company name changed to Photoloft.com. Since then, we have continued to upgrade the site, offering better and faster user components to PhotoLoft.com. Through February 1999, revenues have been derived primarily through the sale of advertising. With the latest release of PhotoLoft.com in February 1999, we began focusing on increasing e-commerce sales and advertising sales. Anticipated success in these areas will come from the increased membership base (estimated to increase from 24,000 to 123,000 in 1999) and increased impressions per day (estimated to increase from 20,000 per day in 1998 to 500,000 per day in 1999). In 1998, PhotoLoft.com began developing a new product, ID4Life. Designed as a preventative service to aid in finding missing persons, ID4Life has developed as a different product than the rest of PhotoLoft.com. We are seeking to sell ID4Life and expect to complete a transaction during 1999. Operating Results 23 Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 1998 Revenues for the three months ended March 31, 1999 were $21,800, a decrease of $182,300, or approximately 89%, compared to $204,100 for the three months ended March 31, 1998. Revenues decreased primarily due to a change in the Company's operations from selling software to selling advertising. This event did not occur until the latter half of 1998 contemporaneously with the sale of the URL to Compaq Computer. The new business plan is focused on advertising sales and e-commerce revenues. The first quarter results reflect less than one year operations under the new model. The negative gross margin for the three months ended March 31, 1999 was ($14,500), a decrease of $186,400 or approximately 108%, compared to the gross profit of $171,900 for the three months ended March 31, 1998. This decrease in gross margin is due primarily to the transition of the Company's business from software sales to advertising sales resulting in an inability to cover the fixed cost component of the cost of revenues during the three months ended March 31, 1999 due to the significant decrease in revenues. Selling, general, and administrative expenses for the three months ended March 31, 1999 were $623,900, an increase of $453,500 or 266%,compared to $170,400 for the three months ended March 31, 1998. This increase reflects the growth phase of the Company's new business model, which includes a strategy for aggressive growth immediately. Included in the costs are additional equipment to handle increased image volume; necessary staffing increases, particularly in the engineering and sales areas; and additional facilities. The growth plan calls for a ramp up of all operations throughout 1999, leveling off in 2000 Loss from operations for the three months ended March 31, 1999 was ($638,400), a decrease of $639,900 compared to income from operations of $1,500 for the three months ended March 31, 1998. This decrease is primarily due to the change in the Company's product and the costs incurred to develop the PhotoLoft.com web site. Interest income for the three months ended March 31, 1999 was $40,100, an increase of 100% compared to $0 for the three months ended March 31, 1998. Interest income increased due to the note receivable related to the sale of the AltaVista URL in July 1998. Fiscal Year Ended December 31, 1998 Compared to Fiscal Year Ended December 31, 1997 Revenues for fiscal 1998 were $674,300, an increase of $100,100 or approximately 17%, compared to $574,200 for fiscal 1997. Revenues increased due to the Company generating advertising revenue in addition to software sales. 24 Gross profit for fiscal 1998 was $561,300, an increase of $47,900 or 9%, compared to $513,400 for fiscal 1997. However, there was a decrease in the gross profit as a percentage of sales to 8.3% for fiscal 1998 from 8.9% in fiscal 1997 which was due primarily to a reduction in the sales price of software bundled with OEM product. Selling, general, and administrative expenses for fiscal 1998 were $1,324,000, an increase of $649,600 or 96% compared to $674,400 for fiscal 1997. As a percentage of revenue, selling, general and administrative expenses increased to 196% in fiscal 1998 from 117% in fiscal 1997, primarily as a result of investment in the technology required to generate web page advertising and the increase in employee headcount. Loss from operations for fiscal 1998 was ($762,700), an increase of $601,700 compared to a loss from operations of ($161,000) for fiscal 1997. The increase is due primarily to the higher selling, general and administrative expenses resulting from the increased number of employees and the Company's investment in technology. Net income for fiscal 1998 was $1,663,300, an increase of $1,828,800 compared to the net loss of ($165,500) for fiscal 1997. The increase is primarily due to the sale of the AltaVista URL in July 1998. Liquidity and Capital Resources Net cash used in operating activities during the three months ended March 31, 1999 was $527,300, which reflected the net effect of the net loss for the period, decreases in deferred income taxes and deferred revenues and an increase in prepaid expenses and other current assets, which was partially offset by an increase in accounts payable. Net cash used in operating activities during fiscal 1998 was $361,000, a decrease of $374,800 compared to net cash provided by operating activities of $13,800 in fiscal 1997. The net cash used in operating activities in fiscal 1998 reflects the gain on the sale of the AltalVista URL that was partially offset by the net income for the year and an increase in deferred income taxes. Net cash used in investing activities was $47,700 for the three months ended March 31, 1999, primarily reflecting cash used for the acquisition of property and equipment. Net cash used in investing activities in fiscal 1998 was $54,300 compared with net cash used in fiscal 1997 of $14,200, with both years reflecting cash used for the acquisition of property and equipment. Net cash provided by financing activities was $1,286,900 for the three months ended March 31, 1999, primarily reflecting cash received from the sale of stock and exercise of stock options, and the proceeds from the note receivable relating to the AltaVista URL sale. Net cash provided by financing activities for fiscal 1998 was $785,300 due to the proceeds from the AltaVista URL sale. 25 Our capital requirements are dependent on several factors, including market acceptance of our services, the amount of resources devoted to investments in the Company's Web site, the resources devoted to marketing and selling the Company's services and brand promotions and other factors. Fueling the Company's need for cash currently is the development of rival technology and new Internet sites and portals offering similar products. See "Item 1. Business-Competition." As we enjoy continued growth we must work to stay at the forefront of technology and continue to grow in sales. This will necessitate a substantial increase in capital expenditures consistent with its growth. In addition, PhotoLoft.com will continue to evaluate possible investments in businesses, products and technologies and plans to expand its sales and marketing programs and conduct more aggressive brand promotions. We anticipate that additional financing of $10 million will be needed to grow as contemplated. At March 31, 1999, the Company had cash and cash equivalents totaling $1,081,900, resulting principally from the sale of common stock in a private placement during March 1999, and working capital of $1,550,600. The Company believes that additional debt or equity financing will be needed, along with the receipt of scheduled principal payments on its outstanding note receivable, in order to satisfy the Company's capital requirements to support its expansion plans. We believe that our current cash and cash equivalents, as well as the proceeds from scheduled payments from the sale of AltaVista.com to Compaq in August 1998, will be sufficient to meet our anticipated cash needs for working capital and capital expenditures through 2001. If cash generated from operations is insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or to obtain a credit facility. The sale of additional equity or convertible debt securities could result in additional dilution to our stockholders. The incurrence of indebtedness would result in an increase in our fixed obligations and could result in operating covenants that would restrict its operations. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. If financing is not available when required or is not available on acceptable terms, we may be unable to develop or enhance our products or services. In addition, we may be unable to take advantage of business opportunities or respond to competitive pressures. Any of these events could have a material and adverse effect on our business, results of operations and financial condition. Impact of the Year 2000 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 may recognize a date using "00" as the year 1900 rather than the year 2000. As a result, computer systems and/or software used by many companies and governmental agencies may need to be upgraded to comply with Year 2000 requirements or risk system failure or miscalculations causing disruptions of normal business activities. State of Readiness. The third-party vendor upon which we materially rely is AboveNet Communications, Inc. which co-locates our Web equipment and provides our connection to the Internet. We have sought confirmation from AboveNet Communications, Inc. that its system is Year 2000 compliant and AboveNet Communications, Inc. has informed us that its system is Year 2000 compliant. 26 In addition, we plan to seek verification from other key vendors, distributors and suppliers that they are Year 2000 compliant or, if they are not presently compliant, to provide a description of their plans to become so. To the extent that vendors fail to provide certification that they are Year 2000 compliant by September 1999, we will seek to terminate and replace these relationships. Until our vendors, distributors and suppliers have provided verification of their compliance, we will not be able to completely evaluate whether our systems will need to be revised or replaced. We are conducting an internal assessment of all material information technology and non-information technology systems at our headquarters. Until we complete the assessment, we will not know whether these systems are or will be Year 2000 compliant by September 1999. Costs. To date, we have not incurred any material costs in identifying or evaluating Year 2000 compliance issues. Most of our expenses have related to, and are expected to continue to relate to, the upgrades or replacements, when necessary, of software or hardware, as well as costs associated with time spent by employees in the evaluation process and Year 2000 compliance matters generally. These expenses are included in our capital expenditures budget and are not expected to be material to our financial position or results of operations. These expenses, however, if higher than anticipated, could have a material and adverse effect on our business, results of operations and financial condition. Risks. There can be no assurance that we will not discover Year 2000 compliance problems in our systems that will require substantial revisions or replacements. In the event that the operational facilities that support our business, or our Web-hosting facilities, are not Year 2000 compliant, we may be unable to deliver goods or services to our customers and portions of our Web site may become unavailable. In addition, there can be no assurance that third-party software, hardware or services incorporated into our material systems will not need to be revised or replaced, which could be time-consuming and expensive. Our inability to fix or replace third-party software, hardware or services on a timely basis could result in lost revenues, increased operating costs and other business interruptions, any of which could have a material and adverse effect on our business, results of operations and financial condition. Moreover, the failure to adequately address Year 2000 compliance issues in our software, hardware or systems could result in claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time-consuming to defend. In addition, there can be no assurance that governmental agencies, utility companies, Internet access companies and others outside our control will be Year2000-compliant. The failure by these entities to be Year 2000-compliant could result in a systemic failure beyond our control, including, for example, a prolonged Internet, telecommunications or electrical failure, which could also prevent us from delivering our services to our users, decrease the use of the Internet or prevent users from accessing our services, any of which would have a material and adverse effect on our business, results of operations and financial condition. 27 Contingency Plan. As discussed above, we are engaged in an ongoing Year 2000 assessment and do not currently have a contingency plan to deal with the worst case scenario that might occur if technologies on which we depend are not Year 2000-compliant and fail to operate effectively after the Year 2000. The results of our Year 2000 compliance evaluation and the responses received from distributors, suppliers and other third parties with which we conduct business will be taken into account in determining the need for and nature and extent of any contingency plans. If our present efforts to address the Year 2000 compliance issues discussed above are not successful, or if distributors, suppliers and other third parties with which we conduct business do not successfully address such issues, our users could seek alternate suppliers of our products and services. Any material Year 2000 problem could require us to incur significant unanticipated expenses to remedy and could divert our management's time and attention, either of which could have a material and adverse effect on our business, operating results and financial condition. This is a Year 2000 readiness disclosure statement within the meaning of the Year 2000 Information and Readiness Disclosure Act (P.L. 105-271). Effects of Inflation Due to relatively low levels of inflation in 1997 and 1998, inflation has not had a significant effect on our results of operations since inception. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS No. 131, "Disclosure About Segments of an Enterprise and Related Information," which is effective for fiscal years beginning after December 15, 1997. SFAS No.131 requires that public companies report certain information about operating segments in their annual financial statements and in subsequent condensed financial statements of interim periods issued to shareholders. This statement also requires that public companies report certain information about their products and services, the geographic areas in which they operate and their major customers. Reportable operating segments are determined based on the management approach, as defined by SFAS No. 131. The management approach is based on the way that the chief operating decision-maker organizes the segments within an enterprise for making operating decisions and assessing performance. We have determined that we do not have any separately reportable business segments. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. SFAS No. 133 is effective for fiscal years beginning after June 15, 2000. Historically, we have not used derivatives and therefore this new pronouncement is not applicable. 28 FACTORS AFFECTING OUR BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION The following risk factors should be considered in conjunction with the other information included in this Registration Statement. This Registration Statement may include forward-looking statements that involve risks and uncertainties. In addition to those risk factors discussed elsewhere in this Registration Statement, we have identified the following risk factors which could affect our actual results and cause actual results to differ materially from those in the forward looking statements. We Have A Limited Operating History On Which To Evaluate Our Potential For Future Success. We launched our current business model in October, 1998 and therefore we have only a limited operating history upon which you can evaluate our business and prospects. You must consider the risks and uncertainties frequently encountered by early stage companies in new and rapidly evolving markets, such as e-commerce. If we are unsuccessful in addressing these risks and uncertainties, our business, results of operations and financial condition will be materially and adversely affected. We Expect Losses For The Foreseeable Future. Since 1997, we have incurred losses from operations, resulting primarily from costs related to developing our Web site, attracting users to our Web site, and establishing our brand. Because of our plans to invest heavily in marketing and promotion, to hire additional employees, and to enhance our Web site and operating infrastructure, we expect to incur net losses for the foreseeable future. We believe these expenditures are necessary to build and maintain the technical infrastructure necessary to host multiple images and to strengthen our brand recognition, attract more users to our Web site and ultimately, generate greater online revenues. If our revenue growth is slower than we anticipate or our operating expenses exceed our expectations, our losses will be significantly greater. We may never achieve profitability. Our Future Revenues Are Unpredictable And Our Quarterly Operating Results May Fluctuate Significantly. Our revenues for the foreseeable future will remain primarily dependent on the number of users that we are able to attract to our Web site, and on sponsorship and advertising revenues. We cannot forecast with any degree of certainty the number of visitors to our Web site or the amount of sponsorship and advertising revenues. We expect our operating results to fluctuate from quarter to quarter. We believe that sponsorship and advertising sales in traditional media, such as television and radio, generally are lower in the first and third calendar quarters of each year. If similar seasonal and cyclical patterns emerge in Internet sponsorship and advertising spending, these revenues may vary based on these patterns. See "Management's Discussion and Analysis of Financial Condition and Operations-Seasonality." 29 Other factors which may cause our operating results to fluctuate significantly from quarter to quarter include: - our ability to attract new and repeat visitors to our Web site and convert them into users; - our ability to keep current with the evolving tastes of our target market; - our ability to manage the number of items listed on our services; - the ability of our competitors to offer new or enhanced Web site features, products or services; - the demand for sponsorship and advertising on our Web site; - the level of use of the Internet and online services; - consumer confidence in the security of transactions over the Internet; - unanticipated delays or cost increases with respect to product and service introductions; and - the costs, timing and impact of our marketing and promotion initiatives. Because of these and other factors, we believe that quarter-to-quarter comparisons of our results of operations are not good indicators of our future performance. If our operating results fall below the expectations of securities analysts and investors in some future periods, then our stock price may decline. Your Holdings May be Diluted in the Future. We are authorized to issue up to 50,000,000 shares of common stock. See "Item 11. Description of Registrant's Securities to be Registered." To the extent of such authorization, our Board of Directors will have the ability, without seeking stockholder approval, to issue additional shares of common stock in the future for such consideration as our Board of Directors may consider sufficient. The issuance of additional common stock in the future will reduce the proportionate ownership and voting power of our common stock held by existing stockholders. We are also authorized to issue up to 500,000 shares of preferred stock, the rights and preferences of which may be designated in series by our Board of Directors. To the extent of such authorization, such designations may be made without stockholder approval. The designation and issuance of series of preferred stock in the future would create additional securities that would have dividend and liquidation preferences over our common stock. 30 We May Fail To Establish An Effective Internal Advertising Sales Organization To Attract Sponsorship And Advertising Revenues. To date, we have relied principally on outside parties to develop sponsorship and advertising opportunities. We believe that the growth of sponsorship and advertising revenues will depend on our ability to establish an aggressive and effective internal advertising sales organization. Our internal sales team currently has 2 members. We will need to increase this sales force in the coming year in order to execute our business plan. Our ability to increase our sales force involves a number of risks and uncertainties, including competition and the length of time for new sales employees to become productive. If we do not develop an effective internal sales force, our business will be materially and adversely affected. See "Item 1. Business--Employees." We Are Growing Rapidly, And Effectively Managing Our Growth May Be Difficult. We are currently experiencing a period of significant expansion. In order to execute our business plan, we must continue to grow significantly. This growth will strain our personnel, management systems and resources. To manage our growth, we must implement operational and financial systems and controls and recruit, train and manage new employees. We cannot be certain that we will be able to integrate new executives and other employees into our organization effectively. If we do not manage growth effectively, our business, results of operations and financial condition will be materially and adversely affected. See "Item 1. Business-Employees" and "Item 5. Directors and Executive Officers." We Depend On Our Key Personnel To Operate Our Business, And We May Not Be Able To Hire Enough Additional Management And Other Personnel As Our Business Grows. Our performance is substantially dependent on the continued services and on the performance of our executive officers and other key employees, particularly Jack Marshall, our Chief Executive Officer, President and Treasurer. The loss of the services of any of our executive officers could materially and adversely affect our business. Additionally, we believe we will need to attract, retain and motivate talented management and other highly skilled employees to be successful. Competition for employees that possess knowledge of both the Internet industry and our target market is intense. We may be unable to retain our key employees or attract, assimilate and retain other highly qualified employees in the future. See "Item 1. Business-Employees" and "Item 5. Directors and Executive Officers." We May Not Be Able To Compete Successfully. The markets in which we are engaged are new, rapidly evolving and intensely competitive, and we expect competition to intensify further in the future. Barriers to entry are relatively low, and current and new competitors can launch new sites at a relatively low cost. We currently or potentially compete with a number of other companies, including a number of large online communities and services that have expertise in developing online commerce, and a number of other small services, including those that serve specialty markets. Competitive pressures created by any one of these companies, or by our competitors collectively, could have a material adverse effect on our business, results of operations and financial condition. See "Item 1. Business--Competition." 31 We May Need Further Capital. We currently anticipate that our available funds will be sufficient to meet our anticipated needs for working capital, capital expenditures and business expansion through September, 1999. Thereafter, we will need to raise additional funds. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders will be reduced, stockholders may experience additional dilution and such securities may have rights, preferences and privileges senior to those of our common stock. There can be no assurance that additional financing will be available on terms favorable to us or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to fund expansion, take advantage of unanticipated acquisition opportunities, develop or enhance services or products or respond to competitive pressures. Such inability could have a material adverse effect on our business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Condition and Operations-Liquidity and Capital Resources." We May Fail To Establish And Maintain Strategic Relationships With Other Web Sites To Increase Numbers Of Web Site Users And Increase Our Revenues. We intend to establish numerous strategic alliances with popular Web sites to increase the number of visitors to our Web site. There is intense competition for placement on these sites, and we may not be able to enter into these relationships on commercially reasonable terms or at all. Even if we enter into strategic alliances with other Web sites, they themselves may not attract significant numbers of users. Therefore, our site may not receive additional users from these relationships. Moreover, we may have to pay significant fees to establish these relationships. Our inability to enter into new distribution relationships or strategic alliances and expand our existing ones could have a material and adverse effect on our business. We Would Lose Revenues And Incur Significant Costs If Our Systems Or Material Third-Party Systems Are Not Year 2000-Compliant. We have not devised a Year 2000 contingency plan. The failure of our internal systems, or any material third-party systems, to be Year 2000-compliant could have a material and adverse effect on our business, results of operations and financial condition. 32 To date, we have not incurred any material costs in identifying or evaluating Year 2000 compliance issues. However, we may fail to discover Year 2000 compliance problems in our systems that will require substantial revisions or replacements. In the event that the operational facilities that support our business, or our Web-hosting facilities, are not Year 2000-compliant, portions of our Web site may become unavailable and we would be unable to deliver services to our users. In addition, there can be no assurance that third-party software, hardware or services incorporated into our material systems will not need to be revised or replaced, which could be time-consuming and expensive. Our inability to fix or replace third-party software, hardware or services on a timely basis could result in lost revenues, increased operating costs and other business interruptions, any of which could have a material and adverse effect on our business, results of operations and financial condition. Moreover, the failure to adequately address Year 2000 compliance issues in our software, hardware or systems could result in claims of mismanagement, misrepresentation or breach of contract and related litigation, which could be costly and time-consuming to defend. In addition, there can be no assurance that governmental agencies, utility companies, Internet access companies, third-party service providers and others outside our control will be Year 2000 compliant. The failure by these entities to be Year 2000 compliant could result in a systemic failure beyond our control, including, for example, a prolonged Internet, telecommunications or electrical failure, which could also prevent us from delivering our services to our users, decrease the use of the Internet or prevent users from accessing our services, any of which would have a material and adverse effect on our business, results of operations and financial condition. See "Management's Discussion and Analysis of Financial Statements and Results of Operations- Impact of the Year 2000." Acquisitions May Disrupt Or Otherwise Have A Negative Impact On Our Business. We may acquire or make investments in complementary businesses, products, services or technologies on an opportunistic basis when we believe they will assist us in carrying out our business strategy. Growth through acquisitions has been a successful strategy used by other Internet companies. We do not have any present understanding, nor are we having any discussions relating to any such acquisition or investment. If we buy a company, then we could have difficulty in assimilating that company's personnel and operations. In addition, the key personnel of the acquired company may decide not to work for us. An acquisition could distract our management and employees and increase our expenses. Furthermore, we may have to incur debt or issue equity securities to pay for any future acquisitions, the issuance of which could be dilutive to our existing shareholders. Unforeseen Developments May Occur With Respect To Digital Imaging Technology. Digital imaging is a relatively new phenomenon and the slower than expected acceptance of the new technology could affect our ability to grow as rapidly as we need to in order to meet our financial targets. Digital camera manufacturers have made great strides in the past two years improving the functionality of their cameras and pricing them in a range that is attractive to many consumers. The continued refinement of the technology and commoditization of the price will help to move acceptance of the technology along. Full acceptance of digital imaging technology will require a move on the part of the photographic population away from traditional chemical-based photo processing to the new paradigm of home printed photos. The costs remain competitive for digital imaging, however, there is no guarantee the general population will make this shift rapidly, if at all. 33 We Are Dependent On The Continued Development Of The Internet Infrastructure. Our industry is new and rapidly evolving. Our business would be adversely affected if Web usage and e-commerce does not continue to grow. Web 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. If Web usage grows, the Internet infrastructure may not be able to support the demands placed on it by this growth, or its performance and reliability may decline. In addition, Web sites 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 frequently occur in the future, Web usage, including usage of our Web site, could grow slowly or decline. Our Long-Term Success Depends On The Development Of The E-Commerce Market, Which Is Uncertain. Our future revenues and profits substantially depend upon the widespread acceptance and use of the Web as an effective medium of commerce by consumers. Rapid growth in the use of the Web and commercial online services is a recent phenomenon. Demand for recently introduced services and products over the Web and online services is subject to a high level of uncertainty. The development of the Web and online services 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 from traditional vendors to online vendors; - insufficient availability of telecommunication services or changes in telecommunication services could result in slower response times; and - adverse publicity and consumer concerns about the security of commerce transactions on the Internet could discourage its acceptance and growth. 34 Adoption Of The Internet As An Advertising Medium Is Uncertain. The growth of Internet sponsorships and advertising requires validation of the Internet as an effective advertising medium. This validation has yet to fully occur. In order for us to generate sponsorship and advertising revenues, marketers must direct a significant portion of their budgets to the Internet and, specifically, to our Web site. To date, sales of Internet sponsorships and advertising represent only a small percentage of total advertising sales. Our business, financial condition and operating results would be adversely affected if the market for Internet advertising fails to develop or develops slower than expected. See "Item 1. Business--Advertising." 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 have a material and adverse effect on our business, results of operations and financial condition. 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 "Item 1. Business - Government Regulation." Shares Eligible For Future Sale By Our Current Stockholders May Adversely Affect Our Stock Price. To date, we have had a very limited trading volume in our common stock. See "Item 9. Market Price and Dividends on the Registrant's Common Equity and Related Stockholder Matters." Sales of substantial amounts of common stock, including shares issued upon the exercise of outstanding options and warrants, under SEC Rule 144 or otherwise could adversely affect the prevailing market price of our common stock and could impair our ability to raise capital at that time through the sale of our securities. Anti-Takeover Provisions And Our Right To Issue Preferred Stock Could Make A Third-Party Acquisition Of Us Difficult. We are a Nevada corporation. Anti-takeover provisions of Nevada law could make it more difficult for a third party to acquire control of us, even if such change in control would be beneficial to stockholders. Our articles of incorporation provide that our Board of Directors may issue preferred stock without stockholder approval. The issuance of preferred stock could make it more difficult for a third party to acquire us. All of the foregoing could adversely affect prevailing market prices for our common stock. See "Item 11. Description of Registrant's Securities to be Registered -- Nevada Anti-Takeover Laws and Certain Charter Provisions." 35 Our Common Stock Price Is Likely To Be Highly Volatile. The market price of our common stock is likely to be, highly volatile as the stock market in general, and the market for Internet-related and technology companies in particular, has been highly volatile. See "Item 9. Market Price and Dividends on the Registrant's Common Equity and Related Stockholder Matters." Investors may not be able to resell their shares of our common stock following periods of volatility because of the market's adverse reaction to volatility. The trading prices of many technology and Internet-related companies' stocks have reached historical highs within the last 52 weeks and have reflected valuations substantially above historical levels. During the same period, these companies' stocks have also been highly volatile and have recorded lows well below historical highs. We cannot assure you that our stock will trade at the same levels of other Internet stocks or that Internet stocks in general will sustain their current market prices. Factors that could cause such volatility may include, among other things: - actual or anticipated fluctuations in our quarterly operating results; - announcements of technological innovations; - changes in financial estimates by securities analysts; - conditions or trends in the Internet industry; and - changes in the market valuations of other Internet companies. ITEM 3. DESCRIPTION OF PROPERTIES Our executive offices, comprising approximately 2,628 square feet, are located at 300 Orchard City Drive, Suite 142, Campbell, California 95008. These facilities are leased pursuant to a lease expiring August 31, 2001. The monthly rent is $5,519. We sublease approximately 1,288 square feet of additional space in the same building under a sublease that expires in September 1999. We also sublease approximately 1,430 square feet of space in another building located in Campbell, California under a sublease that expires in September 2000. 36 We maintain substantially all of our computer systems at AboveNet Communications, Inc. See "Item 1. Business--Operations and Systems." Our operations are dependent in part on our ability to protect our operating systems against physical damage from fire, floods, earthquakes, power loss, telecommunications failures, break-ins or other similar events. Furthermore, despite our implementation of network security measures, our servers are also vulnerable to computer viruses, break-ins and similar disruptive problems. The occurrence of any of these events could result in interruptions, delays or cessations in service to our users which could have a material adverse effect on our business, results of operations and financial condition. 37 ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth, as of July 7, 1999, the ownership of our common stock by (i) each of our directors and executive officers; (ii) all of our executive officers and directors as a group; and (iii) all persons known by us to beneficially own more than 5% of our common stock. Unless otherwise indicated in the footnotes to the table, (1) the following individuals have sole vesting and sole investment control with respect to the shares they beneficially own and (2) the address of each beneficial owner listed below is c/o 300 Orchard City Drive, Suite 142, Campbell, California 95008.
NAME AND ADDRESS OF BENEFICIAL OWNER. . . . . . . . . . . . AMOUNT AND NATURE OF BENEFICIAL PERCENT OF EXECUTIVE OFFICERS AND DIRECTORS: . . . . . . . . . . . . . OWNERSHIP (1) CLASS (1) - ----------------------------------------------------------- ------------------ ----------- Jack Marshall (2)(3). . . . . . . . . . . . . . . . . . . . 2,448,329 19.7% - ----------------------------------------------------------- ------------------ ----------- Christopher McConn (4). . . . . . . . . . . . . . . . . . . 832,346 6.7% ------------------ ----------- Lisa Marshall (2)(5). . . . . . . . . . . . . . . . . . . . 155,963 1.3% - ----------------------------------------------------------- ------------------ ----------- Patrick Dane (6). . . . . . . . . . . . . . . . . . . . . . 102,411 0.8% - ----------------------------------------------------------- ------------------ ----------- John Marshall(2)(7) . . . . . . . . . . . . . . . . . . . . 772,080 6.2% - ----------------------------------------------------------- ------------------ ----------- Gary Kremen (8) . . . . . . . . . . . . . . . . . . . . . . 251,294 2.0% - ----------------------------------------------------------- ------------------ ----------- All directors and executive officers as a group (6 Persons) 4,492,933 36.1% - ----------------------------------------------------------- ------------------ ----------- OTHER 5% STOCKHOLDERS: - ----------------------------------------------------------- George Perlegos . . . . . . . . . . . . . . . . . . . . . . 2,270,063 18.2% - ----------------------------------------------------------- ------------------ ----------- Keith Queeney . . . . . . . . . . . . . . . . . . . . . . . 700,759 5.6% - ----------------------------------------------------------- ------------------ ----------- (1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. (2) John Marshall is the father of Jack and Lisa Marshall, who are brother and sister. (3) Includes 331,051 shares of Common Stock subject to options that are exercisable within 60 days of the date hereof. (4) Includes 132,420 shares of Common Stock subject to options that are exercisable within 60 days of the date hereof. 38 (5) Includes 6,120 shares of Common Stock subject to options that are exercisable within 60 days of the date hereof. (6) Includes 88,911 shares of Common Stock subject to options that are currently exercisable. (7) Includes 88,911 shares of Common Stock subject to options that are currently exercisable. (8) Includes 88,911 shares of Common Stock subject to options that are currently exercisable.
39 ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS The following table sets forth the names and positions of our directors and executive officers:
NAME. . . . . . . . . . . AGE POSITION - ------------------------- --- ------------------------------------- President, Treasurer, Chief Executive Jack Marshall (1) (3) (4) 37 Officer and Director - ------------------------- --- ------------------------------------- Chief Technology Officer Christopher McConn. . . . 39 Director - ------------------------- --- ------------------------------------- Lisa Marshall (1) . . . . 40 Secretary - ------------------------- --- ------------------------------------- Patrick Dane (2) (3) (4). 49 Director - ------------------------- --- ------------------------------------- Gary Kremen (2) (3) (4) . 35 Director - ------------------------- --- ------------------------------------- John Marshall (1) (2) . . 69 Director - ------------------------- --- ------------------------------------- (1) John Marshall is the father of Jack and Lisa Marshall, who are brother and sister. (2) Member of the Compensation Committee (3) Member of the Audit Committee (4) Member of the Finance Committee
The following sets forth biographical information concerning our directors and executive officers for at least the past five years: JACK MARSHALL has been developing Internet applications since 1993. After assignments at Texas Instruments and Honeywell, Mr. Marshall worked as a sales manager for Teradyne (formerly MegaTest), a leading developer of high-end, state-of-the-art semiconductor test equipment. Mr. Marshall founded Photoloft in 1993 under the name AltaVista Technology. Inc. Mr. Marshall received his bachelor's degree in electrical engineering and computer engineering from Michigan State University and has taught electric circuit analysis at Highland Community College in Illinois. He has also completed several masters level courses in computer engineering at Santa Clara University. CHRISTOPHER MCCONN has been the Chief Technology Officer of Photoloft.com since February 1994. Prior to our adoption of the Photoloft.com business strategy, he served as our webmaster and developed web-based multimedia and imaging programs. He has extensive expertise in programming C++ and served as a consultant to Borland International, a leading producer of C++ and software development tools from July 1995 to July 1996. In this role, Mr. McConn helped develop the Object Windows Library (OWL), a foundation for PhotoLoft.com. Mr. McConn received his bachelor's degree in electrical engineering from UC Davis in 1982. Mr. McConn has over 13 years of industry experience including stints at Ford Aerospace and Teradyne, where he oversaw the company's software QA development. 40 LISA MARSHALL has over 20 years of strategic and tactical communications experience, focused primarily on investor relations, media communications and marketing and brand development. Working in a number of diverse industries, she helped spearheaded nationwide efforts to deregulate the airline, natural gas transportation, and most recently, electric generation industries, working to establish strong, deregulated competitors in the various marketplaces. In addition, she handled the communications efforts of the Vastar Resources Initial Public Offering, which was the largest to date on the New York Stock Exchange when implemented in 1994. From 1985 to 1988 she served in various managerial positions at Continental Airlines. From 1988 to 1993 she served in various managerial positions at Tenneco Inc. From February 1993 to June 1997 she served as director of Communications for ARCO/Vastar Resources. From July 1997 to October 1998 she served as director of Communications for Southern Company. Ms. Marshall earned her bachelor's degree from the University of Wyoming in American Studies in 1980 and her bachelors degree from the University of Houston in journalism in 1984. PATRICK DANE has spent more than twenty years in the high technology industry. He spent fifteen years in sales and marketing at Xerox where he was responsible for bringing the "Alto" Computer Ethernet and File, Print & Communication Servers out to the public from the Palo Alto Research center (PARC) in 1980. Additionally, he was the creator of the award winning slogan "Team Xerox" and other pioneering efforts. As Vice President, Sales & Marketing at Dove Computer Corp. he introduced the MacWorld World Class Award Winning Dove Fax Modem. As a General Manager with Calera Recognition Systems from 1991 to 1992 Dane was responsible for bringing Fax Grabber to there tail and OEM marketplace. While President and CEO of SoftNet in from July 1992 to August 1993 he launched the category-leading Fax Works for Windows. Dane co-founded and ran Pipeline Communications which introduced online warranty registration to the computer industry. This service is used by over seventy five of the top PC manufacturers and ISV's in the marketplace today. In the spring of1996, Dane founded Tuneup.com an online PC service center, Quarterdeck Corporation acquired his "Pioneer" among the Internet subscription-based businesses in May of 1997. In September1996, Dane and Mike Walter began broadcasting a weekly radio show devoted to the Internet called, "Pat & Mike's World Wide Web Radio Show". The show, sponsored by CompuServe, Yahoo! IZift Davis, Hewlett-packard, Office Depot.com, McAfee and USA Today, has a growing worldwide audience on the Internet and in twenty seven real radio markets. The show was picked up for national syndication by Premiere Radio Networks in mid 1997. Mr. Dane graduated from Broom Comm College in 1969. GARY KREMEN has been a member of the Board of Directors of Photoloft since August, 1997. advisor and has over 12 years experience with emerging growth companies and developing information technology. Mr. Kremen is a private investor in companies such as: Resonate, Pinpoint Golf, Argus Software, ProShot, Upside Media, Axicon, Tut Systems, Digital Technology Partners, and Electric Classifieds, Inc. From 1995 to 1996 Mr. Kremen founded and served as president of NetAngels.com, Inc., a company focused on Internet profiling and personalization. In 1993, he founded the Board of Electric Classifieds, Inc., whose on-line personals service Match.com - is the leading community of its kind. Mr. Kremen received his masters degree in business and administration from Stanford University in 1989 and received bachelor's degrees in computer science and electric engineering from Northwestern University in 1985. 41 JOHN C. MARSHALL began his career in 1952 with Shell Oil Company, where he held various management positions until 1975, when he was named General Manager of Land Operations, North America. He left the company in 1979 to join Patrick Petroleum (NYSE:PPC) as senior vice president. A year later he was named executive vice president responsible for all operations (domestic and international), and all merger and acquisition activity. After negotiating the sale of all PPC assets to General Electric, he founded Kleenburn Energy in 1984 a privately held independent oil and gas concern. Mr. Marshall earned his bachelor's degree in business from the University of Wyoming in 1952. BOARD OF DIRECTORS All directors hold office until the next annual meeting of shareholders following their election or until their successors have been elected and qualified. Executive officers are appointed by and serve at the pleasure of the Board of Directors. We may adopt provisions in our By-laws and/or Articles of Incorporation to divide the board of directors into more than one class and to elect each class for a certain term. These provisions may have the effect of discouraging takeover attempts or delaying or preventing a change of control of Photoloft. BOARD COMMITTEES The Compensation Committee of the Board of Directors determines the salaries and incentive compensation of our officers and provides recommendations for the salaries and incentive compensation of our other employees. The compensation committee also administers our Stock Option Plan. The current members of the Compensation Committee are Messrs. Dane, Kremen and John Marshall. Prior to April 8, 1999, we did not have a Compensation Committee or any other committee of the Board of Directors that performed any similar functions. See "Compensation Committee Interlocks and Insider Participation." The Audit Committee of the Board of Directors reviews, acts on and reports to the Board of Directors with respect to various auditing and accounting matters, including the selection of our independent auditors, the scope of the annual audits, fees to be paid to the auditors, the performance of our independent auditors and our accounting practices. The current members of the audit committee are Messrs. Dane, Kremen and Jack Marshall. The Finance Committee of the Board of Directors reviews, acts on and reports to the Board of Directors with respect to various financing matters. The current members of the audit committee are Messrs. Dane, Kremen and Jack Marshall. The Board of Directors does not have a nominating committee. 42 DIRECTORS' COMPENSATION Directors who are also employees of Photoloft.com receive no compensation For serving on the Board of Directors. With respect to directors who are not employees ("Non-Employee Directors"), we intend to reimburse such directors for all travel and other expenses incurred in connection with attending meetings of the Board of Directors and any committees of the Board. Non-Employee Directors are also eligible to receive and have received grants of non-qualified stock options under our Stock Option Plan, and we intend to establish a Non-Employee Director Stock Option Plan which will provide for initial option grants of a fixed number of shares of our common stock to Non-Employee Directors and successive annual option grants to such Non-Employee Directors covering an additional fixed number of shares to provide us with an effective way to recruit and retain qualified individuals to serve as members of the Board of Directors. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION We did not have a Compensation Committee or other committee of the Board of Directors performing similar functions during the fiscal years ending December 31, 1997 and 1998. Messrs. Jack Marshall and Chris McConn are each officers of Photoloft.com and, as members of the Board of Directors, participated in deliberations of the Board of Directors relating to the compensation of our executive officers. The Board of Directors established a Compensation Committee as of April 8, 1999. See "Board Committees." 43 ITEM 6. EXECUTIVE COMPENSATION COMPENSATION SUMMARY The following table sets forth the compensation awarded or paid to, or earned by, our Chief Executive Officer and all our other executive officers who earned in excess of $100,000 in salary and bonus (collectively the "Named Executives") for services rendered to us during the year ended December 31, 1998: SUMMARY COMPENSATION TABLE (1)(2)
ANNUAL COMPENSATION LONG-TERM COMPENSATION -------------------- -------------------------------- NAME AND PRINCIPAL NUMBER OF SECURITIES UNDERLYING POSITION. . . . . . . . SALARY ($) OPTIONS (#) Jack Marshall, CEO, President and Treasurer 156,864 1,135,032 Christopher E. McConn Chief Technology Officer. . . . . . . . 127,229 454,013 (1) Information set forth herein includes services rendered by the Named Executives while employed by Photoloft.com, Inc. prior to the Reorganization and by Photoloft.com following the Reorganization. (2) The columns for "Bonus", "Other Annual Compensation", "Restricted Stock Awards", "LTP Payouts" and "All other Compensation" have been omitted because there is no compensation required to be reported.
The following table sets forth certain information concerning options granted to the Named Executives during 1998.
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998(1) NAME Number of % of Total Exercise Expiration Potential Realizable Value at Securities Options Price Per DATE(5) Assumed Annual Rates of Stock Underlying Granted to Share Price Appreciation for Option Options Employees ($/SH)(4) Term (6) Granted (#) IN 1998 (3) (2) ------------------------------- 0% 5% 10% - --------------------- ----------- ----------- --------- ----------- ---------- -------- --------- Jack Marshall 1,135,032 42.2% 0.48 July, 2007 ($181,605) $11,350 $306,459 - --------------------- ----------- ----------- --------- ----------- ---------- -------- --------- Christopher E. McConn 454,013 16.9% 0.48 July, 2007 ($72,642) $ 4,540 $122,584 ----------- ----------- --------- ----------- ---------- -------- --------- (1) No SARs were granted to the Named Executives during 1998. (2) Each option represents the right to purchase one share of our common stock. (3) In 1998, we granted officers, employees and consultants options to purchase an aggregate of 2,690,706 shares of our common stock. (4) The fair market value of our common stock on the date of grant for each of the listed options, as determined by our board of directors, was $0.32 per share. (5) Options may terminate before their expiration dates if the optionee's status as an employee or consultant is terminated or upon the optionee's death or disability. (6) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at their end of their respective terms. The 0%, 5%, and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the SEC and do not represent our estimate or projection of the future prices of the common stock. Actual gains, if any, on any exercises of options are dependent upon the future performance of the common stock and overall stock market conditions. The amounts reflected in the table may not necessarily be achieved.
44 OPTION EXERCISES AND YEAR-END OPTION VALUES The following table sets forth certain information with respect to the Named Executives concerning exercisable and unexercisable stock options held by them as of December 31, 1998. None of these executive officers exercised options to purchase common stock in 1998. AGGREGATE OPTION EXERCISES IN 1998 AND YEAR END OPTION VALUES(1)
Name Number of Unexercised Value of Unexercised In-the- Options at Year End(#) Money Optionsat Year End (2) --------------------------- --------------------------------- Exercisable Unexercisable Exercisable Unexercisable - -------------- ----------- -------------- -------------- ----------------- Jack Marshall 1,270,726 1,016,799 $ 635,363 $ 508,399 - -------------- ----------- -------------- -------------- ----------------- Christopher E. McConn 657,474 406,720 $ 328,737 $ 203,360 - -------------- ----------- -------------- -------------- ----------------- (1) No SARs were owned or exercised by any of the Named Executives during 1998. (2) Based on a per share fair market value of our common stock equal to $0.50 per share, the fair market value as determined by our Board of Directors at December 31, 1998.
45 EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS On February 26, 1999 we entered into an employment agreement (the "Executive Employment Agreement") with Jack Marshall ("Executive"). Under the Executive Employment Agreement, Jack Marshall is to serve as our Chief Executive Officer, President and Treasurer and perform such duties as may be reasonably assigned to him by the Board of Directors. The Executive Employment Agreement provides for an annual base salary of $120,000 which shall be reviewed at least annually. Under the Executive Employment Agreement, the executive is also eligible for annual bonus compensation in the minimum amount of $60,000 if Photoloft reaches certain specific milestones. The Executive Employment Agreement also provides that Mr. Marshall is to receive options to purchase between 250,000 and 750,000 shares of our Common stock if traffic to our Web Site reaches between 500,000 and 1,000,000 hits in any particular month. Executive is eligible to receive vacation in accordance with the Company's policies. He is also eligible to participate in the health, life insurance, medical, retirement and other benefit programs which we may offer from time to time. He also is to receive a car allowance of $500 per month. The term of the Executive Employment Agreement lasts until December 31, 2001 and continues thereafter on a year to year basis unless terminated pursuant to the terms thereof. We may terminate Executive at any time with or without cause. The term "cause" is defined in the Executive Employment Agreement as: (i) the willful neglect of duties reasonably assigned by the Board of Directors; (ii) material breach of the agreement; or (iii) willful gross misconduct. If Executive is terminated without cause, he is to receive severance pay through December 31, 2001 equal to: (i) the base salary; (ii) bonus compensation; (iii) vested options to purchase Common stock; (iv) health insurance; (v) car allowance; and (vi) any unused vacation time. pre payment of all automobile allowance for the remaining period of the term. If the Executive resigns from his position for good cause, including a substantial reduction in his position, duties or a material breach of the agreement by us, he is to be deemed terminated without cause and is eligible to receive severance. EMPLOYEE BENEFIT PLANS Stock Option Plan Our Stock Option Plan (the "Plan") was adopted by the Board of Directors, and ratified and approved by our stockholders, as of the closing of the Reorganization. The Board of Directors amended the Plan in June 1999. The following description of our Stock Option Plan is a summary and qualified in its entirety by the text of the plan, which is filed as an exhibit to this Registration Statement. 46 The purpose of the Plan is to enhance our profitability and stockholder value by enabling us to offer stock based incentives to employees, directors and consultants. The Plan authorizes the grant of options to purchase shares of common stock to employees, directors and consultants of Photoloft and its affiliates. Under the Plan, we may grant incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986 and non-qualified stock options. Incentive stock options may only be granted our employees. The number of shares available for options under the Plan is 3,800,000. The Plan is administered by the Compensation Committee of the board. Subject to the provisions of the Plan, the Compensation Committee has authority to determine the employees, directors and consultants of Photoloft who are to be awarded options and the terms of such awards, including the number of shares subject to such option, the fair market value of the common stock subject to options, the exercise price per share and other terms. Incentive stock options must have an exercise price equal to at least 100% (110% if the grant is to a stockholder holding more than 10% of our voting stock) of the fair market value of a share on the date of the award and generally cannot have a duration of more than 10 years (five years if the grant is to a stockholder holding more than 5% of our voting stock). Terms and conditions of awards are set forth in written agreements between Photoloft.com and the respective option holders. Awards under the Plan may not be made after the tenth anniversary of the date of its adoption but awards granted before that date may extend beyond that date. If the employment with Photoloft of the holder of an incentive stock option is terminated for any reason other than as a result of the holder's death or disability or for "cause" as defined in the Plan, the holder may exercise the option, to the extent exercisable on the date of termination of employment, until the earlier of the option's specified expiration date and 90 days after the date of termination. If an option holder dies or becomes disabled, both incentive and non-qualified stock options may generally be exercised, to the extent exercisable on the date of death or disability, by the option holder or the option holder's survivors until the earlier of the option's specified termination date and one year after the date of death or disability. As of July 7, 1999 225,000 shares had been issued as the result of the exercise of options previously granted under the Plan, 3,390,641 shares were subject to outstanding options and 409,359 shares were available for future grants. The exercise prices of the outstanding options ranged from $0.48 to approximately $5.25. The options under the Plan vest over varying lengths of time pursuant to various option agreements that we have entered into with the grantees of such options. We have not registered the Plan, or the shares subject to issuance thereunder, pursuant to the Securities Act. Absent registration, such shares, when issued upon exercise of options, would be "restricted securities" as that term is defined in Rule 144 under the Securities Act. 47 Optionees have no rights as stockholders with respect to shares subject to options prior to the issuance of shares pursuant to the exercise thereof. Options issued to employees under the Plan shall expire no later than ten years after the date of grant. An option becomes exercisable at such time and for such amounts as determined at the discretion of the Board of Directors or the Compensation Committee at the time of the grant of the option. An optionee may exercise a part of the option from the date that part first becomes exercisable until the option expires. The purchase price for shares to be issued to an employee upon his exercise of an option is determined by the Board of Directors or the Compensation Committee on the date the option is granted. The purchase price is payable in full in cash, by promissory note, by net exercise or by delivery of shares of our Common stock when the option is exercised. The Plan provides for adjustment as to the number and kinds of shares covered by the outstanding options and the option price therefor to give effect to any stock dividend, stock split, stock combination or other reorganization of or by Photoloft. 48 ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Unless otherwise indicated, information in this Item 7 regarding shares of our Common Stock reflect the 1.5133753 for 1 conversion ratio applied to shares of Photoloft-California Common Stock at the time of the reorganization. ISSUANCES TO FOUNDER. Upon his founding of Photoloft-California in November, 1993, we issued 756,688 shares of Common Stock to Jack Marshall in exchange for $500.00. At that time, we also issued him options to purchase up to 1,152,493 shares of Common Stock which vested over a four year period and had an exercise price of $0.001 per share. He exercised his options and elected to purchase 1,152,493 shares of Common Stock in February, 1999. During the Series A Preferred Stock Offering described below, he purchased 125,000 shares in exchange for $25,000. He transferred 50,000 shares of Common Stock by gift in February 1999. In March, 1999 his shares of Photoloft-California Common Stock and his options to purchase shares of Photoloft-California Common Stock were converted into shares of Photoloft.com Common Stock, and options to purchase Photoloft.com Common Stock as a result of the Reorganization. SERIES A PREFERRED OFFERING. From 1994 to 1998 we conducted a private offering of Photoloft-California Series A Preferred Stock. As a result, we sold the aggregate amount of 2,275,625 shares of Series A Preferred Stock in exchange for $455,125. Under this offering, Messrs. John Marshall and Chris McConn purchased 295,000 and 25,000, shares of stock, respectively. Ms. Lisa Marshall purchased 12,500 shares for $2,500. As described above, Mr. Jack Marshall also participated in the offering. Each outstanding share of Series A Preferred Stock was converted into 1.5 shares of Common Stock of Photoloft-California in February, 1999. SERIES B PREFERRED OFFERING. In August 1996, conducted a private offering of Photoloft-California Series B Preferred Stock. As a result, we sold 150,000 shares of our Series B Preferred Stock to Mr. Kris Chellum for $45,000. Each outstanding share of Series B Preferred Stock was converted into 1.5 shares of Common Stock of Photoloft-California in February, 1999. 1996 CONSULTING SERVICES. In 1996 we issued 53,472 shares of Common Stock to Mr. Keith Queeney and Mr. Chris McConn in exchange for services provided to us. SERIES C PREFERRED OFFERING. In October, 1997 we entered into an agreement with Kremen, Father & Partners to provide us with financial consulting services and assist us with obtaining financing. One of our directors, Gary Kremen, is a principal of Kremen, Father & Partners. In exchange for $59,500 worth of services, we issued, from 1997 to 1998, 63,384 shares of Series C Preferred Stock to Mr. Kremen. Each outstanding share of Series C Preferred Stock was converted into 1.5 shares of Common Stock of Photoloft-California in February, 1999. Currently, we no longer contract with Kremen, Father & Partners for any services. 1998 CONSULTING SERVICES. In 1998 we issued 176,006 shares of Common Stock to consultants and employees who provided services to us. Under this offering, Ms. Lisa Marshall received 15,739 shares of Common Stock. 49 EXERCISED STOCK OPTIONS. In February, 1999 we issued the aggregate amount of 2,844,112 shares of Common Stock upon the exercise of options to purchase Common Stock which were granted to employees, directors and consultants of the Company between 1993 and 1998. Under this issuance, Messrs. Jack Marshall and Chris McConn exercised options to purchase 1,152,493 and 610,181 shares of Common Stock, respectively. STOCK OPTION PLAN. In 1998, we issued options to purchase the aggregate amount of 2,690,706 shares of Common Stock to employees, directors and consultants of the Company pursuant to the Company's Stock Option Plan. These options have an exercise price of $0.48 per share. Under this offering, Mr. Jack Marshall and Mr. Chris McConn received options to purchase up to 1,135,032 and 454,013 shares of Common Stock, respectively, with exercise prices of $0.48 per share. These options vest in 48 monthly installments. Additionally, from January to July 1999, we have issued options to purchase the aggregate amount of 699,936 shares of Common Stock to employees, directors and consultants of the Company pursuant to the Company's Stock Option Plan. These options were issued at their fair market value on the date of grant and have exercise prices ranging from $0.48 to $5.25. In addition to the above, in March 1999, we issued the aggregate amount of 225,000 shares of Common Stock upon the exercise of options to purchase Common Stock which were granted to certain employees, directors, and consultants of the Company in March 1999 under the Company's Stock Option Plan. These options had an exercise price of $0.50 per share. Under this offering, Mr. John Marshall exercised options to purchase 13,500 shares of Common Stock. REORGANIZATION. In February 1999, Photoloft-California entered into the Reorganization with a non-operating public company, Data Growth, Inc., a Nevada corporation incorporated in January, 1996 ("DGI"). Under the Reorganization Agreement, the Photoloft-California stockholders received 1.5133753 shares of DGI Common Stock in exchange for each of their shares of Photoloft-California Common Stock. Additionally, the holders of options to purchase shares of Common stock of Photoloft-California terminated their options and received options to purchase shares of Common Stock of DGI. As a result of the Reorganization, Photoloft-California became a wholly-owned subsidiary of DGI. DGI adopted the Photoloft-California Stock Option Plan. An aggregate of 9,579,266 shares of Common stock and options to purchase an aggregate of 2,795,734 shares of Common stock were issued to the former Photoloft-California stockholders and option holders, respectively, in the Reorganization and the Photoloft-California stockholders owned approximately 77% of DGI immediately after the Reorganization. As part of the Reorganization, all of the executive officers and directors of DGI resigned and the executive officers and directors of Photoloft-California became the executive officers and directors of DGI which changed its name to Photoloft.com 50 BAYTREE CAPITAL ASSOCIATES, LLC. In February, 1999 Photoloft-California entered into an agreement with Baytree Capital Associates, LLC which we assumed after the Reorganization. Under the agreement, Baytree provided financial consulting and assistance to Photoloft-California which including the structuring and negotiation of a loan, the identification of a merger candidate and the assistance with the Reorganization. For their services, Baytree received 25,000 shares of our Common Stock and was paid $10,000 in non-accountable expense reimbursement. In addition, Baytree has been granted a 24 month right of first refusal with respect to any subsequent financings. Baytree also has unlimited "piggyback" registration rights as to its 25,000 shares. Lynn Dixon, a shareholder of DGI was instrumental in locating DGI as an entity to be used in the Reorganization. Mr. Dixon was also involved in the negotiation of the terms of the transaction. We believe that all of the transactions set forth above were made on terms no less favorable to us than could have been obtained from unaffiliated third parties. We intend that all future transactions, including loans, between us and our officers, directors, principal stockholders and their affiliates will be approved by a majority of the Board of Directors, including a majority of the independent and disinterested outside directors on the Board of Directors, and be on terms no less favorable to us than could be obtained from unaffiliated third parties. 51 ITEM 8. LEGAL PROCEEDINGS There is presently two pending legal proceedings to which we are a party. James Vierra has filed an action against us alleging, among other things, breaches of fiduciary duties, violation of securities laws, and employment related claims arising out of the disputed ownership of the ID4Life division and the termination of Mr. Vierra's employment with us. We have answered the complaint and asserted a counterclaim comprising of claims for declaratory relief, breach of fiduciary duty and breach of contract against Mr. Vierra. We believe that Mr. Vierra's claims are without merit and intend to defend our position vigorously. Hewlett-Packard, Co. has filed an action against us alleging trade secret misappropriation, unfair competition, and breach of contract arising out of the activities of one of our employees. Hewlett-Packard is seeking injunctive relief and damages. We are presently in settlement negotiations with Hewlett-Packard with regard to this matter. We have a preexisting relationship with Hewlett-Packard with respect to the development and use of certain aspects of our advanced viewing and printing technologies. See "Item 1. Business -- Products and Services." To the best of our knowledge, there are presently no other legal proceedings to which we or any of our subsidiaries is a party or to which any of our property is subject and, to the best of its knowledge, no such actions against us are contemplated or threatened. ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS No shares of our common stock have previously been registered with the SEC or any state securities agency or authority. Our common stock has been trading on the National Association of Security Dealers Over-The-Counter Market Bulletin Board ("OTCBB") since March 1, 1999 under the symbol "LOFT". The following table sets forth the range of high and low bid prices of the common stock for each calendar quarterly period since trading commenced as reported by the National Quotation Bureau, Inc. ("NQB"). Prices reported by the NQB represent prices between dealers, do not include retail markups, markdowns or commissions and do not represent actual transactions.
1999 High Low - ----------------------------------- ------ ------ First Quarter (March 1 to March 31) $7.375 $4.500 Second Quarter (April 1 to June 30) $5.500 $3.625 Third Quarter (July 1 to July 7) $5.375 $5.062
As of July 7, 1999 there were approximately 325 holders of record of our common stock, which figure does not take into account those stockholders whose certificates are held in the name of broker-dealers or other nominees. 52 Dividend Policy We have not declared or paid cash dividends or made distributions in the past, and we do not anticipate that we will pay cash dividends or make distributions in the foreseeable future. We currently intend to retain and invest future earnings to finance our operations. Transfer Agent Our transfer agent for our common stock is Interwest Transfer Co., Inc., 1981 East 4800 South, Salt Lake City, Utah 84117. 53 ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES Set forth in chronological order is information regarding shares of common stock issued and options and warrants and other convertible securities granted by us during the past three years. Also included is the consideration, if any, received by us for such shares and options and information relating to the section of the Securities Act, or rule of the SEC under which exemption from registration was claimed. Transactions described in Items (1) through (10) below refer to the securities of PhotoLoft.Com, Inc., a California corporation which was the predecessor entity of the filer of this Registration Statement, and transactions described in Items (11) through (15) below refer to the securities of Photoloft.com, a Nevada corporation which is the filer of this Registration Statement. Unless otherwise indicated, information in this Item 10 regarding shares of our Common Stock reflect the 1.5133753 for 1 conversion ratio applied to shares of Photoloft-California Common Stock at the time of the reorganization. (1) From 1994 to 1998 we sold the aggregate amount of 2,275,625 shares of Series A Preferred Stock in exchange for $430,125 valued in cash and services provided to the Company pursuant to a private offering of our Series A Preferred Stock. The issuances were made in reliance on Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. (2) In August 1996, we sold the aggregate amount of 150,000 shares of our Series B Preferred Stock for $45,000 pursuant to a private offering of our preferred stock. The issuance was made in reliance on Section 4(2) of the Securities Act without general solicitation or advertising. The purchaser was a sophisticated investor with access to all relevant information necessary to evaluate the investment, and who represented to the Company that the shares were being acquired for investment. (3) In 1996 and 1997 we issued 67,244 shares of Common Stock to consultants and employees of the Company in exchange for services rendered to the company valued at $8,667. The issuances were made in reliance on Section 4(2) of the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. 54 (4) From 1997 to 1998, the Company issued 63,384 shares of Series C Preferred Stock in exchange for services valued at $59,500 pursuant to a private offering of our preferred stock. The issuance was made in reliance on Section 4(2) of the Securities Act and was made without general solicitation or advertising. The purchaser was a sophisticated investor with access to all relevant information necessary to evaluate the investment, and who represented to the Company that the shares were being acquired for investment. (5) In 1998 we issued 176,006 shares of Common Stock to employees and consultants of the Company in exchange for services rendered to the Company. The issuances were made in reliance on Section 4(2) of the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. (6) In 1998, we issued options to purchase up to 2,690,706 shares of Common Stock to certain employees, directors and consultants of the Company with an exercise price of $0.48 per share pursuant to the Company's Stock Option Plan. These issuances were made in reliance on Section 4(2) of the Securities Act and/or Rule 701 promulgated under the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. (7) From January 1999 to July 1999 the Company issued options to purchase the aggregate amount of 924,936 shares of Common Stock in the Company pursuant to the Company's Stock Option Plan with exercise prices from $0.48 per share to $5.25 per share. These issuances were made in reliance on Section 4(2) of the Securities Act and/or Rule 701 promulgated under the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. (8) In February, 1999 we issued the aggregate amount of 2,844,112 shares of Common Stock upon the exercise of options to purchase Common Stock which were granted to employees, directors and consultants of the Company between 1993 and 1998 . The issuances were made in reliance on Section 4(2) of the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. (9) In February 1999, we issued 5,650,207 shares of Common Stock in exchange and upon the conversion of shares of issued and outstanding Series A, B and C Preferred Stock of the Company. The issuances were made in reliance on Section 4(2) of the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. 55 (10) In February 1999, the Company issued 85,011 shares of Common Stock to employees and consultants of the Company in exchange for services valued at $42,506. The issuances were made in reliance on Section 4(2) of the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. (11) In March 1999, under the terms of the Reorganization, the Company issued the aggregate amount of 9,579,266 shares of Common Stock to the shareholders of Photoloft.com in exchange for their shares of Common Stock of Photoloft-California. The issuances were made in reliance on Section 4(2) of the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. (12) In March 1999, under the terms of the Reorganization, the holders of options to purchase Common Stock of Photoloft-California exchanged their options for options to purchase the aggregate amount of 2,795,734 shares of Common Stock of the Company. These issuances were made in reliance on Section 4(2) of the Securities Act and/or Rule 701 promulgated under the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. (13) In March 1999, pursuant to the terms of the Reorganization Agreement, the Company conducted a private offering of its Common stock. Pursuant to that offering, a total of 2,000,000 shares of Common stock were sold for total cash consideration of $1,000,000. The issuances were made in reliance on Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. (14) In March 1999, the Company issued 225,000 shares of Common Stock upon the exercise of options to purchase Common stock held by certain employees, directors and consultants of the Company. These options were issued in 1999 and had exercise prices of $0.50 per share. These issuances were made in reliance on Section 4(2) of the Securities Act and/or Rule 701 promulgated under the Securities Act and were made without general solicitation or advertising. The purchasers were sophisticated investors with access to all relevant information necessary to evaluate these investments, and who represented to the Company that the shares were being acquired for investment. 56 (15) In March 1999, the Company issued 25,000 shares of Common stock to Baytree Capital Associates pursuant to the terms of a Letter Agreement with Baytree Capital Associates for financial business consulting services. The issuance was made in reliance on Section 4(2) of the Securities Act and/or Regulation D promulgated under the Securities Act and was made without general solicitation or advertising. The purchaser was a sophisticated investor with access to all relevant information necessary to evaluate the investment, and who represented to the Company that the shares were being acquired for investment. 57 ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED The descriptions in this Item and in other sections of this Registration Statement of our securities and various provisions of our Articles of Incorporation and our Bylaws are summaries. Statements contained in this Registration Statement relating to such provisions are not necessarily complete, and reference is made to the Articles of Incorporation and Bylaws, copies of which have been filed with the SEC as exhibits to this Registration Statement, and provisions of applicable law. Our authorized capital stock consists of 50,000,000 shares of common stock, par value $.001 per share, and 500,000 shares of Preferred Stock, par value $.001. As of July 7, 1999, 12,454,266 shares of our common stock were issued and outstanding and 3,800,000 shares of common stock were reserved for issuance upon exercise of outstanding options. Only our common stock is being registered under the Exchange Act pursuant to this Registration Statement. As of July 7, 1999, no shares of our Preferred Stock were issued and outstanding. See "Item 2. Financial Information--Factors Affecting Our Business, Operating Results and Financial Condition--Anti-Takeover Provisions And Our Right To Issue Preferred Stock Could Make A Third-Party Acquisition Of Us Difficult." Description of Common Stock The holders of our common stock are entitled to equal dividends and distributions per share with respect to the common stock when, as and if declared by the Board of Directors from funds legally available therefor. No holder of any shares of our common stock has a pre-emptive right to subscribe for any of our securities, nor are any common shares subject to redemption or convertible into other of our securities. Upon liquidation, dissolution or winding up of Photoloft, and after payment of creditors and preferred stockholders, if any, the assets will be divided pro-rata on a share-for-share basis among the holders of the shares of common stock. All shares of common stock now outstanding are fully paid, validly issued and non-assessable. Each share of common stock is entitled to one vote with respect to the election of any director or any other matter upon which shareholders are required or permitted to vote. Holders of the common stock do not have cumulative voting rights, so the holders of more than 50% of the combined shares voting for the election of directors may elect all of the directors if they choose to do so, and, in that event, the holders of the remaining shares will not be able to elect any members to the Board of Directors. Anti-Takeover Effects of Various Provisions of Nevada Law and Our Articles of Incorporation and Bylaws 58 We are incorporated under the laws of the State of Nevada and are therefore subject to various provisions of the Nevada corporation laws which may have the effect of delaying or deterring a change in the control or management of Photoloft. Nevada's "Combination with Interested Stockholders Statute," Nevada Revised Statutes 78.411-78.444, which applies to Nevada corporations like us having at least 200 stockholders, prohibits an "interested stockholder" from entering into a "combination" with the corporation, unless certain conditions are met. A "combination" includes (a) any merger with an "interested stockholder," or any other corporation which is or after the merger would be, an affiliate or associate of the interested stockholder, (b) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of assets, in one transaction or a series of transactions, to an "interested stockholder," having (i) an aggregate market value equal to 5% or more of the aggregate market value of the corporation's assets, (ii) an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation, or (iii) representing 10% or more of the earning power or net income of the corporation, (c) any issuance or transfer of shares of the corporation or its subsidiaries, to the "interested stockholder," having an aggregate market value equal to 5% or more of the aggregate market value of all the outstanding shares of the corporation, (d) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed by the "interested stockholder," (e) certain transactions which would have the effect of increasing the proportionate share of outstanding shares of the corporation owned by the "interested stockholder," or (f) the receipt of benefits, except proportionately as a stockholder, of any loans, advances or other financial benefits by an "interested stockholder." An "interested stockholder" is a person who (i) directly or indirectly owns 10% or more of the voting power of the outstanding voting shares of the corporation or (ii) an affiliate or associate of the corporation which at any time within three years before the date in question was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding shares of the corporation. A corporation to which the statute applies may not engage in a "combination" within three years after the interested stockholder acquired its shares, unless the combination or the interested stockholder's acquisition of shares was approved by the Board of Directors before the interested stockholder acquired the shares. If this approval was not obtained, then after the three-year period expires, the combination may be consummated if all the requirements in the Articles of Incorporation are met and either (a)(i) the Board of Directors of the corporation approves, prior to such person becoming an "interested stockholder," the combination or the purchase of shares by the "interested stockholder" or (ii) the combination is approved by the affirmative vote of holders of a majority of voting power not beneficially owned by the "interested stockholder" at a meeting called no earlier than three years after the date the "interested stockholder" became such or (b) the aggregate amount of cash and the market value of consideration other than cash to be received by holders of common shares and holders of any other class or series of shares meets the minimum requirements set forth in Sections 78.411 through 78.443, inclusive, and prior to the consummation of the combination, except in limited circumstances, the "interested stockholder" will not have become the beneficial owner of additional voting shares of the corporation. 59 Nevada's "Control Share Acquisition Statute," Nevada Revised Statute (S)78.378-78.379, prohibits an acquiror, under certain circumstances, from voting shares of a target corporation's stock after crossing certain threshold ownership percentages, unless the acquiror obtains the approval of the target corporation's stockholders. The Control Share Acquisition Statute only applies to Nevada corporations with at least 200 stockholders, including at least 100 record stockholders who are Nevada residents, and which do business directly or indirectly in Nevada. While we do not currently exceed these thresholds, we may well do so in the near future. In addition, although we do not presently "do business" in Nevada within the meaning of the Control Share Acquisition Statute, we may do so in the future. Therefore, it is likely that the Control Share Acquisition Statute will apply to us in the future. The statute specifies three thresholds: at least one-fifth but less than one-third, at least one-third but less than a majority, and a majority or more, of all the outstanding voting power. Once an acquiror crosses one of the above thresholds, shares which it acquired in the transaction taking it over the threshold or within ninety days become "Control Shares" which are deprived of the right to vote until a majority of the disinterested stockholders restore that right. A special stockholders' meeting may be called at the request of the acquiror to consider the voting rights of the acquiror's shares no more than 50 days (unless the acquiror agrees to a later date) after the delivery by the acquiror to the corporation of an information statement which sets forth the range of voting power that the acquiror has acquired or proposes to acquire and certain other information concerning the acquiror and the proposed control share acquisition. If no such request for a stockholders' meeting is made, consideration of the voting rights of the acquiror's shares must be taken at the next special or annual stockholders' meeting. If the stockholders fail to restore voting rights to the acquiror or if the acquiror fails to timely deliver an information statement to the corporation, then the corporation may, if so provided in its articles of incorporation or bylaws, call certain of the acquiror's shares for redemption. Our Articles of Incorporation and Bylaws do not currently permit us to call an acquiror's shares for redemption under these circumstances. The Control Share Acquisition Statute also provides that the stockholders who do not vote in favor of restoring voting rights to the Control Shares may demand payment for the "fair value" of their shares (which is generally equal to the highest price paid in the transaction subjecting the stockholder to the statute). Certain provisions of our Bylaws which are summarized below may affect potential changes in control of Photoloft. The Board of Directors believes that these provisions are in the best interests of stockholders because they will encourage a potential acquiror to negotiate with the Board of Directors, which will be able to consider the interests of all stockholders in a change in control situation. However, the cumulative effect of these terms maybe to make it more difficult to acquire and exercise control of Photoloft and to make changes in management more difficult. The Bylaws provide the number of directors of Photoloft shall be established by the Board of Directors, but shall be no less than one. Between stockholder meetings, the Board may appoint new directors to fill vacancies or newly created directorships. A director may be removed from office by the affirmative vote of 66-2/3% of the combined voting power of the then outstanding shares of stock entitled to vote generally in the election of directors. 60 The Bylaws further provide that stockholder action may be taken at a meeting of stockholders and may be effected by a consent in writing if such consent is signed all of the holders of common stock. We are not aware of any proposed takeover attempt or any proposed attempt to acquire a large block of our common stock. The provisions described above may have the effect of delaying or deterring a change in the control or management of Photoloft. Application of California GCL Although we are incorporated in Nevada, our headquarters is in the State of California. Section 2115 of the California GCL ("Section 2115") provides that certain provisions of the California GCL shall be applicable to a corporation organized under the laws of another state to the exclusion of the law of the state in which it is incorporated, if the corporation meets certain tests regarding the business done in California and the number of its California stockholders. An entity such as us can be subject to Section 2115 if the average of the property factor, payroll factor and sales factor deemed to be in California during its latest full income year is more than 50 percent and more than one-half of its outstanding voting securities are held of record by persons having addresses in California. Section 2115 does not apply to corporations with outstanding securities listed on the New York or American Stock Exchange, or with outstanding securities designated as qualified for trading as a national market security on NASDAQ, if such corporation has at least 800 beneficial holders of its equity securities. Since the average of our property factor, payroll factor and sales factor deemed to be in California during our latest fiscal year was almost 100%, and over 60% of our outstanding voting securities are held of record by persons having addresses in California, and our securities do not currently qualify as a national market security on NASDAQ, we are subject to Section 2115. During the period that we are subject to Section 2115, the provisions of the California GCL regarding the following matters are made applicable to the exclusion of the law of the State of Nevada: (i) general provisions and definitions; (ii) annual election of directors; (iii)removal of directors without cause; (iv) removal of directors by court proceedings; (v)filling of director vacancies where less than a majority in office were elected by the stockholders; (vi) directors' standard of care; (vii) liability of directors for unlawful distributions; (viii) indemnification of directors, officers and others; (ix) limitations on corporate distributions of cash or property; (x) liability of a stockholder who receives an unlawful distribution;(xi) requirements for annual stockholders meetings; (xii) stockholders' right to cumulate votes at any election of directors; (xiii) supermajority vote requirements; (xiv) limitations on sales of assets; (xv) limitations on mergers;(xvi) reorganizations; (xvii) dissenters' rights in connection with reorganizations; (xviii) required records and papers; (xix) actions by the California Attorney General; and (xx) rights of inspection. 61 ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS The General Corporation Law of Nevada limits the liability of officers and directors for breach of fiduciary duty except in certain specified circumstances, and also empowers corporations organized under Nevada Law to indemnify officers, directors, employees and others from liability in certain circumstances such as where the person successfully defended himself on the merits or acted in good faith in a manner reasonably believed to be in the best interests of the corporation. Our Articles of Incorporation, with certain exceptions, eliminate any personal liability of a directors or officers to us or our stockholders for monetary damages for the breach of such person's fiduciary duty, and, therefore, an officer or director cannot be held liable for damages to us or our stockholders for gross negligence or lack of due care in carrying out his (or her) fiduciary duties as a director or officer except in certain specified instances. We may also adopt by-laws which provide for indemnification to the full extent permitted under law which includes all liability, damages and costs or expenses arising from or in connection with service for, employment by, or other affiliation with us to the maximum extent and under all circumstances permitted by law. There is presently one material pending legal proceeding to which a director, officer and employee of ours is a party. See "Item 8 Legal Proceedings". There is no other pending litigation or proceeding involving one of our directors, officers, employees or other agents as to which indemnification is being sought, and we are not aware of any pending or threatened litigation that may result in claims for indemnification by any director, officer, employee or other agent. We have purchased directors and officers liability insurance to defend and indemnify directors and officers who are subject to claims made against them for their actions and omissions as directors and officers of Photoloft. The insurance policy provides standard directors and officers liability insurance in the amount of $5,000,000. We intend to enter into indemnification agreements with our directors and officers. These agreements will provide, in general, that we shall indemnify and hold harmless such directors and officers to the fullest extent permitted by law against any judgments, fines, amounts paid in settlement, and expenses (including attorneys' fees and disbursements) incurred in connection with, or in any way arising out of, any claim, action or proceeding (whether civil or criminal) against, or affecting, such directors and officers resulting from, relating to or in any way arising out of, the service of such persons as our directors and officers. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons pursuant to the foregoing provisions or otherwise, we have has been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. 62 ITEM 13. FINANCIAL STATEMENTS Reference is made to the Financial Statements together with the notes thereto and the report thereon from BDO Seidman, LLP appearing on pages F-1 through F-16 of this Form 10-SB. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 63 ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(A) Index to Financial Statements Report of Independent Certified Public Accountants, BDO Seidman, LLP F-1 Financial Statements: Balance sheets as of March 31, 1999 (Unaudited) and December 31, 1998 F-2 Statements of operations for the three months ended March 31, 1999 and 1998 F-3 (Unaudited) and the years ended December 31, 1998 and 1997 Statements of stockholders' equity (deficiency) for the three months ended F-4 March 31, 1999 (Unaudited) and the years ended December 31, 1998 and 1997 Statements of cash flows for the three months ended March 31, 1999 and 1998 F-5 (Unaudited) and the years ended December 31, 1998 and 1997 Notes to Financial Statements F-6 - F-16
64 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors and Shareholders of PhotoLoft.com, Inc. We have audited the accompanying balance sheet of PhotoLoft.com, Inc. (the Company) as of December 31, 1998, and the related statements of operations, shareholders' equity (deficiency), and cash flows for the years ended December 31, 1998 and 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing principles. Those standards require that we plan and perform our audits 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, the financial statements referred to above present fairly, in all material respects, the financial position of PhotoLoft.com, Inc. as of December 31, 1998, and the results of its operations and cash flows for the years ended December 31, 1998 and 1997, in conformity with generally accepted accounting principles. San Jose, California April 2, 1999 F - 1
PHOTOLOFT.COM BALANCE SHEETS MARCH 31, December 31, 1999 1998 (UNAUDITED) - --------------------------------------------------------------------------------------- ------------ ------------- ASSETS (Note 6) CURRENT ASSETS: Cash and cash equivalents (Note 10) $ 1,081,900 $ 370,000 Note receivable, current portion (Note 2) 658,000 658,000 Prepaid expenses and other current assets 15,900 - Deferred income taxes 337,200 183,100 - --------------------------------------------------------------------------------------- ------------ ------------- TOTAL CURRENT ASSETS 2,093,000 1,211,100 - --------------------------------------------------------------------------------------- ------------ ------------- PROPERTY AND EQUIPMENT, net (Note 3) 106,500 65,700 NOTE RECEIVABLE, less current portion (Note 2) 1,441,200 1,656,700 OTHER ASSETS 10,500 5,500 - --------------------------------------------------------------------------------------- ------------ ------------- $ 3,651,200 $ 2,939,000 ======================================================================================= ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 192,100 $ 129,500 Accrued expenses (Note 4) 64,900 73,500 Deferred revenue (Note 5) 21,800 36,300 Deferred income taxes (Note 9) 263,600 263,600 - --------------------------------------------------------------------------------------- ------------ ------------- TOTAL CURRENT LIABILITIES 542,400 502,900 DEFERRED INCOME TAXES (Note 9) 580,500 666,700 - --------------------------------------------------------------------------------------- ------------ ------------- TOTAL LIABILITIES 1,122,900 1,169,600 - --------------------------------------------------------------------------------------- ------------ ------------- COMMITMENTS, CONTINGENCIES AND SUBSEQUENT EVENTS (Notes 1, 6, 10 and 12) SHAREHOLDERS' EQUITY: (Notes 1, 8 and 12) Preferred stock, $0.001 par value; 500,000 shares authorized; no shares issued and outstanding - - Common stock, $0.001 par value; 50,000,000 shares authorized; 12,454,268 and 6,650,145 shares issued and outstanding, respectively 12,400 6,700 Additional paid-in capital 1,761,900 648,200 Retained earnings 754,000 1,114,500 - --------------------------------------------------------------------------------------- ------------ ------------- TOTAL SHAREHOLDERS' EQUITY 2,528,300 1,769,400 - --------------------------------------------------------------------------------------- ------------ ------------- $ 3,651,200 $ 2,939,000 ======================================================================================= ============ =============
See accompanying notes to financial statements. F - 2 PHOTOLOFT.COM STATEMENTS OF OPERATIONS
Three Months Ended March 31, Years Ended December 31, -------------------------- ------------------------ 1999 1998 1998 1997 ------------ ------------ ----------- ----------- (UNAUDITED) (Unaudited) REVENUES (Note 10) $ 21,800 $ 204,100 $ 674,300 $ 574,200 COST OF REVENUES 36,300 32,200 113,000 60,800 - --------------------------------------- ------------ ------------ ----------- ----------- GROSS PROFIT (LOSS) (14,500) 171,900 561,300 513,400 - --------------------------------------- ------------ ------------ ----------- ----------- OPERATING EXPENSES: Sales and marketing 18,800 10,600 325,000 32,200 General and administrative (Note 7) 605,100 159,800 999,000 642,200 - --------------------------------------- ------------ ------------ ----------- ----------- TOTAL OPERATING EXPENSES 623,900 170,400 1,324,000 674,400 - --------------------------------------- ------------ ------------ ----------- ----------- (LOSS) INCOME FROM OPERATIONS (638,400) 1,500 (762,700) (161,000) - --------------------------------------- ------------ ------------ ----------- ----------- OTHER INCOME (EXPENSE): Sale of trade name (Note 2) - - 3,100,000 - Interest income 40,100 - 76,900 - Interest expense - - (500) - Other (2,500) (1,200) (2,400) (3,700) - --------------------------------------- ------------ ------------ ----------- ----------- TOTAL OTHER INCOME (EXPENSE) 37,600 (1,200) 3,174,000 (3,700) - --------------------------------------- ------------ ------------ ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (600,800) 300 2,411,300 (164,700) - --------------------------------------- ------------ ------------ ----------- ----------- INCOME TAX EXPENSE (BENEFIT) (Note 9) (240,300) - 748,000 800 - --------------------------------------- ------------ ------------ ----------- ----------- NET INCOME (LOSS) $ (360,500) $ 300 $1,663,300 $ (165,500) ======================================= ============ ============ =========== =========== Basic earnings (loss) per share $ (0.04) $ 0.00 $ 0.26 $ (0.03) ======================================= ============ ============ =========== =========== Diluted earnings (loss) per share $ (0.04) $ 0.00 $ 0.18 $ (0.03) ======================================= ============ ============ =========== =========== Basic weighted-average common shares outstanding 9,063,500 6,360,300 6,488,300 6,297,000 Stock options - 2,799,400 2,799,400 - - --------------------------------------- ------------ ------------ ----------- ----------- Diluted weighted-average common shares outstanding 9,063,500 9,159,700 9,287,700 6,297,000 ======================================= ============ ============ =========== ===========
See accompanying notes to financial statements. F - 3 PHOTOLOFT.COM STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
(Accumulated Common Stock Additional Deficit) ------------------- Paid-in Retained Shares Amount Capital Earnings Total ----------- - ---------------------------------------------------------------------- ---------- ------- ---------- ----------- ----------- BALANCES, January 1, 1997 6,267,448 $ 6,300 $ 497,200 $ (383,300) $ 120,200 Issuance of stock for services 59,025 100 18,200 - 18,300 Net loss - - - (165,500) (165,500) - ---------------------------------------------------------------------- ---------- ------- ---------- ----------- ----------- BALANCES, December 31, 1997 6,326,473 6,400 515,400 (548,800) (27,000) Issuance of stock for services 323,672 300 132,800 - 133,100 Net income - - - 1,663,300 1,663,300 - ---------------------------------------------------------------------- ---------- ------- ---------- ----------- ----------- BALANCES, December 31, 1998 6,650,145 6,700 648,200 1,114,500 1,769,400 Exercise of stock options (unaudited) 3,069,112 3,000 112,300 - 115,300 Issuance of common stock for services (unaudited) 85,011 100 42,400 - 42,500 Issuance of common stock in connection with reverse merger (unaudited) 625,000 600 4,900 - 5,500 Sale of common stock, net of stock issuance costs of approximately $56,500 (unaudited) 2,025,000 2,000 954,100 - 956,100 Net loss (unaudited) - - - (360,500) (360,500) - ---------------------------------------------------------------------- ---------- ------- ---------- ----------- ----------- BALANCES, March 31, 1999 (unaudited) 12,454,268 $12,400 $1,761,900 $ 754,000 $2,528,300 ====================================================================== ========== ======= ========== =========== ===========
See accompanying notes to financial statements. F - 4 PHOTOLOFT.COM STATEMENTS OF CASH FLOWS (Note 11)
Three Months Ended March 31, Years Ended December 31, 1999 1998 1998 1997 - ------------------------------------------------------------ ------------ ------------ ------------ ---------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (360,500) $ 300 $ 1,663,300 $(165,500) Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: Depreciation and amortization 7,400 2,400 13,200 8,600 Allowance for doubtful accounts - - (75,100) 82,800 Gain on sale of trade name - - (3,100,000) - Issuance of stock for services 42,500 27,800 133,100 18,300 Deferred income taxes (240,300) - 747,200 - Changes in operating assets and liabilities: Accounts receivable - 2,800 170,700 (130,600) Prepaid expenses and other current assets (15,900) 6,600 6,600 47,300 Accounts payable 62,600 (16,500) 65,000 58,100 Accrued expenses (8,600) (11,200) (21,300) 94,800 Deferred revenue (14,500) - 36,300 - - ------------------------------------------------------------ ------------ ------------ ------------ ---------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (527,300) 12,200 (361,000) 13,800 - ------------------------------------------------------------ ------------ ------------ ------------ ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash acquired in purchase of business 5,500 - - - Purchase of property and equipment (48,200) (1,500) (51,100) (12,200) Other assets (5,000) 300 (3,200) (2,000) - ------------------------------------------------------------ ------------ ------------ ------------ ---------- NET CASH USED IN INVESTING ACTIVITIES (47,700) (1,200) (54,300) (14,200) - ------------------------------------------------------------ ------------ ------------ ------------ ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal received under note receivable 215,500 - 785,300 - Proceeds from issuances of stock 1,115,400 - - - Payment of stock issuance costs (44,000) - - - - ------------------------------------------------------------ ------------ ------------ ------------ ---------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,286,900 - 785,300 - - ------------------------------------------------------------ ------------ ------------ ------------ ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 711,900 11,000 370,000 (400) CASH AND CASH EQUIVALENTS, beginning of period 370,000 - - 400 - ------------------------------------------------------------ ------------ ------------ ------------ ---------- CASH AND CASH EQUIVALENTS, end of period $ 1,081,900 $ 11,000 $ 370,000 $ - ============================================================ ============ ============ ============ ==========
See accompanying notes to financial statements. F - 5 1. SUMMARY OF ACCOUNTING POLICIES The Company PhotoLoft.com, Inc. (formerly AltaVista Technology, Inc.) (the Company) a California corporation, was incorporated on November 17, 1993. The Company provides users with advanced, easy-to-use technology to instantly create, share and print Internet photo albums. On March 1, 1999, 100% of the Company's outstanding common stock was acquired by PhotoLoft.com (formerly Data Growth, Inc., a publicly traded shell corporation) (PhotoLoft), a Nevada Corporation, in exchange for 9,579,268 shares of PhotoLoft's $.001 par value common stock. For accounting purposes, the acquisition has been treated as the acquisition of PhotoLoft, with the Company as the acquiror (reverse acquisition). The shares held by the shareholders of PhotoLoft prior to the acquisition (625,000 shares after reflecting a 2.46 to 1 reverse stock split effected by PhotoLoft immediately prior to the acquisition) have been recognized as if they were issued in connection with the acquisition of PhotoLoft by the Company. Since PhotoLoft prior to the reverse acquisition was a public shell corporation with no significant operations, pro forma information giving effect to the acquisition is not presented. All shares and per share data prior to the acquisition have been restated to reflect the stock issuance as a recapitalization of the Company. The historical information prior to March 1, 1999 is that of the Company. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company considers all highly liquid investments having original maturities of three months or less to be cash equivalents. Property and Equipment Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the estimated economic useful lives of the assets, generally ranging from five to seven years. Long-Lived Assets The Company periodically reviews its long-lived assets and certain identifiable intangibles for impairment. When events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, the asset was recorded at the lower of its book value or its fair value. F - 6 Fair Values of Financial Instruments The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates fair value. Note receivable: The fair value for the note receivable is estimated based on current interest rates available to the Company for investments with similar terms and remaining maturities. Short-term debt: The fair value of short-term debt approximates cost because of the short period of time to maturity. As of December 31, 1998, the fair values of the Company's financial instruments approximate their historical carrying amounts. Revenue Recognition The Company recognizes revenues when earned or upon product shipment, provided no significant obligations remain, and collectibility is probable. Advertising The cost of advertising is expensed as incurred. Advertising costs for the three month periods ended March 31, 1999 and 1998 aggregated $14,500 and $3,000, respectively (unaudited). Advertising costs for the years ended December 31, 1998 and 1997 aggregated $26,000 and $4,100, respectively. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes, which requires an asset and liability approach. This approach results in the recognition of deferred tax assets (future tax benefits) and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be deductible or taxable when the assets and liabilities are recovered or settled. Future tax benefits are subject to a valuation allowance when management believes it is more likely than not that the deferred tax assets will not be realized. F - 7 New Accounting Pronouncement In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged assets or liabilities, that are attributable to the hedged risk, or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. Historically, the Company has not entered into derivatives contracts either to hedge existing risks or for speculative purposes. Accordingly, the Company does not expect adoption of the new standard to affect its financial statements. Earnings Per Common Share During 1998, the Company adopted the provisions of SFAS No. 128, Earnings Per Share. SFAS No. 128 provides for the calculation of basic and diluted earnings per share. Basic earnings per share includes no dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of an entity. For the three months ended March 31, 1999 and the year ended December 31, 1997, options to purchase 5,796,677 and 2,844,112 shares of common stock, respectively, were excluded from computation of diluted earnings per share since their effect would be antidilutive. For the three months ended March 31, 1998 and the year ended December 31, 1998, options to purchase 37,834 and 2,728,539 shares of common stock, respectively, were excluded from the computation of diluted earnings per share because the options' exercise price was greater than the estimated average fair market value of the common shares. Basis of Presentation The accompanying balance sheet as of March 31, 1999 and the statements of operations and cash flows for each of the three month periods ended March 31, 1999 and 1998 have not been audited. However, they have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the periods presented. The financial data and other information disclosed in these notes to financial statements related to these periods are unaudited. The results of operations for the three months ended March 31, 1999 are not necessarily indicative of results to be expected for any future period. F - 8 2. SALE OF TRADE NAME On July 31, 1998, the Company sold all its rights in and to the AltaVista mark and the internet domain name "altavista.com" to Digital Equipment Corporation for a total of $3,100,000, payable $350,000 in cash and $2,750,000 in a promissory note. The note, payable in 12 quarterly installments commencing October 1, 1998, bears interest at 7% annually. Through April 2, 1999, all scheduled payments have been received. A summary of future minimum receipts from this note receivable, follows:
Years ending December 31, Amount ---------- 1999 $ 768,300 2000 1,024,400 2001 749,600 ---------- Future minimum receipts 2,542,300 Less amount representing interest (7.0%) 227,600 ---------- Present value of future minimum receipts 2,314,700 Less current portion 658,000 ---------- $1,656,700 ==========
3. PROPERTY AND EQUIPMENT A summary of property and equipment follows:
MARCH 31, December 31, 1999 1998 ------------ ------------- (UNAUDITED) Office equipment $ 137,700 $ 90,500 Furniture and fixtures 10,300 9,300 ------------ ------------- 148,000 99,800 Less accumulated depreciation 41,500 34,100 ------------ ------------- $ 106,500 $ 65,700 ============ =============
4. ACCRUED EXPENSES A summary of accrued expenses follows:
MARCH 31, December 31, 1999 1998 ------------ ------------- (UNAUDITED) Vacation $ 24,900 $ 24,900 Consulting fees 20,000 20,000 Salaries and wages 19,900 19,900 Other 100 8,700 ------------ ------------- $ 64,900 $ 73,500 ============ =============
5. DEFERRED REVENUE Deferred revenue consists of quarterly and annual subscriptions for web hosting services. Revenue from the subscriptions is recognized ratably over the term of the subscriptions. F - 9 6. COMMITMENTS AND CONTINGENCIES Leases The Company leases its facilities and certain equipment under operating leases. The facility leases require the Company to pay certain maintenance and operating expenses, such as utilities, property taxes and insurance costs. Rent expense for the three month periods ended March 31, 1999 and 1998 was $31,200 and $5,900, respectively (unaudited). Rent expense related to these operating leases for the years ended December 31, 1998 and 1997 was $39,900 and $18,700, respectively. A summary of the future minimum lease payments required under non-cancelable operating leases with terms in excess of one year, follows:
Years ending December 31, Amount -------- 1999 $ 95,700 2000 91,300 2001 51,600 2002 3,600 -------- Future minimum lease payments $242,200 ========
In September 1998, the Company entered into an agreement whereby the Company acts as guarantor of a third party in a sub-lease agreement. The sub-lease agreement expires in September 2000. Debt Agreement The Company maintains a $200,000 revolving line of credit with a bank that is secured by all corporate assets, including accounts receivable, inventory and intangible assets. The loan is limited to $100,000 until the Company fulfills certain milestone covenants and pays an additional loan fee. The line of credit accrues interest at 2% over the Lender's Prime Rate. Advances against the line of credit are limited to 70% of eligible accounts receivable. As of March 31, 1999 and December 31, 1998, the line of credit had no outstanding balance. 7. RELATED PARTY TRANSACTIONS During the year ended December 31, 1998, the Company paid approximately $20,000 for consulting services from a shareholder. 8. SHAREHOLDERS' EQUITY Preferred Stock The Company had authorized 5,000,000 shares of Preferred Stock that may be issued in one or more series. As of December 31, 1998, the Company had 2,489,009 Preferred shares issued and outstanding, which are Series A, B and C. Each series of Preferred Stock was identical in respect to rights and preferences, as follows: Each share of Preferred Stock was entitled to receive cash dividends equal to $.20 per share per annum, payable prior and in preference to any distribution to the holders of Common Stock. The rights to such dividends were not cumulative. Each share of Preferred Stock was convertible into such number of Common Stock as determined by dividing $.20 by the then applicable conversion price in effect at the time of the conversion. Due to the conversion of the Company's preferred stock into common stock and a 1.513 stock split in February 1999, as well as the recapitalization of the Company in connection with the reverse acquisition in March 1999, the statements of shareholders' equity (deficiency) and per share data have been restated (Note 12). F - 10 Stock Option Plans For its stock options, the Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, compensation costs were insignificant, as the exercise price of the options issued approximated or was higher than the estimated fair value of the common stock at date of grant. While the Company continues to apply APB Opinion No. 25, SFAS No. 123, Accounting for Stock-Based Compensation, requires the Company to provide pro forma information regarding net income (loss) as if compensation cost for the Company's stock option plans had been determined in accordance with the fair value based method prescribed by SFAS No. 123. The Company estimates the fair value of stock options at the grant date by using the minimum value method with the following assumptions used for the grants in 1998 and 1997, respectively: dividend yield of 0; risk-free interest rate of 6.0% and 6.6%; and an expected life of five years for all plan options. Under the accounting provisions of SFAS No. 123, the Company's net income (loss) would have been reduced (increased) to the pro forma amounts indicated below: 1998 1997 ----------- ----------- As reported $ 1,663,300 $ (165,500) =========== =========== Pro forma $ 1,317,800 $ (171,300) =========== =========== A summary of the status of the Company's stock option plan as of December 31, 1998 and 1997 and changes during the years then ended (restated to reflect the 1.513 stock split in February 1999), is presented in the following table:
Options Outstanding ------------------------------------------------ December 31, 1998 December 31, 1997 ----------------------- ----------------------- Wtd.-Avg. Wtd.-Avg. ------------ Shares Exer. Price Shares Exer. Price --------- ------------ --------- ------------ Beginning 2,844,112 $ 0.007 2,806,278 $ 0.001 Granted 2,690,705 $ 0.480 37,834 $ 0.480 Exercised/forfeited - - - - Ending 5,534,817 $ 0.237 2,844,112 $ 0.007 ========= ============ ========= ============ Exercisable at year-end 3,194,587 2,795,400 ========= ========= Wtd.-avg. fair value of options granted during the year $ 0.480 $ 0.480 ============ ============
F - 11 The following table summarizes information about stock options outstanding as of December 31, 1998:
Options Outstanding Options Exercisable ------------------------------------ ----------------------- Wtd.-Avg. Range of Number Remaining Wtd.-Avg. Number Wtd.-Avg. Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 12/31/98 Life Price at 12/31/98 Price - --------- ----------- ----------- ---------- ----------- ---------- 0.001 2,806,278 5.26 years $ 0.001 2,806,278 $ 0.001 0.480 2,728,539 9.54 years $ 0.480 388,310 $ 0.480 ----------- ---------- ----------- ---------- 5,534,817 $ 0.237 3,194,588 $ 0.059 =========== ========== =========== ==========
9. INCOME TAXES For the years ended December 31, 1998 and 1997, income tax expense comprises:
1998 CURRENT DEFERRED TOTAL - ------- -------- --------- -------- FEDERAL $ - $ 628,600 $628,600 STATE 800 118,600 119,400 - ------- -------- --------- -------- $ 800 $ 747,200 $748,000 ======= ======== ========= ======== 1997 Current Deferred Total - ------- -------- --------- -------- Federal $ - $ - $ - State 800 - 800 - ------- -------- --------- -------- $ 800 $ - $ 800 ======= ======== ========= ========
F - 12 The following summarizes the differences between the income tax expense (benefit) and the amount computed by applying the Federal income tax rate of 34% in 1998 and 1997 to income (loss) before income taxes:
Years ended December 31, 1998 1997 ---------- --------- Federal income tax at statutory rate $ 819,800 $(56,000) State income taxes, net of federal benefit 138,200 (9,400) (Decrease) increase in valuation allowance (211,200) 65,700 Other, net 1,200 500 ---------- --------- $ 748,000 $ 800 ========== =========
Deferred tax assets (liabilities) comprise the following:
MARCH 31, December 31, 1999 1998 ------------ -------------- (UNAUDITED) Loss carryforwards $ 320,700 $ 166,600 Reserves not currently deductible 16,500 16,500 ------------ -------------- Total deferred tax assets $ 337,200 $ 183,100 ============ ============== Installment sale of trade name $ (833,500) $ (919,700) Depreciation (10,600) (10,600) ------------ -------------- Total deferred tax liabilities $ (844,100) $ (930,300) ============ ==============
As of December 31, 1998, the Company has net operating loss carryforwards available to reduce future taxable income, if any, of approximately $453,700 and $194,100 for Federal and California state tax purposes, respectively. The benefits from these carryforwards expire in various years through 2018. Pursuant to the "change in ownership" provisions of the Tax Reform Act of 1986, utilization of the Company's net operating loss carryover may be limited, if a cumulative change of ownership of more than 50% occurs within any three-year period. 10. CONCENTRATIONS Major Customers During the three month periods ended March 31, 1999 and 1998 and the years ended December 31, 1998 and 1997, the Company had no customers that comprised more than 10% of net revenues. Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash and cash equivalents. The Company places its cash and cash equivalents with high quality financial institutions. As of December 31, 1998, the Company had deposits at one financial institution that aggregated $350,000, of which $100,000 is insured by the Federal Deposit Insurance Corporation. 11. STATEMENT OF CASH FLOWS During the three month periods ended March 31, 1999 and 1998, non-cash financing activities included the issuance of 85,011 and 67,604 shares of common stock aggregating approximately $42,500 and $27,800, respectively (unaudited). During the three month period ended March 31, 1999, additional non-cash financing activities included the issuance of 25,000 shares of common stock for the payment of stock issuance costs totaling $12,500 (unaudited). During the years ended December 31, 1998 and 1997, non-cash financing activities included the issuance of 323,672 and 59,025 shares of common stock for services aggregating approximately $133,100 and $18,300, respectively. F - 13 During the three month periods ended March 31, 1999 and 1998, there were no interest or income tax payments (unaudited). During 1998 and 1997, the Company paid $2,800 and $3,700 for interest, respectively, and $800 for income taxes in both years. 12. SUBSEQUENT EVENTS In February 1999, 1,879,317 stock options were exercised for common stock, and 56,173 shares of common stock were issued for services. Also in February 1999, the Company converted its preferred stock into common stock on a 1 to 1.5 basis. Immediately following these issuances of common stock and the conversion of preferred stock into common stock, the Company did a 1 to 1.513 stock split in anticipation of the Company entering into an acquisition agreement with a publicly traded shell corporation. On a retroactive basis, the conversion and stock split resulted in the Company having 6,650,145 shares of common stock issued and outstanding as of December 31, 1998. Due to the conversion of the preferred stock into common stock and the 1.513 stock split, the effective exercise price of the stock options originally granted at $0.75 was now $0.33; therefore, on March 1, 1999, the Company adjusted the exercise price to $0.48. As more fully described in Note 1, the Company completed a reverse acquisition with PhotoLoft.com on March 1, 1999. Immediately following the closing of the acquisition, the Company completed a Private Placement of 2,000,000 shares of common stock aggregating $1,000,000. Additionally, the Company issued 25,000 shares of restricted common stock as payment for a portion of the underwriter's commission and adopted the 1999 Stock Option Plan (the Plan). The Company then granted 225,000 options under the Plan, which vested immediately and were exercised in March 1999. In March 1999, the Company invested $10,000 in the purchase of 10,000 shares of the common stock of a high tech company. Also in March 1999, the Company entered into an agreement to obtain public relations services valued at a minimum of $6,000 per month through March 2000. The Company expects to amend the agreement to include an additional $4,000 per month in services. The services provided will aggregate approximately $100,000 over the life of the agreement. In April 1999, the Company became aware of an unasserted claim from a former employee and co-founder of ID 4 Life, a product of the Company. It is the opinion of management that the outcome of this matter will not materially affect the consolidated operations or the consolidated financial position of the Company. F - 14 (A) EXHIBITS The following exhibits are filed with this Registration Statement:
Exhibit No. Exhibit Name - ----------- ---------------------------------------------------------------------------- 2.1 Agreement and Plan of Reorganization dated as of February 16, 1999 by and among Data Growth, Inc. Gary B. Peterson and the Registrant. 3.1 Articles of Incorporation of the Registrant. 3.2 Certificate of Amendment to the Articles of Incorporation of the Registrant. 3.3 By-Laws of Registrant. 4.1 Sample Stock Certificate of the Registrant. 4.2 See Exhibit Nos. 3.1, 3.2 and 3.3. 10.1 Form of Series A Preferred Stock Purchase Agreement 10.2 Series B Preferred Stock Purchase Agreement dated August 1, 1996 by and among Kris Chellam and the Registrant. 10.3 OEM/ Re-Marketing Agreement, dated November 15, 1996, by and between ArcSoft, Inc. and the Registrant. 10.4 Software License Agreement, dated January 22, 1997 by and between Seattle Filmworks, Inc, and the Registrant. 10.5 Online Distribution Agreement, dated April 24, 1997 by and between KC Audio and the Registrant. 10.6 OEM License Agreement, dated May 22, 1998, by and between AITech International and the Registrant. 10.7 Series C Preferred Stock Purchase Agreement dated June 5, 1997 by and among Gary Kremen and the Registrant. 10.8 Distribution and Re-Publishing Agreement dated October 17, 1997 by and between Softpool, a division of infoMedia GmbH and the Registrant. 10.9 Engagement letter dated October 24, 1997 between Gary Kremen and the Registrant. 65 10.10 Letter Agreement dated February 12, 1998 by and between Venture Banking Group and the Registrant. 10.11 Distribution Agreement dated March, 1998 by and between Kuni Research International Corporation and the Registrant. 10.12 Lease Agreement dated July 8, 1998 by and between The Manufacturer's Life Insurance Company, (U.S.A.) Company, Ltd., and the Registrant. +10.13 Agreement, dated July 31, 1998, by and between Digital Equipment Corporation and the Registrant. 10.14 Sublease Agreement dated September 1, 1998 by and between Surefire Verification, Inc. and the Registrant. +10.15 Consulting Services Agreement, dated October 22, 1998 by and between Hewlett-Packard Company and the Registrant. 10.16 Amendment to an Agreement with Infomedia, dated January 15, 1999. 10.17 Sublease Agreement dated February 1, 1999 by and between Summit Microelectronics and the Registrant. 10.18 Amendment No. 1 to Consulting Services Agreement (Exhibit 10.15 above), dated February 9, 1999 by and between Hewlett-Packard Company and the Registrant 10.19 Letter Agreement, dated February 10, 1999 by and between Bay Tree Capital Associates, LLC and the Registrant. 10.20 Employment Agreement dated February 26, 1999 by and between Mr. Jack Marshall and the Registrant. 10.21 Stock Option Plan of the Registrant. 10.22 Form of Stock Option Agreement issued under the Stock Option Plan of the Registrant. 10.23 Stock Option Agreement dated July 1, 1999 by and between Chris McConn and the Registrant 10.24 Stock Option Agreement dated July 1, 1999 by and between Jack Marshall and the Registrant 10.25 Co-Branded Marketing Agreement, dated March 8, 1999, by and between Picture Works and the Registrant. 66 10.26 Co-Branded Marketing Agreement, dated March 11, 1999 between Umax Technologies, Inc. and the Registrant. 10.27 Internet Services and Co-Location Agreement, dated March 15, 1999 by and between AboveNet Communications, Inc. and the Registrant. 10.28 Cowabunga Reciprocal Website Linking Agreement, dated April,1999 by and between Cowabunga Enterprises, Inc., a wholly owned subsidiary of Gateway 2000, Inc. and the Registrant. 10.29 Representation Agreement, dated April 26, 1999, by and between ADSmart Network and the Registrant. 10.30 Co-Branded Marketing Agreement, dated May 3, 1999, by and between Tribal Voice and the Registrant. 10.31 Co-Branded Marketing Agreement, dated May 12, 1999, by and between, Netopia, Inc. and the Registrant. 21.1 Subsidiaries of the Company 27.1 Financial Data Schedule + Confidential treatment requested.
67 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized. PHOTOLOFT.COM (Registrant) Date: July 9, 1999 By: /s/ Jack Marshall ------------------- Jack Marshall, Chief Executive Officer, President and Treasurer 68 EX-2.1 2 AGREEMENT AND PLAN OF REORGANIZATION ------------------------------------ This Agreement and Plan of Reorganization (hereinafter the "Agreement") is entered into effective as of this 16th day of February 1999, by and among Data ----- Growth, Inc., a Nevada corporation (hereinafter "DGI"); Gary B. Peterson, a shareholder of DGI (hereinafter "Peterson"); PhotoLoft.com, Inc., a California corporation (hereinafter "Photo"), and the owners of the outstanding shares of common stock of Photo (hereinafter the "Photo Stockholders"). RECITALS: WHEREAS, the Photo Stockholders own all of the issued and outstanding common stock of Photo (the "Photo Common Stock"). DGI desires to acquire the Photo Common Stock solely in exchange for voting common stock of DGI, making Photo a wholly-owned subsidiary of DGI; and WHEREAS, the Photo Stockholders (as set forth on Exhibit "A" to be delivered on or before Closing) desire to acquire voting common stock of DGI in exchange for the Photo Common Stock, as more fully set forth herein. NOW THEREFORE, for the mutual consideration set out herein and other good and valuable consideration, the legal sufficiency of which is hereby acknowledged, the parties agree as follows: AGREEMENT --------- 1. Plan of Reorganization. It is hereby agreed that the Photo Common ------------------------ Stock shall be acquired by DGI in exchange solely for DGI common voting stock (the "DGI Shares"). It is the intention of the parties hereto that all of the issued and outstanding shares of capital stock of Photo shall be acquired by DGI in exchange solely for DGI common voting stock and that this entire transaction qualify as a corporate reorganization under Section 368(a)(1)(B) and/or Section 351 of the Internal Revenue Code of 1986, as amended, and related or other applicable sections thereunder. 2. Exchange of Shares. DGI and Photo Stockholders agree that on the -------------------- Closing Date or at the Closing as hereinafter defined, the Photo Common Stock shall be delivered at Closing to DGI in exchange for the DGI Shares, after giving effect to a 2.46 to 1 reverse stock split (the "DGI Reverse Stock Split") as to all presently outstanding shares of DGI common stock, as follows: (a) At Closing, DGI shall, subject to the conditions set forth herein, issue an aggregate of 12,375,000 shares of DGI common stock (after giving effect to the DGI Reverse Stock Split) for immediate delivery to the Photo Stockholders in exchange for DGI Shares. The 12,375,000 shares shall be inclusive of shares reserved for issuance upon exercise of options granted by DGI to optionholders of Photo at Closing in exchange for existing Photo options as set forth on Exhibit "A". (b) Each Photo Stockholder shall execute this Agreement or a written consent to the exchange of their Photo Common Stock for DGI Shares. (c) Unless otherwise agreed by DGI and Photo this transaction shall close only in the event DGI is able to acquire at least 80% of the outstanding Photo Common Stock; however, it is the intent of the parties to have DGI acquire all of the Photo Common Stock. 3. PRE-CLOSING EVENTS. The Closing is subject to the completion of the ------------------- following: (a) DGI shall have authorized 50,000,000 shares of $.001 par value common stock and at Closing shall amend its Articles of Incorporation to authorize 500,000 shares of $.OO1 par value preferred stock. The preferred stock shall be subject to issuance in such series and with such rights, preferences and designations as determined in the sole discretion of the board of directors. (b) DGI shall have effectuated the DGI Reverse Stock Split at or about the Closing, and shall have 625,000 shares of its common stock issued and outstanding and no other shares of capital stock issued or outstanding. (c) DGI shall demonstrate to the reasonable satisfaction of Photo that it has no material assets and no liabilities contingent or fixed. 4. EXCHANGE OF SECURITIES. As of the Closing Date each of the following ------------------------ shall occur: (a) All outstanding convertible preferred stock of Photo shall be converted to Photo common stock prior to Closing and all shares of Photo Common Stock issued and outstanding on the Closing Date shall be exchanged for the DGI Shares (up to an aggregate amount of 12,375,000 DGI Shares to be delivered at Closing). All such outstanding shares of Photo Common Stock shall be deemed, after Closing, to be owned by DGI. The holders of such certificates previously evidencing shares of Photo Common Stock outstanding immediately prior to the Closing Date shall cease to have any rights with respect to such shares of Photo Common Stock except as otherwise provided herein or by law; (b) Any shares of Photo Common Stock held in the treasury of Photo immediately prior to the Closing Date shall automatically be canceled and extinguished without any conversion thereof and no payment shall be made with respect thereto; (c) The 625,000 shares of DGI common stock previously issued and outstanding prior to the Closing, after giving effect to the DGI Reverse Split, will remain outstanding. 5. OTHER EVENTS OCCURRING AT CLOSING. At closing, the following shall ------------------------------------ be accomplished: 2 (a) DGI shall file an amendment to its Articles of Incorporation with the Secretary of State of the State of Nevada in substantially the form attached hereto as Exhibit "B" effecting an amendment to its Articles of Incorporation to reflect (1) a name change, (2) authorize 500,000 shares of preferred stock, (3) add a provision eliminating liability of officers and directors to shareholders under Nevada law, and (4) to put of record the DGI Reverse Stock Split as set forth in the attached Exhibit "B". (b) The resignation of the existing DGI officers and directors and appointment of new officers and directors as directed by Photo. (c) DGI shall have completed a limited offering under Regulation D, Rule 504, as promulgated by the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended, of 2,000,000 shares of its common stock at $.50 per share. The gross proceeds of this offering (the "DGI Financing") shall be $1,000,000, which amount, less agreed upon costs, shall be delivered to the control of new management of DGI at Closing in good funds or shall be represented by the conversion of previous loans to Photo arranged for by Baytree. The DGI Financing shall have been completed in compliance with all applicable state and federal securities laws and the securities sold shall be delivered at Closing to the investors in the DGI Financing. Persons who have loaned money to Photo, up to $1,000,000, shall be given the opportunity to convert the principal of said loans to the purchase of shares in the limited offering prior to Closing upon the same terms as other investors in the limited offering. (d) It is recognized by the parties hereto that Photo entered into an agreement, including all amendments thereto (the "Baytree Agreement") dated February 9, 1998, with Baytree Capital Associates, LLC (" Baytree ") wherein Baytree agreed to identify a public company to be involved in a "reverse merger" with Photo, and that DGI is the public company agreed to by Baytree and Photo. Under said Baytree Agreement, at Closing of the transactions described herein, DGI shall issue 25,000 shares of its common stock (after given effect to the DGI Reverse Stock Split) to Baytree. These shares are deemed to be covered by the defined term "DGI Shares" as set forth herein for purposes of all representations and warranties of DGI and the legal opinion given on behalf of DGI herein. Out of the proceeds of the DGI Financing (as further defined herein) there shall be paid at Closing, a non-accountable expense allowance of $10,000 to Baytree and the fees and reasonable disbursements of Acquirer's legal counsel not to exceed $30,000.00 (to be paid from the proceeds of the DGI Financing). Furthermore, DGI recognizes and hereby assumes, at Closing, the obligations of Photo set forth in the Baytree Agreement including the obligation to register shares of its common stock issued to Baytree hereunder at the request of Baytree in accordance with the express terms and conditions of said Baytree Agreement including 'Piggyback" registration rights. (e) DGI shall adopt a Stock Option Plan at Closing to include up to 1,000,000 shares of its common stock. The Plan shall include "incentive" stock options under Section 422 of the Internal Revenue Code of 1986, as amended and other options and similar rights. DGI shall grant options covering 225,000 shares under said plan to employees and others, at Closing, exercisable at $.50 per share, as designated by Photo. 3 6. DELIVERY OF SHARES. On or as soon as practicable after the Closing ------------------- Date, Photo will use its best efforts to cause the Photo Stockholders to surrender certificates for cancellation representing their shares of Photo Common Stock, against delivery of certificates representing the DGI Shares for which the shares of Photo Common Stock are to be exchanged at Closing. 7. REPRESENTATIONS OF PHOTO STOCKHOLDERS. Each Photo Stockholder hereby --------------------------------------- represents and warrants each only as to its own Photo Common Stock, effective this date and the Closing Date as follows: (a) Except as may be set forth in Exhibit "A", the Photo Common Stock is free from claims, liens, or other encumbrances, and at the Closing Date said Photo Stockholder will have good title and the unqualified right to transfer and dispose of such Photo Common Stock, (b) Said Photo Stockholder is the sole owner of the issued and outstanding Photo Common Stock as set forth in Exhibit "A"; (c) Said Photo Stockholder has no present intent to sell or dispose of the DGI Shares and is not under a binding obligation, formal commitment, or existing plan to sell or otherwise dispose of the DGI Shares. 8. REPRESENTATIONS OF PHOTO. Photo hereby represents and warrants as --------------------------- follows, which warranties and representations shall also be true as of the Closing Date: (a) Except as noted on Exhibit "A", the Photo Stockholders listed on the attached Exhibit "A" are the sole owners of record and beneficially of the issued and outstanding common stock of Photo. (b) Photo has no outstanding or authorized capital stock, warrants, options or convertible securities other than as described in the Photo Financial Statements or on Exhibit "A", attached hereto. (c) The audited financial statements as of and for the periods ended December 31, 1997 and 1996, and unaudited financial statements for the period ended December 31, 1998, which have been (or will be prior dissemination of an Information Statement by DGI) delivered to DGI (hereinafter referred to as the "Photo Financial Statements") are complete and accurate and fairly present the financial condition of Photo as of the dates thereof and the results of its operations for the periods covered. There are no material liabilities or obligations, either fixed or contingent, not disclosed in the Photo Financial Statements or in any exhibit thereto or notes thereto other than contracts or obligations in the ordinary course of business; and no such contracts or obligations in the ordinary course of business constitute liens or other liabilities which materially alter the financial condition of Photo as reflected in the Photo Financial Statements. Photo has good title to all assets shown on the Photo Financial Statements subject only to dispositions and other transactions in the ordinary course of business, the disclosures set forth herein and liens and encumbrances of record. The Photo Financial Statements have been 4 prepared in accordance with generally accepted accounting principles consistently applied (except as may be indicated therein or in the notes thereto) and fairly present the financial position of Photo as of the dates thereof and the results of its operations and changes in financial position for the periods then ended. (d) Since the date of the Photo Financial Statements, there have not been any material adverse changes in the financial position of Photo except changes arising in the ordinary course of business, which changes will in no event materially and adversely affect the financial position of Photo. (e) Photo is not a party to any material pending litigation or, to its best knowledge, any governmental investigation or proceeding, not reflected in the Photo Financial Statements, and to its best knowledge, no material litigation, claims, assessments or any governmental proceedings are threatened against Photo. (f) Photo is in good standing in its jurisdiction of incorporation, and is in good standing and duly qualified, to do business in each jurisdiction where required to be so qualified except where the failure to so qualify would have no material negative impact on Photo. (g) Photo has (or, by the Closing Date, will have flied) all material tax, governmental and/or related forms and reports (or extensions thereof) due or required to be filed and has (or will have) paid or made adequate provisions for all taxes or assessments which have become due as of the Closing Date. (h) Photo has not materially breached any material agreement to which it is a party. Photo has previously given DGI copies or access thereto of all material contracts, commitments and/or agreements to which Photo is a party including all relationships or dealings with related parties or affiliates. (i) Photo has no subsidiary corporations except as described in writing to DGI. (j) Photo has made all material corporate financial records, minute books, and other corporate documents and records available for review to present management of DGI prior to the Closing Date, during reasonable business hours and on reasonable notice. (k) The execution of this Agreement does not materially violate or breach any material agreement or contract to which Photo is a party and has been duly authorized by all appropriate and necessary corporate action under California of other applicable law and Photo, to the extent required, has obtained all necessary approvals or consents required by any agreement to which Photo is a party. 5 (l) All disclosure information regarding Photo which is to be set forth in disclosure documents of DGI or otherwise delivered to DGI by Photo for use in connection with the transaction (the "Acquisition") described herein is true, complete and accurate in all material respects. 9. REPRESENTATIONS OF DGI AND PETERSON. DGI, and Peterson ------------------------------------- to the best of his knowledge, hereby jointly and severally represent and warrant as follows, each of which representations and warranties shall continue to be true as of the Closing Date: (a) As of the Closing Date, the DGI Shares, to be issued and delivered to the Photo Stockholders hereunder will, when so issued and delivered, constitute, duly authorized, validly and legally issued shares of DGI common stock, fully-paid and nonassessable. DGI shall have completed its reverse stock split wherein each holder of DGI Shares shall have received one share of the DGI Shares for each 2.46 DGI Shares previously held. The total number of DGI shares of common stock outstanding shall be 625,000. No shares of DGI preferred stock, shall be outstanding. (b) DGI has the corporate power to enter into this Agreement and to perform its respective obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the board of directors of DGI. The execution and performance of this Agreement will not constitute a material breach of any agreement, indenture, mortgage, license or other instrument or document to which DGI is a party and will not violate any judgment, decree, order, writ, rule, statute, or regulation applicable to DGI or its properties. The execution and performance of this Agreement will not violate or conflict with any provision of the Articles of Incorporation or by-laws of DGI. (c) DGI has delivered to Photo (or shall deliver prior to Closing) a true and complete copy of its audited financial statements for the years ended December 31, 1996, 1997, and 1998 (the "DGI Financial Statements"), The DGI Financial Statements are complete, accurate and fairly present the financial condition of DGI as of the dates thereof and the results of its operations for the periods then ended. There are no material liabilities or obligations either fixed or contingent not reflected therein. The DGI Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the notes thereto) and fairly present the financial position of DGI as of the dates thereof and the results of its operations and changes in financial position for the periods then ended. (d) Since December 31, 1998, there have not been any material adverse changes in the financial condition of DGI except with regard to disbursements to pay reasonable and ordinary expenses in connection with maintaining its corporate status and pursuing the matters contemplated in this Agreement. Prior to Closing, all accounts payable and other liabilities of DGI shall be paid and satisfied in full and DGI shall have no liabilities either contingent or fixed. 6 (e) DGI is not a party to or the subject of any pending litigation, claims, or governmental investigation or proceeding not reflected in the DGI Financial Statements or otherwise disclosed herein, and there are no lawsuits, claims, assessments, investigations, or similar matters, to the best knowledge of Peterson, threatened or contemplated against or affecting DGI, its management or its properties. (f) DGI is duly organized, validly existing and in good standing under the laws of the State of Nevada; has the corporate power to own its property and to carry on its business as now being conducted and is duly qualified to do business in any jurisdiction where so required except where the failure to so qualify would have no material negative impact on it. (g) DGI has filed all federal, state, county and local income, excise, property and other tax, governmental and/or related returns, forms, or reports, which are due or required to be filed by it prior to the date hereof, except where the failure to do so would have no material adverse impact on DGI, and has paid or made adequate provision in the DGI Financial Statements for the payment of all taxes, fees, or assessments which have or may become due pursuant to such returns or pursuant to any assessments received. DGI is not delinquent or obligated for any tax, penalty, interest, delinquency or charge. (h) There are no existing options, calls, warrants, preemptive rights or commitments of any character relating to the issued or unissued capital stock or other securities of DGI, except as contemplated in this Agreement. (i) The corporate financial records, minute books, and other documents and records of DGI have been made available to Photo prior to the Closing and shall be delivered to new management of DGI at Closing. (j) DGI has not breached, nor is there any pending, or to the knowledge of management, any threatened claim that DGI has breached, any of the terms or conditions of any agreements, contracts or commitments to which it is a party or by which it or its assets are is bound. The execution and performance hereof will not violate any provisions of applicable law or any agreement to which DGI is subject. DGI hereby represents that it has no business operations or material assets and it is not a party to any material contract or commitment other than appointment documents with its transfer agent, and that it has disclosed to Photo all relationships or dealings with related parties or affiliates. (k) DGI common stock is currently approved for quotation on the OTC Bulletin Board under the symbol "TFGI" and there are no stop orders in effect with respect thereto. (l) All information regarding DGI which has been provided to Photo or otherwise disclosed in connection with the transactions contemplated herein, is true, complete and accurate in all material respects. DGI and Peterson specifically disclaim any responsibility regarding disclosures as to Photo, its business or its financial condition. 7 10. Closing. The Closing of the transactions contemplated herein shall ------- take place on such date (the "Closing") as mutually determined by the parties hereto when all conditions precedent have been met and all required documents have been delivered, which Closing is expected to take place on or about February 26, 1999, but no later than March 4, 1999, unless extended by mutual consent of all parties hereto. The "Closing Date" of the transactions described herein (the "Acquisition"), shall be that date on which all conditions set forth herein have been met and the DGI Shares are issued in exchange for the Photo Common Stock. 11. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PHOTO. All obligations of -------------------------------------------------- Photo under this Agreement are subject to the fulfillment, prior to or as of the Closing and/or the Closing Date, as indicated below, of each of the following conditions: (a) The representations and warranties by or on behalf of Peterson and DGI contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall be true in all material respects at and as of the Closing and Closing Date as though such representations and warranties were made at and as of such time. (b) DGI shall have performed and complied with all covenants, agreements, and conditions set forth in, and shall have executed and delivered all documents required by this Agreement to be performed or complied with or executed and delivered by it prior to or at the Closing. (e) On or before the Closing, the board of directors, and shareholders representing a majority interest the outstanding common stock of DGI, shall have approved in accordance with applicable state corporation law the execution and delivery of this Agreement and the consummation of the transactions contemplated herein. (d) On or before the Closing Date, DGI shall have delivered to Photo certified copies of resolutions of the board of directors and shareholders of DGI approving and authorizing the execution, delivery and performance of this Agreement and authorizing all of the necessary and proper action to enable DGI to comply with the terms of this Agreement including the election of Photo's nominees to the Board of Directors of DGI and all matters outlined herein. (e) The Acquisition shall be permitted by applicable law and DGI shall have sufficient shares of its capital stock authorized to complete the Acquisition. (f) At Closing, the existing sole officer and director of DGI shall have resigned in writing from all positions as director and officer of DGI effective upon the election and appointment of the Photo nominees. (g) At the Closing, all instruments and documents delivered to Photo and Photo Stockholders pursuant to the provisions hereof shall be reasonably satisfactory to legal counsel for Photo. 8 (h) The shares of restricted DGI capital stock to be issued to Photo Stockholders and in the DGI Financing at Closing will be validly issued, nonassessable and fully-paid under Delaware corporation law and will be issued in compliance with all federal, state and applicable corporation and securities laws. (i) Photo and Photo Stockholders shall have received the advice of their tax advisor, if deemed necessary by them, as to all tax aspects of the Acquisition. (j) Photo shall have received all necessary and required approvals and consents from required parties and its shareholders. (k) DGI shall have completed the DGI Financing. (1) At the Closing, DGI shall have delivered to Photo an opinion of its counsel dated as of the Closing to the effect that: (i) DGI is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (ii) This Agreement has been duly authorized, executed and delivered by DGI and is a valid and binding obligation of DGI enforceable in accordance with its terms; (iii) DGI through its board of directors and stockholders has taken all corporate action necessary for performance under this Agreement; (iv) The documents executed and delivered by DGI to Photo and Photo Stockholders hereunder are valid and binding in accordance with their terms and vest in Photo Stockholders, as the case may be, all right, title and interest in and to the DGI Shares to be issued pursuant to the terms hereof, and the DGI Shares when issued will be duly and validly issued, fully-paid and nonassessable; (v) DGI has the corporate power to execute, deliver and perform under this Agreement; (vi) Legal counsel for DGI is not aware of any liabilities, claims or lawsuits involving DGI; 12. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF DGI. All obligations of DGI ----------------------------------------------- under this Agreement are subject to the fulfillment, prior to or at the Closing, of each of the following conditions: (a) The representations and warranties by Photo and Photo Stockholders contained in this Agreement or in any certificate or document delivered pursuant to the provisions hereof shall 9 be true in all material respects at and as of the Closing as though such representations and warranties were made at and as of such time. (b) Photo shall have performed and complied with, in all material respects, all covenants, agreements, and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing; (c) Photo shall deliver on behalf of the Photo Stockholders a letter commonly known as an "Investment Letter," signed by each of said shareholders, in substantially the form attached hereto as Exhibit "C", acknowledging that the DGI Shares are being acquired for investment purposes. (d) Photo shall deliver an opinion of its legal counsel to the effect that: (i) Photo is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified to do business in any jurisdiction where so required except where the failure to so qualify would have no material adverse impact on Photo; (ii) This Agreement has been duly authorized, executed and delivered by Photo. (iii) The documents executed and delivered by Photo and Photo Stockholders to DGI hereunder are valid and binding in accordance with their terms and vest in DGI all right, tide and interest in and to the Photo Common Stock, which stock is duly and validly issued, fully-paid and nonassessable. 13. INDEMNIFICATION.For a period of one year from the Closing, DGI and ---------------- Peterson agree to jointly and severally indemnify and hold harmless Photo, and Photo agrees to indemnify and hold harmless DGI and Peterson, at all times after the date of this Agreement against and in respect of any liability, damage or deficiency, all actions, suits, proceedings, demands, assessments, judgments, costs and expenses including attorney's fees incident to any of the foregoing, resulting from any material misrepresentations made by an indemnifying party to an indemnified party, an indemnifying party's breach of covenant or warranty or an indemnifying party's nonfulfillment of any agreement hereunder, or from any material misrepresentation in or omission from any certificate famished or to be @shed hereunder. 14. NATURE AND SURVIVAL OF REPRESENTATIONS. All representations, --------------------------------------- warranties and covenants made by any party in this Agreement shall survive the Closing and the consummation of the transactions contemplated hereby for one year from the Closing. All of the parties hereto are executing and carrying out the provisions of this Agreement in reliance solely on the representations, warranties and covenants and agreements contained in this Agreement and not upon any investigation upon which it might have made or any representation, warranty, agreement, promise or information, written or oral, made by the other parry or any other person other than as specifically set forth herein. 10 15. DOCUMENTS AT CLOSING. At the Closing, the following documents ----------------------- shall be delivered: (a) Photo will deliver, or will cause to be delivered, to DGI the following: (i) a certificate executed by the President and Secretary of Photo to the effect that all representations and warranties made by Photo under this Agreement are true and correct as of the Closing, the same as though originally given to DGI on said date; (ii) a certificate from the jurisdiction of incorporation of Photo dated at or about the Closing to the effect that Photo is in good standing under the laws of said jurisdiction; (iii) Investment Letters in the form attached hereto as Exhibit "C" executed by each Photo Stockholder; (iv) such other instruments, documents and certificates, if any, as are required to be delivered pursuant to the provisions of this Agreement; (v) certified copies of resolutions adopted by the shareholders and directors of Photo authorizing this transaction; and (vi) all other items, the delivery of which is a condition precedent to the obligations of DGI as set forth herein. (vii) the legal opinion required by Section 12(d) hereof. (b) DGI will deliver or cause to be delivered to Photo: (i) stock certificates representing the DGI Shares to be issued as a part of the stock exchange as described herein; (ii) a certificate of the President of DGI, to the effect that all representations and warranties of DGI made under this Agreement are true and correct as of the Closing, the same as though originally given to Photo on said date; (iii) certified copies of resolutions adopted by DGI's board of directors and DGI's Stockholders authorizing the Acquisition and all related matters described herein; (iv) certificate from the jurisdiction of incorporation of DGI dated at or about the Closing Date that DGI is in good standing under the laws of said state; (v) opinion of DGI's counsel as described in Section 11 (I) above; 11 (vi) such other instruments and documents as are required to be delivered pursuant to the provisions of this Agreement; (vii) resignation of the existing officer and director of DGI; (viii) all corporate and financial records of DGI; and (ix) all other items, the delivery of which is a condition precedent to the obligations of Photo, as set forth in Section 12 hereof. 16. FINDER'S FEES. DGI, represents and warrants to Photo, and -------------- Photo represents and warrants to DGI that neither of them, or any party acting on their behalf, has incurred any liabilities, either express or implied, to any "broker" of "finder" or similar person in connection with this Agreement or any of the transactions contemplated hereby other than the arrangements described in Section 5(d) hereof. In this regard, DGI, on the one hand, and Photo on the other hand, will indemnify and hold the other harmless from any claim, loss, cost or expense whatsoever (including reasonable fees and disbursements of counsel) from or relating to any such express or implied liability other than as disclosed herein. 17. MISCELLANEOUS. -------------- (a) Further Assurances. At any time, and from time to time, after the ------------------- Closing Date, each party will execute such additional instruments and take such action as may be reasonably requested by the other party to confirm or perfect title to any property transferred hereunder or otherwise to carry out the intent and purposes of this Agreement. (b) Waiver. Any failure on the part of any party hereto to comply with ------ any of its obligations, agreements or conditions hereunder may be waived in writing by the party to whom such compliance is owed. (c) Amendment. This Agreement may be amended only in writing as agreed --------- to by all parties hereto. (d) Notices. All notices and other communications hereunder shall be ------- in writing and shall be deemed to have been given if delivered in person or sent by prepaid first class registered or certified mail, return receipt requested. (e) Headings. The section and subsection headings in this Agreement -------- are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. (f) Counterparts. This Agreement may be executed simultaneously in two ------------ or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 12 (g) Governing Law. This Agreement shall be construed and enforced in ------------- accordance with the laws of the State of Nevada. (h) Binding Effect . This Agreement shall be binding upon the parties --------------- hereto and ixiu-re to the benefit of the parties, their respective heirs, administrators, executors, successors and assigns. (i) Entire Agreement. This Agreement and the attached Exhibits ------------------ constitute the entire agreement of the parties covering everything agreed upon or understood in the transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof. (j) Time. Time is of the essence. ---- (k) Severability . If any part of this Agreement is deemed to be ------------ unenforceable the balance of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. DATA GROWTH, INC. By: s.________________ Gary B. Peterson, President s.________________ Gary B. Peterson, individually PHOTOLOFT.COM, INC. By: s.________________ Jack Marshall, President S T 0 C K H 0 L D B R S 0 F PHOTOLOFT.COM, INC. ________________ ________________ George Perlegos Jack Marshall ________________ ________________ Gust Perlegos Gary Kremen ________________ ________________ John Marshall Mikes Sisos 13 (g) Governing Law . This Agreement shall be construed and enforced in -------------- accordance with the laws of the State of Nevada. (h) Binding Effect . This Agreement shall be binding upon the parties --------------- hereto and ixiu-re to the benefit of the parties, their respective heirs, administrators, executors, successors and assigns. (i) Entire Agreement. This Agreement and the attached Exhibits ------------------ constitute the entire agreement of the parties covering everything agreed upon or understood in the transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof. (j) Time. Time is of the essence. ---- (k) Severability . If any part of this Agreement is deemed to be ------------ unenforceable the balance of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. DATA GROWTH, INC. By:___________________ Gary B. Peterson, President Gary B. Peterson, individually PHOTOLOFT.COM, INC. By:___________________ Jack Marshall, President S T 0 C K H 0 L D B R S 0 F PHOTOLOFT.COM, INC. ________________ ________________ George Perlegos Jack Marshall ________________ ________________ Gust Perlegos Gary Kremen ________________ ________________ s. John Marshall Mikes Sisos 13 ___________ Mike Ross _____________ Chris McConn ______________ Kay Wolf Jones 14 (g) Governing Law . This Agreement shall be construed and enforced in -------------- accordance with the laws of the State of Nevada. (h) Binding Effect . This Agreement shall be binding upon the parties --------------- hereto and ixiu-re to the benefit of the parties, their respective heirs, administrators, executors, successors and assigns. (i) Entire Agreement. This Agreement and the attached Exhibits ------------------ constitute the entire agreement of the parties covering everything agreed upon or understood in the transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof. (j) Time. Time is of the essence. ---- (k) Severability . If any part of this Agreement is deemed to be ------------ unenforceable the balance of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. DATA GROWTH, INC. By: s._____________________ Gary B. Peterson, President s. _____________________ Gary B. Peterson, individually PHOTOLOFT.COM, INC. By: s.__________________ Jack Marshall, President S T 0 C K H 0 L D B R S 0 F PHOTOLOFT.COM, INC. s._______________ s._____________ George Perlegos Jack Marshall s._______________ s._____________ Gust Perlegos Gary Kremen s._______________ s._____________ John Marshall Mikes Sisos 14 (g) Governing Law . This Agreement shall be construed and enforced in -------------- accordance with the laws of the State of Nevada. (h) Binding Effect . This Agreement shall be binding upon the parties --------------- hereto and ixiu-re to the benefit of the parties, their respective heirs, administrators, executors, successors and assigns. (i) Entire Agreement. This Agreement and the attached Exhibits ------------------ constitute the entire agreement of the parties covering everything agreed upon or understood in the transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof. (j) Time. Time is of the essence. ---- (k) Severability . If any part of this Agreement is deemed to be ------------ unenforceable the balance of the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written. DATA GROWTH, INC. By: Gary B. Peterson, President Gary B. Peterson, individually PHOTOLOFT.COM, INC. By: s. Jack Marshall, President S T 0 C K H 0 L D B R S 0 F PHOTOLOFT.COM, INC. s. George Perlegos s.Jack Marshall s. Gust Perlegos Gary Kremen John Marshall s. Mikes Sisos 14 s. Mike Ross ---------- s. Chris McConn ------------- s. Kay Wolf Jones ---------------- 15 s. Mike Ross ------------ s. Chris McConn s. Kay Wolf Jones 15 EX-3.1 3 ARTICLES OF INCORPORATION OF DATA GROWTH, INC. WE, THE UNDERSIGNED natural persons of the age of twenty-one (21) years or more, acting as incorporators of a corporation under the Nevada Business Corporation Act, adopt the following Articles of Incorporation for such corporation. ARTICLE I - NAME ---------------- The name of the Corporation is Data Growth, Inc., ARTICLE II - DURATION --------------------- The duration of the corporation is perpetual. ARTICLE III - PURPOSES ---------------------- The purpose or purposes for which this corporation is engaged are: (a) To engage in the specific business of making investments, including investment in, purchase and ownership of any and all kinds of property, assets or business, whether alone or in conjunction with others. Also, to acquire, develop, explore and otherwise deal inland with all kinds of real and personal property and all related activates, and for any and all other lawful purposes. (b) To acquire by purchase, exchange, gift, bequest, subscription, or otherwise; and to hold, own, mortgage, pledge, hypothecate, sell, assign, transfer, exchange, or otherwise dispose of or deal in, or with its own corporate securities or stock or other securities including, without limitations, any shares of stock, bonds, debentures, notes, mortgages, or other obligations, and any certificates, receipts or other instruments representing rights or interests therein on any property or assets created or issued by any person, firm, associate, or corporation, or instrumentalities thereof; to make payment therefor in any lawful manner or to issue in exchange therefor its unreserved earned surplus for the purchase of its own shares, and to exercise as owner or holder of any securities, any and all rights, powers, and privileges in respect thereof. (c) To do each and everything necessary, suitable, or proper for the accomplishment of any of the purposes or the attainment of any one or more of the subjects herein enumerated, or which may, at any time, appear conducive to or expedient for the protection or benefit of this corporation, and to do said acts as fully and to the same extent as natural persons might, or could do in any part of the world as principals, agents, partners, trustees, or otherwise, either alone or in conjunction with any other person, association, or corporation. (d) The foregoing clauses shall be construed both as purposes and powers and shall not be held to limit or restrict in any manner the general powers of the corporation, and the enjoyment and exercise thereof, as conferred by the laws of the State of Utah; and it is the intention that the purposes and powers specified in each of the paragraphs of this Article III shall be regarded as independent purposes and powers. ARTICLE IV - STOCK ------------------ The aggregate number of shares which this corporation shall have authority to issue is 50,000,000 shares of Common Stock having a par value of $.OO1 per share. All stock of the corporation shall be of the same class, common, and shall have the same rights and preferences. Fully-paid stock of this corporation shall not be liable to any further call or assessment. ARTICLE V - AMENDMENT --------------------- These Articles of Incorporation may be amended by the affirmative vote of "a majority" of the shares entitled to vote on ench such amendment. ARTICLE VI - SHAREHOLDERS RIGHTS ----------------------------------- The authorized and treasury stock of this corporation may be issued at such time, upon such terms and conditions and for such consideration as the Board of Directors shall determine. Shareholders shall not have pre-emptive rights to acquire unissued shares of the stock of this corporation. ARTICLE VII - CAPITALIZATION ---------------------------- This corporation will not commence business until consideration of a value of at least $1,000 has been received for the issuance of said shares. ARTICLE VIII - INTTIAL OFFICE AND AGENT --------------------------------------- The Corporate Trust Company of Nevada One East First Street Reno, NV 89501 ARTICLE IX - DIRECTORS ---------------------- The directors are hereby given the authority to do any act on behalf of the corporation by law and in each instance where the Business Corporation Act provides that the directors may act in certain instances where the Articles of Incorporation authorize such action by the directors, the directors are hereby given authority to act in such instances without specifically numerating such potential action or instance herein. The directors are specifically given the authority to mortgage or pledge any or all assets of the business without stockholders' approval. The number of directors constituting the initial Board of Directors of this corporation is three. The names and addresses of persons who are to serve as Directors until the first annual meeting of stockholders or until their successors are elected and qualify, are: NAME ADDRESS Gary Peterson 2726 East 2500 North Layton, Utah 84041 Melbourne Romney III 1764 Laird Avenue Salt Lake City, Utah 84108 Josehine Rudd 12014 South Millridge Circle Sandy, Utah 84070 ARTICLE X - ICORPORATORS -------------------------- The name and address of each Incorporator is: NAME ADDRESS Thomas G. Kimble 311 South State, 1440 - Salt Lake City, UT 84111 Leon W. Crockett 311 South State, #440 Salt Lake Citv. UT 84111 Van L. Butler 311 South State, #440 Salt Lake City, UT 84111 ARTICLE XI ---------- COMNON DIRECTORS - TRANSACTIONS BENTEEN CORPORATIONS ---------------------------------------------------- No contract or other transaction between this corporation and any one or more of its directors or any other corporation, firm, association, or entity in which one or more of its directors or officers are financially interested, shall be either void or voidable because of such relationship or interest, or because such director or directors are present at the meeting of the Board of Directors, or a committee thereof, which authorizes, approves, or ratifies such contract or transaction, or because his or their votes are counted for such purpose if: (a) the fact of such relationship or interest is disclosed or known to the Board of Directors or committee which authorizes, approves, or ratifies the contract or transaction by vote or consent 'Sufficient for the purpose without counting the votes or consents of such interested director; or (b) the fact of such relationship or interest is disclosed or known to the stockholders entitled to vote and they authorize, approve, or ratify such contract or transaction by vote or written consent, or (c) the contract or transaction is fair and reasonable to the corporation. Common or interested directors may be counted in de termining the presence of a quorum at a meeting of the Board of Directors or committee thereof which authorizes, approves, or ratifies such contract or transaction. Under penalties of perjury, we declare that these Articles of Incorporation have been examined by us and are, to the best of our knowledge and belief, true, correct and complete. DATED this 21st day of January, 1986. ---- s Thomas G. Kimble --------------------- s Leon W. Crockett --------------------- s Van L. Butler --------------------- STATE OF UTAH ) :ss. COUNTY OF SALT LAKE ) On the 21st day of January, 1986, personally appeared before me, Thomas G. ---- Kimble, Leon W. Crockett and Van L. Butler, who duly acknowledged to me that they signed the foregoing Articles of Incorporation. __________________ NOTARY PUBLIC Residing at: __________ EX-3.2 4 CERTIFICATE OF AMENDMENT TO THE ARTICLES OF INCORPORATION OF DATA GROWTH, INC. Pursuant to the applicable provisions of the Nevada Business Corporations Act, Data Growth, Inc. (the "Corporation") adopts the following Articles of Amendment to its Articles of Incorporation: FIRST: The present name of the Corporation is Data Growth, Inc ------ SECOND: The following amendments to its Articles of Incorporation were adopted by the board of directors and by majority consent of shareholders of the corporation in the manner prescribed by applicable law. (1) The Article entitled ARTICLE I - NAME, is amended to read as follows: ARTICLE I - NAME The name of the corporation shall be: PhotoLoft.com. (2) The Article entitled ARTICLE IV - STOCK, is amended to read as follows: ARTICLE IV - STOCK Common. The aggregate number of common shares which this Corporation shall ------ have authority to issue is 50,000,000 shares of Common Stock having a par value of $.OO1 per share. All common stock of the Corporation shall be of the same class, common, and shall have the same rights and preferences. Fully-paid common stock of this Corporation shall not be liable to any further call or assessment. Preferred. The Corporation shall be authorized to issue 500,000 shares of --------- Preferred Stock having a par value of $.001 per share and with such rights, preferences and designations determined by the board of directors. (3) Article XII is hereby added and shall read as follows: ARTICLE XII - ELIMINATION OF LIABILITY OF OFFICERS AND DIRECTORS No officer or director of the Corporation shall have any liability to the Corporation or its shareholders for damages for breach of fiduciary duty as an officer of director except as an officer or director except as specifically provided for under NRS78.037(l), and as it may be amended from time to time. THIRD: The Corporation has effectuated, effective with the commencement ------ of business on Monday, March 1, 1999, a 2.4571584 to 1 reverse stock split as to its shares of common stock outstanding as of the opening of business on February 28, 1999, which decreases the outstanding shares as of that date from 1,535,724 shares to 625,000 shares. The reverse split shall not change the number of shares of Common Stock authorized for issuance by the Corporation. FOURTH: The number of shares of the Corporation outstanding and ------- entitled to vote at the time of the adoption of said amendment was 1,535,724. -- FIFTH: The number of shares voted for such amendments was 840,000 ------ shares (55%) and no shares were voted against such amendment. DATED this 26 day of February, 1999. DATA GROWTH, INC. By: s. Gary B. Peterson ----------------------- Gary B. Peterson, President/Secretary -------------------------------------- VERIFICATION ------------ STATE OF UTAH ) :ss. COUNTY OF SALT LAKE ) The undersigned being first duly sworn, deposes and states: that the undersigned is the President of Date Growth, Inc., that the undersigned has read the Certificate of Amendment and knows the contents thereof and that the same contains a truthful statement of the Amendment duly adopted by the board of directors and stockholders of the Corporation. s. Gary B. Peterson ------------------- STATE OF UTAH ) :ss. COUNTY OF SALT LAKE ) Before me the undersigned Notary Public in and for the said County and State, personally appeared the President and Secretary of Data Growth, Inc., a Nevada corporation, and signed the foregoing Articles of Amendment as his own free and voluntary acts and deeds pursuant to a corporate resolution for the uses and purposes set forth. IN WITNESS WHEREOF, I have set my hand and seal this 26th day of February, 1999. ____________________________ NOTARY PUBLIC Notary Seal: EX-3.3 5 BY-LAWS OF DATA GROWTH, INC. ARTICLE I - OFFICES ------------------- The principal office of the corporation in the State of Utah shall be located in the City of Layton, County of Layton, County of Davis. The Corporation may have such other officest either within or without the state of incorporation as the board of directors may desig-nate or as the business of the corporation may from time to time require. ARTICLE II - STOCKHOLDERS ------------------------- ANNUAL MEETING. The annual meeting of the stockholders shall be held on the 23rd day of January in each year, beginning with the year 19 87 at the hour three o'clock P.M. for the purpose of electing directors and for the transaction' of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday such meeting shall be held on the next succeeding business day. 2. SPECIAL MEETINGS. Special meetings of the stockholders for any purpose or purposes, unless otherwise prescribed by statute, may be called by the president or by the directors, and shall be called by the president at the request of the holders of not less than ten percent of all the outstanding shares of the corporation entitled to vote at the meeting. 3. PLACE OF MEETING. The directors may designate any place, either within or without the State unless otherwise prescribed by statute, as the place of meeting for any annual meeting or for any special meeting called by the directors. A waiver of notice signed by all stockholders entitled to vote at a meeting may designate By-Laws 1 any placer either within or without the state unless other-wise prescribed by statute, as the place for holding such meeting. If no designation is made, or if a special meeting be otherwise culled, the place of meeting shall be the principal office of the corporation. 4. NOTICE OF MEETING. Written or printed notice stating the place, day and hour of the meeting and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than Ten nor more than thirty days before the date of the meeting, either personally or by mail, by or at the direction of the president, or the secretary, or the officer or persons calling the meeting, to each stockholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the stockholder at his address as it appears on the stock transfer books of the corporation, with postage thereon pre-paid. 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining stockholders-entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or stockholders entitled to receive payment of any dividend, or in order to make a determination of stockholders for any other proper purpose, the directors of the corporation may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, thirty days. If the stock transfer books shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten days immediately preceding such meeting. In lieu of closing the stock transfer books the directors may fix in advance a date as the record date for any such determination of stockholders, such date in any case to be not more than thirty days and, in case of a meeting of stockholders, not less than ten days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stock-holders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the directors declaring such dividend is adaptedo as the case may be, shall be the record date for such determination of stockholders. When a determination of stockholders entitled to vote at any meeting of stockholders By-Laws 2 has been made as provided in this section, such determination shall apply to any adjournment thereof. 6. VOTING LISTS. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, or any adjournment thereof arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the principal office of the corporation and shall be subject to inspection by any stockholder at any time during usual business hours. Such list shall also be produced And kept open at the time and place of the meeting and shall be subject to the inspection of any stockholder during the whole time of the meeting. The original stock transfer book shall be prima facie evidence as to who are the stockholders entitled to examine such list or transfer books or to vote at the meeting of stockholders. 7. QUORUM. At any meeting of stockholders one-third of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less than said number of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. The stockholders present at a duly organized meeting may continue to transact, business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. 8. PROXIES. At all meetings of stockholders a stockholder may vote by proxy executed in writing by the stockholder or by his duly authorized attorney in fact. Such proxy shall be filed with the secretary of the corporation before or at the time of the meeting. 9. VOTING. Each stockholder entitled to vote in accordance with the terms and provisions of the certificate of incorporation and these by-laws shall be entitled to one vote, in person or by BY-Laws 3 proxy for each share of stock entitled to vote held by such stockholders. Upon the demand of any stockholders the vote for directors and upon any question before the meeting shall be by ballot. All elections for directors shall be decided by plurality vote; all other questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of this State. 10. ORDER OF BUSINESS. The order of business at all meetings of the stockholders, shall be as follows: 1. Roll Call. 2. Proof of notice of meeting or waiver of notice. 3. Reading of minutes of preceding meeting. 4. Reports of officers. 5. Reports of Committees. G. Election of Directors. 7. Unfinished Business. 8. New Business. 11. INFORMAL ACTION BY STOCKHOLDERS. Unless otherwise provided by law, any action required to be taken at a meeting of the shareholders or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. By-Laws 4 ARTICLE III - BOARD OF DIRECTORS 1. GENERAL POWERS The business and affair of the corporation shall be managed by its board of directors. The directors shall in all cases act as a board, and they may adopt such rules and regulations for the conduct of their meetings and the management of the corporation as they may deem proper, not inconsistent with these by-laws and the laws of this State. 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the corporation shall be no less than three. Each director shall hold office until the next annual meeting of stockholders and until his successor shall have been elected and qualified. 3. REGULAR MEETINGS. A regular meeting of the directors shall be held without other notice than this by-law immediately after, and at the same place as the annual meeting of stockholders. The directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than such resolution. 4. SPECIAL MEETINGS. Special meetings of the directors may be called by or at the request of the president or any two directors. The person or persons authorized to call special meetings of the directors may fix the place for holding any special meeting of the directors called by them. S. NOTICE. Notice of any special meeting shall be given at least three days previously thereto by written notice delivered personally, or by telegram or mailed to each director at his business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram such notice shall be deemed to be delivered when the telegram is delivered to the telegraph company. The attendance of a director at a meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. By-Laws 5 6. QUORUM. At any meeting of the directors a majority shall constitute a quorum for the transaction of business, but if less than said number is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice. 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the directors. B. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created directorships resulting from an increase in the number of directors and vacancies occurring in the board for any reason except the removal of directors without cause may be filled by a vote of a majority of the directors then in office, although less than a quorum exists. Vacancies occurring by reason of the removal of directors without cause shall be filled by vote of the stockholders. A director elected to fill a vacancy caused by resignation, death or removal shall be elected to hold office for the unexpired term of his predecessor. 9. REMOVAL OF DIRECTORS. Any or all of the directors may be removed for cause by vote of the stockholders or by action of the board. Directors may be removed without cause only by vote of the stockholders. 10. RESIGNATION. A director may resign at any time by giving written notice to the board, the president or the secretary of the corporation. Unless otherwise specified in the notice, the resignation shall take effect upon receipt thereof by the board or such officer, and the acceptance of the resignation shall not be necessary to make it effective. 11. COMPENSATION. No compensation shall be paid to directors, as such, for their services, but by resolution of the board a fixed sum and expenses for actual attendance at each regular or special meeting of the board may be authorized. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefor. By-Laws 6 12. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of the directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his dissent shall be entered in the minutes of the meeting or unless lie shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. 13. EXECUTIVE AND OTHER COMMITTEES. The board by resolution may designate from among its members an executive committee and other committees, each consisting of three or more directors. Each such committee shall serve at the pleasure of the board. By-Laws 7 ARTICLE IV OFFICERS 1. NUMBER. The officers of the corporation shall be a president, a vice-president, a secretary and a treasurer, each of whom shall be elected by the directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the directors. 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be elected by the directors shall be elected annually at the first meeting of the directors held after each annual meeting of the stockholders. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death, or until he shall resign or shall have been removed in the manner hereinafter provided. 3. REMOVAL. Any officer or agent elected or appointed by the directors may be removed by the directors whenever in their judgment the best interests of the corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the directors for the unexpired portion of the term. S. PRESIDENT. The president shall be the principal executive officer of the corporation and subject to the control of the directors, shall in general supervise and control all of the business and affairs of the corporation. He shall, when present, preside at all meetings of the stockholders and of the directors. He may sign, with the secretary or, any other proper officer of the corporation thereunto authorized by the directorship certificates for shares of the corporation, any deeds, mortgages, bonds, contracts, or other instruments which the directors have authorized to be executed except in cases where the signing and execution thereof shall be expressly delegated by the directors or by these by-laws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall By-Laws 8 perform all duties incident to the office of president and such other duties as may be prescribed by the directors from time to time. 6. VICE-PRESIDENT. In the absence of the president or in event of his death, inability or refusal to act, the vice-president shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice-president shall perform such other duties as from time to time may be assigned to him by the President or by the directors. 7. SECRETARY. The secretary shall keep the minutes of the stockholders' and of the directors', meetings in one or more books provided for that purpose, see that all notices are duly given in accordance with the provisions of these by-laws or as required, be custodian of the corporate records and of the seal of the corporation and keep a register of the post office address of each stockholder which shall be furnished to the secretary by such stockholder, have general charge of the stock transfer books of the corporation and in general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him by the president or by the directors. 8. TREASURER. If required by the directors, the treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the directors shall determine. He shall have charge and custody of and be responsible for all funds and securities of the corporation; receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with these by-laws and in general perform all of the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him by the president or by the directors. 9. SALARIES. The salaries of the officers shall be fixed from time to time by the directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the corporation. By-Laws 9 ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS 1. CONTRACTS. The directors may authorize any officer or officers, agent or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. 2. LOANS. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the directors. Such authority may be general or confined to specific instances. 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of moneys notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be deter-mined by resolution of the directors. 4. DEPOSITS. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks trust companies or other depositories as the directors may select. ARTICLE VI CERTIFICATES FOR SHARES AND THEIR TRANSFER 1. CERTIFICATES FOR SHARES. Certificates representing shares of the corporation shall be in such form as shall be determined by the directors. Such certificates shall be signed by the president and by the secretary or by such other officers authorized by law and by the directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the stockholders the number of shares and date of issue, shall be entered on the stock transfer books of the corporation. All certificates surrendered to the corporation for transfer shall be canceled and no new certificate shall be issued until the By-Laws 10 former certificate for a like number of shares shall have been surrendered and canceled, except that in case of a lost, destroyed or mutilated certificate a new one may be issued therefor upon such terms and indemnity to the corporation as the directors may prescribe. 2. TRANSFERS OF SHARES. (a) upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, and cancel the old certificate; every such transfer shall be entered on the transfer book of the corporation which shall be kept at its principal office. (b) The corporation shall be entitled to treat the holder of record of any share as the holder in fact thereof, and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person whether or not it shall have express or other notice thereof, except as expressly provided by the laws of this state. ARTICLE VII FISCAL YEAR The fiscal year of the corporation shall begin on the last day of the month in each year as elected by the Directors. ARTICLE VIII - DIVIDENDS The directors may from time to time declare, and the corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law. ARTICLE IX - SEAL The directors shall provide a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation, the state of incorporation, year of incorporation and the words, "Corporate Seal". By-Laws 11 ARTICLE X WAIVER OF NOTICE Unless otherwise provided by law, whenever any notice is required to be given to any stockholder or director of the corporation under the provisions of these by-laws or under the provisions of the articles of incorporation, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. ARTICLE XI AMENDMENTS These by-laws may be altered, amended or repealed and new by-laws may be adopted by a vote of the stockholders representing a majority of all the shares issued and outstanding, at any annual stockholders' meeting or at any special stockholders' meeting when the proposed amendment has been set out in the notice of such meeting. By-Laws 12 EX-4.1 6 [PHOTOLOFT.COM LOGO] CUSIP NO - 719348 10 4 ---------------------- NUMBER SHARES ------------ ------------ / 5275 / / / ------------ ------------ AUTHORIZED COMMON STOCK: 50,000,000 SHARES PAR VALUE: $ .001 THIS CERTIFIES THAT SPECIMEN IS THE RECORD HOLDER OF - Shares of PHOTOLOFT.COM common stock - transferable on the books of the Corporation in person or by duly authorized attorney upon surrender of this Certificate properly endorsed. This Certificate is not valid until countersigned by the Transfer Agent and registered by the Registrar. Witness the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. Date: ----------- /s/ Lisa Marshall /s/ Jack Marshall - ------------------- ------------------- Secretary President [PHOTOLOFT.COM CORPORATE SEAL NEVADA] Notice: Signature must be guaranteed by a firm which is member of a registered national stock exchange, or by a bank (other than a saving bank), or a trust company. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - patents in common UNIF GIFT MIN ACT - . . Custodian . . TEN ENT - As tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under uniform Gifts to Minors Survivorship and not as tenants Act . . . . . .. . . . . . . In common (State) Additional abbreviations may also be used thoughnot in the above list. FOR VALUE RECEIVED, __________ HEREBY SELL, ASSIGN AND TRANSFER UNTO PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - ------------------------------------- / / - ------------------------------------- - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ------------------------------------------------------------------------- Shares Of the capital stock represented by the within certificate, and do hereby irrevocably constitute and appoint - ----------------------------------------------------------------------- Attorney To transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated ______________________ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT AFTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER SPECIMEN EX-10.1 7 ALTAVISTA TECHNOLOGY, INC. SERIES A PREFERRED STOCK PURCHASE AGREEMENT NOV 23, 1993
TABLE OF CONTENTS SECTION 1 AUTHORIZATION AND SALE OF SERIES A PREFERRED STOCK 1.1 Authorization 1.2 Sale of Preferred SECTION 2 CLOSING DATE; DELIVERY 2.1 Closing Date 2.2 Delivery SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 3.1 Organization and Standing; Articles and Bylaws 3.2 Corporate Power 3.3 Subsidiaries 3.4 Capitalization 3.5 Authorization 3.6 Litigation, etc. 3.7 Compliance with Other Instruments, None Burdensome, etc. 3.8 Governmental Consent, etc. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 4.1 Experience 4.2 Investment 4.3 Rule 144 4.4 No Public Market 4.5 Access to Data 4.6 Authorization 4.7 Brokers or Finders 4.8 Tax Liability SECTION 5 PURCHASERS' CONDITIONS TO CLOSING 5.1 Representations and Warranties Correct 5.2 Covenants 5.3 Blue Sky 5.4 Restated Articles 5.5 Registration and Information Rights Agreement 5.6 Compliance Certificate SECTION 6 CONDITIONS TO CLOSING OF COMPANY 6.1 Representations 6.2 Covenants 6.3 Blue Sky 6.4 Restated Articles 6.5 Legal Matters SECTION 7 MISCELLANEOUS 7.1 Governing Law 7.2 Successors and Assigns 7.3 Entire Agreement; Amendment 7.4 Notices, etc. 7.5 Delays or Omissions 7.6 California Corporate Securities Law 7.7 Counterparts 7.8 Severability 7.9 Titles and Subtitles
ALTAVISTA TECHNOLOGY, INC. SERIES APREFERRED STOCK PURCHASE AGREEMENT This Agreement is made as of June 5, 1997 by and among AltaVista Technology, Inc., a California corporation (the "Company"), the individuals and entities set forth on the Schedule of Purchasers attached hereto as Exhibit A (the ---------- "Purchasers"), and any other person or persons who shall have executed this Agreement in connection with their purchase of Additional Shares, as defined below (such persons listed on the Schedule of Purchasers and such persons who shall have purchased Additional Shares collectively being referred to as "Purchasers"), which person or persons shall be added to the Schedule of Purchasers at such time as they shall purchase such Additional Shares pursuant hereto. SECTION 1 AUTHORIZATION AND SALE OF SERIES A PREFERRED STOCK -------------------------------------------------- 1.1 AUTHORIZATION. The Company will authorize the sale and issuance of -------------- up to 1,500,000 shares of its Preferred Stock (the "Shares"), having the rights, preferences, privileges and restrictions as set forth in the Amended and Restated Articles of Incorporation ("Restated Articles") in substantially the form attached hereto as Exhibit B. ---------- 1.2 SALE OF PREFERRED. Subject to the terms and conditions hereof, the -------------------- Company will issue and sell to the Purchasers, and the Purchasers will purchase severally, and not jointly, from the Company, up to all of the Shares, (i) of which not less than 10,000 of the Shares (the "Initial Shares') will be sold to the Purchasers at the Initial Closing, as defined below, in the amounts specified opposite the name of each such Purchaser in the column designated "Initial Shares" on the Schedule of Purchasers, at a per share purchase price of $.30, and (ii) of which up to 1,490,000 Shares (the "Additional Shares") may, at the election of the Company, be sold to the Purchasers at one or more additional closings subsequent to the Initial Closing (the "Subsequent Closing(s)'), in the amounts as shall be specified opposite the name of each such Purchaser in the column designated "Additional Shares" on the Schedule of Purchasers, at a per share purchase price of $.30. SECTION 2 CLOSING- DATE: DELIVERY ----------------------- 2.1 CLOSING DATE. The closing of the purchase and sale of the Initial ------------- Shares hereunder (the "Initial Closing") shall be held at the offices of Wilson, Sonsini, Goodrich & Rosati, Two Palo Alto Square, Palo Alto, California, at 10:00 a.m. on January _, 1994, or at such other time and place upon which the Company and the Purchasers shall agree. The Subsequent Closing(s), if any, shall be held at the offices of Wilson, Sonsini, Goodrich & Rosati, Two Palo Alto Square, Palo Alto, California at such time(s) and date(s) as the Company shall specify. The date(s) of the Subsequent Closing(s) shall hereinafter be referred to as the "Subsequent Closing Date(s)." The Initial Closing and the Subsequent Closing(s) are sometimes hereinafter referred to as the "Closings.' The Initial Closing Date and the Subsequent Closing Date(s) are sometimes hereinafter referred to as the "Closing Dates." 2.2 DELIVERY. At the Initial Closing, the Company will deliver to each --------- Purchaser a certificate or certificates representing the number of Shares set forth opposite such Purchaser's name in the column designated "Shares' on the Schedule of Purchasers against payment of the purchase price therefor by check payable to the Company or by wire transfer made pursuant to the Company's instructions. At the Subsequent Closing(s), the Company will deliver to each Additional Purchaser who shall have executed this Agreement a certificate or certificates representing the number of shares as shall be specified opposite the name of each Purchaser in the column designated "Additional Shares" on the Schedule of Purchasers, against payment of the purchase price therefor, by check payable to the Company or by wire transfer made pursuant to the Company's instructions. At each Subsequent Closing, if any, a Supplemental Schedule of Purchasers shall be added to this Agreement as Exhibit A. 1. At each Subsequent ------------ Closing, if any, the Purchaser purchasing Additional Shares therein shall execute a signature page to this Agreement. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- Except as set forth on Exhibit C attached hereto, the Company represents and --------- warrants to the Purchasers as follows: 3.1 ORGANIZATION AND STANDING: ARTICLES AND BYLAWS. The Company is a --------------------------------------------------- corporation duly organized and existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is not presently qualified to do business as a foreign corporation in any jurisdiction, and the failure to be so qualified will not have a material adverse effect on the Company's business as now conducted. The Company has furnished each Purchaser with copies of the Restated Articles and of its Bylaws, which are true, correct and complete and contain all amendments through the Closing Date. 3.2 CORPORATE POWER. The Company will have at the Closing Date all ----------------- requisite legal and corporate power and authority to execute and deliver this Agreement and the Registration and Information Rights Agreement in substantially the form attached hereto as Exhibit D (the "Registration and Information Rights --------- Agreement"), to sell and issue the Shares hereunder, to issue the Common Stock issuable upon conversion of the Series A Preferred Stock, a and to carry out and per-form its obligations under the terms of this Agreement and the Registration and Information Rights Agreement (together the "Agreements"). 3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated ------------ companies and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company, upon -------------- the filing of the Restated Articles, consists of 10,000,000 shares of Common Stock, of which 500,000 shares are issued and outstanding, and 10,000,000 shares of Preferred Stock, of which 1,500,000 shares have been designated Series A Preferred Stock ("Series A Preferred'), none of which are issued and outstanding stock immediately prior to the Initial Closing. The Series A Preferred shall have the rights, preferences, privileges and restrictions set forth in the Restated Articles. The currently outstanding shares of Common Stock have been duly authorized and validly issued, and are fully paid and nonassessable, and have been issued in compliance with applicable securities laws. The shares of Series A Preferred to be issued and sold to the Purchaser have been duly authorized and, when issued in accordance with this Agreement and the Restated Articles, will be validly issued, fully paid and nonassessable. The Company has reserved 1,500,000 shares of Series A Preferred for issuance hereunder, 1,500,000 shares of Common Stock for issuance upon conversion of the Series A Preferred and 5,000,000 shares of its Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to the 1993 Stock Plan or other arrangements approved by the Board. Except as set forth above, there are no options, warrants, subscriptions, calls, puts, claims, commitments, convertible securities or other agreements or arrangements under which the Company is or may be obligated to issue or purchase, as the case may be, shares of the Company's capital stock. 3.5 AUTHORIZATION. All corporate action on the part of the Company, its ------------- directors and shareholders necessary for the authorization, execution, delivery and performance of the Agreements by the Company, the authorization, sale, issuance and delivery of the Series A Preferred (and the Common Stock issuable upon conversion of the Series A Preferred), and the performance of all of the Company's obligations hereunder has been taken or will be taken prior to each Closing. The Agreements, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, fully paid and nonassessable, and will have the rights, preferences and privileges described in the Restated Articles; the Common Stock issuable upon conversion of the Shares has been duly and validly reserved and, when issued in compliance with the provisions of the Restated Articles, will be validly issued, and will be fully paid and nonassessable; and the Shares and such Common Stock will be free of any liens or encumbrances, assuming each Purchaser takes the Shares with no notice thereof, other than any liens or encumbrances created by Purchaser; provided, however, that the Shares (and the Common Stock issuable upon conversion thereof) may be subject to restrictions on transfer under state or federal securities laws as set forth in this Agreement and the exhibits hereto. The Shares (and the Common Stock issuable upon the conversion thereof) are not subject to any preemptive rights or rights of first refusal. 3.6 LITIGATION, ETC. There are no actions, suits, proceedings or ---------------- investigations pending or, to the Company's knowledge, threatened against the Company or its properties before any court or governmental agency other than the suit filed by Digital Equipment is United States District Court for the District of Massachusetts (civil action 96-12192NG). 3.7 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company ------------------------------------------------------- is not in violation of any term of the Restated Articles or its Bylaws or any mortgage, indebtedness, indenture, judgment or decree, or in any material respect of any term or provision of any material contract, agreement or instrument, and to the best of its knowledge is not in violation of any order, statute, rule or regulation applicable to the Company. The execution, delivery and performance of and compliance with the Agreements, and the issuance of the Series A Preferred and the Common Stock issuable upon conversion of the Series A Preferred, have not resulted and will not result in any violation of, or conflict with, or constitute a default under, the Restated Articles or the Company's Bylaws, nor will it result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. 3.8 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of -------------------------- or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of the Agreements, or the offer, sale or issuance of the Series A Preferred (and the Common Stock issuable upon conversion of the Series A Preferred), or the consummation of any other transaction contemplated hereby or thereby, except (a) filing of the Restated Articles in the office of the California Secretary of State, (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Series A Preferred (and the Common Stock issuable upon conversion of the Series A Preferred) under the California Corporate Securities Law of 1968, as amended, and other applicable Blue Sky laws, which filings and qualifications, if required, will be accomplished in a timely manner, and (c) filing of a notice, if required, pursuant to Regulation D of the Securities Act, which filing will be accomplished in a timely manner. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ----------------------------------------------- Each Purchaser hereby represents and warrants to the Company with respect to the purchase of the Shares as follows: 4.1 EXPERIENCE. It has substantial experience in evaluating and ---------- investing in private transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests and bear the risk of loss of its entire investment. 4.2 INVESTMENT. It is acquiring the Series A Preferred and the underlying Common Stock for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. It understands that the Series A Preferred to be purchased and the underlying Common Stock have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the --------- accuracy of such Purchaser's representations as expressed herein. It is an "accredited investor' within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission. 4.3 RULE 144. It acknowledges that the Series A Preferred and the ---------- underlying Common Stock must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. It is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker', and the number of shares being sold during any three-month period not exceeding specified limitations. 4.4NO PUBLIC MARKET. IT UNDERSTANDS THAT NO PUBLIC MARKET NOW EXISTS FOR ANY OF ----------------------------------------------------------------------------- the securities issued by the Company and that no assurances can be made that a public market will ever exist for the Company's securities. 4.5 ACCESS TO DATA. It has had an opportunity to discuss the ----------------- Company's business, management and financial affairs with its management and the opportunity to review the Company's facilities and has had access to all other information about the Company it deemed necessary in connection with the purchase of the Series A Preferred. It has also had an opportunity to ask questions of officers of the Company. It understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. 4.6 AUTHORIZATION. The Agreements, when executed and delivered by -------------- Purchaser, will constitute a valid and legally binding obligations of each Purchaser, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 4.7 BROKERS OR FINDERS. The Company has not, and will not, incur, --------------------- directly or indirectly, as a result of any action taken by such Purchaser, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement. 4.8 TAX LIABILITY. It has reviewed with its own tax advisors the -------------- federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. It relies solely on such advisors and not on any statements or representations of the Company or any of its agents. It understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. SECTION 5 PURCHASERS' CONDITIONS TO CLOSING - ------------------------------------ The Purchasers' obligation to purchase the Shares at the Closing is, at the option of Purchasers, subject to the fulfillment of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties -------------------------------- made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date. 5.2 COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects, unless waived in writing by the Purchaser. 5.3 BLUE SKY. Me Company shall have obtained all necessary Blue Sky law ---------- permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Series A Preferred and the Common Stock issuable upon conversion of the Series A Preferred. 5.4 RESTATED ARTICLES. The Restated Articles shall have been filed with ------------------- the California Secretary of State. 5.5 REGISTRATION AND INFORMATION RIGHTS AGREEMENT The Company shall have ---------------------------------------------- executed the Registration and Information Rights Agreement in substantially the form attached hereto as Exhibit D. 5.6 COMPLIANCE CERTIFICATE The Company shall have delivered to the ----------------------- Purchasers a certificate of the Company in substantially the form attached hereto as Exhibit E, executed by the President of the Company, dated the Closing Date, and certifying, among other things, the fulfillment of the conditions specified in Sections 5.1, 5.2 and 5.4 of this Agreement. SECTION 6 CONDITIONS TO CLOSING OF COMPANY -------------------------------- The Company's obligation to sell and issue the Shares at the Closing Date is, at the option of the Company, subject to the fulfillment as of the Closing Date of the following conditions: 6.1 REPRESENTATIONS. The representations made by the Purchasers in --------------- Section 4 hereof shall be true and correct as of the Closing Date. 6.2 COVENANTS. All covenants, agreements, and conditions contained in --------- this Agreement to be performed by the Purchasers on or prior to the Closing Date shall have been performed or complied with in all material respects unless waived in writing by the Company. 6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law -------- permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Series A Preferred and the Common Stock issuable upon conversion of the Series A Preferred. 6.4 RELATED ARTICLES. The Restated Articles shall have been filed with ----------------- the California Secretary of State. 6.5 LEGAL MATTERS. All material matters of a legal nature which pertain --------------- to this Agreement, and the transactions contemplated hereby, shall have been reasonably approved by counsel to the Company. SECTION 7 MISCELLANEOUS ------------- 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by -------------- the internal laws of the State of California. 7.2 SUCCESSORS ANDASSIGNS. Except as otherwise provided herein, the --------------- provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, provided, however, that the rights of the Purchasers to purchase the Series A Preferred shall not be assignable without the consent of the Company. 7.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents ---------------------------- delivered pursuant hereto at each Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 7.4 NOTICES, ETC. All notices and other communications required or -------------- permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Purchaser, at the address set forth on the Schedule of Purchasers attached hereto as Exhibit A, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to the Company, one copy should be sent AltaVista Technology, Inc. 1671 Dell Ave., Suite 209, Campbell, California 95008 and addressed to the attention of the President, or at such other address.-as the Company shall have furnished to the Purchaser, and one copy should be sent to Wilson, Sonsini, Goodrich & Rosati, Two Palo Alto Square, Palo Alto, California 94306, to the attention of Bruce D. Bower, Esq. Each such notice or other communication shall, for all intents and purposes of this Agreement, be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 7.5 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay --------------------- or omission to exercise any right, power or remedy accruing to the Purchasers, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of the Purchasers nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default thereto fore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of the Purchasers, or any waiver on the part of the Purchasers of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to the Purchasers, shall be cumulative and not alternative. 7.6 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES -------------------------------------- WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE -STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 7.7 COUNTERPARTS. This Agreement may be executed in any number of ------------ counterparts, each of which shall be enforceable against the party actually executing such counterpart, and all of which together shall constitute one instrument. 7.8 SEVERABILITY. In the event that any provision of this Agreement ------------- becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, provided that no such severability shall be effective if it materially changes the economic BENEFIT of this Agreement to any party. 7.9 TITLES AND SUBTITLES. The titles and subtitles used in this ----------------------- Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. EXHIBIT A SCHEDULE OF PURCHASERS EX-10.2 8 ALTAVISTA TECHNOLOGY, INC. SERIES B PREFERRED STOCK PURCHASE AGREEMENT AUG 1, 1996
TABLE OF CONTENTS SECTION I AUTHORIZATION AND SALE OF SERIES B PREFERRED STOCK 1.1 Authorization 1.2 Sale of Preferred SECTION 2 CLOSING DATE; DELIVERY 2.1 Closing Date 2.2 Delivery SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 3.1 Organization and Standing; Articles and Bylaws 3.2 Corporate Power 3.3 Subsidiaries 3.4 Capitalization 3.5 Authorization 3.6 Litigation, etc. 3.7 Compliance with Other Instruments, None Burdensome, etc. 3.8 Governmental Consent, etc. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 4.1 Experience 4.2 Investment 4.3 Rule 144 4.4 No Public Market 4.5 Access to Data 4.6 Authorization 4.7 Brokers or Finders 4.8 Tax Liability SECTION 5 PURCHASERS' CONDITIONS TO CLOSING 5.1 Representations and Warranties Correct 5.2 Covenants 5.3 Blue Sky 5.4 Restated Articles 5.5 Registration and Information Rights Agreement 5.6 Compliance Certificate SECTION 6 CONDITIONS TO CLOSING OF COMPANY 6.1 Representations 6.2 Covenants 6.3 Blue Sky 6.4 Restated Articles 6.5 Legal Matters SECTION 7 MISCELLANEOUS 7.1 Governing Law 7.2 Successors and Assigns 7.3 Entire Agreement; Amendment 7.4 Notices, etc. 7.5 Delays or Omissions 7.6 California Corporate Securities Law 7.7 Counterparts 7.8 Severability 7.9 Titles and Subtitles
ALTAVISTA TECHNOLOGY, INC. SERIES BPREFERREI) STOCK PURCHASE AGREEMENT This Agreement is made as of June 5, 1997 by and among AltaVista Technology, Inc., a California corporation (the "Company"), the individuals and entities set forth on the Schedule of Purchasers attached hereto as Exhibit A (the ---------- "Purchasers"), and any other person or persons who shall have executed this Agreement in connection with their purchase of Additional Shares, as defined below (such persons listed on the Schedule of Purchasers and such persons who shall have purchased Additional Shares collectively being referred to as "Purchasers"), which person or persons shall be added to the Schedule of Purchasers at such time as they shall purchase such Additional Shares pursuant hereto. SECTION I AUTHORIZATION AND SALE OF SERIES 8 PREFERRED STOCK -------------------------------------------------- 1.1 AUTHORIZATION. The Company will authorize the sale and issuance of -------------- up to 1,500,000 shares of its Preferred Stock (the "Shares"), having the rights, preferences, privileges and restrictions as set forth in the Amended and Restated Articles of Incorporation ("Restated Articles") in substantially the form attached hereto as Exhibit B. ----------- 1.2 SALE OF PREFERRED. Subject to the terms and conditions hereof, the -------------------- Company will issue and sell to the Purchasers, and the Purchasers will purchase severally, and not jointly, from the Company, up to all of the Shares, (i) of which not less than 10,000 of the Shares (the "Initial Shares') will be sold to the Purchasers at the Initial Closing, as defined below, in the amounts specified opposite the name of each such Purchaser in the column designated "Initial Shares" on the Schedule of Purchasers, at a per share purchase price of $.30, and (ii) of which up to 1,490,000 Shares (the "Additional Shares") may, at the election of the Company, be sold to the Purchasers at one or more additional closings subsequent to the Initial Closing (the "Subsequent Closing(s)'), in the amounts as shall be specified opposite the name of each such Purchaser in the column designated "Additional Shares" on the Schedule of Purchasers, at a per share purchase price of $.30. SECTION 2 CLOSING- DATE: DELIVERY ----------------------- 2.1 CLOSING DATE. The closing of the purchase and sale of the Initial -------------- Shares hereunder (the "Initial Closing") shall be held at the offices of Wilson, Sonsini, Goodrich & Rosati, Two Palo Alto Square, Palo Alto, California, at 10:00 a.m. on January _, 1994, or at such other time and place upon which the Company and the Purchasers shall agree. The Subsequent Closing(s), if any, shall be held at the offices of Wilson, Sonsini, Goodrich & Rosati, Two Palo Alto Square, Palo Alto, California at such time(s) and date(s) as the Company shall specify. The date(s) of the Subsequent Closing(s) shall hereinafter be referred to as the "Subsequent Closing Date(s)." The Initial Closing and the Subsequent Closing(s) are sometimes hereinafter referred to as the "Closings.' The Initial Closing Date and the Subsequent Closing Date(s) are sometimes hereinafter referred to as the "Closing Dates." 2.2 DELIVERY. At the Initial Closing, the Company will deliver to each --------- Purchaser a certificate or certificates representing the number of Shares set forth opposite such Purchaser's name in the column designated "Shares' on the Schedule of Purchasers against payment of the purchase price therefor by check payable to the Company or by wire transfer made pursuant to the Company's instructions. At the Subsequent Closing(s), the Company will deliver to each Additional Purchaser who shall have executed this Agreement a certificate or certificates representing the number of shares as shall be specified opposite the name of each Purchaser in the column designated "Additional Shares" on the Schedule of Purchasers, against payment of the purchase price therefor, by check payable to the Company or by wire transfer made pursuant to the Company's instructions. At each Subsequent Closing, if any, a Supplemental Schedule of Purchasers shall be added to this Agreement as Exhibit A. 1. At each Subsequent Closing, if any, the Purchaser purchasing Additional Shares therein shall execute a signature page to this Agreement, SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- Except as set forth on Exhibit C attached hereto, the Company represents and --------- warrants to the Purchasers as follows: 3.1 ORGANIZATION AND STANDING: ARTICLES AND BYLAWS. The Company is a --------------------------------------------------- corporation duly organized and existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is not presently qualified to do business as a foreign corporation in any jurisdiction, and the failure to be so qualified will not have a material adverse effect on the Company's business as now conducted. The Company has furnished each Purchaser with copies of the Restated Articles and of its Bylaws, which are true, correct and complete and contain all amendments through the Closing Date. 3.2 CORPORATE POWER. The Company will have at the Closing Date all ----------------- requisite legal and corporate power and authority to execute and deliver this Agreement and the Registration and Information Rights Agreement in substantially the form attached hereto as Exhibit D (the "Registration and Information Rights --------- Agreement"), to sell and issue the Shares hereunder, to issue the Common Stock issuable upon conversion of the Series B Preferred Stock, a and to carry out and perform its obligations under the terms of this Agreement and the Registration and Information Rights Agreement (together the "Agreements"). 3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated ------------- companies and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company, upon --------------- the filing of the Restated Articles, consists of I 0,000,000 shares of Common Stock, of which 500,000 shares are issued and outstanding, and 10,000,000 shares of Preferred Stock, of which 1,500,000 shares have been designated Series B Prefer-red Stock ("Series B Preferred'), none of which are issued and outstanding stock immediately prior to the Initial Closing. The Series B Preferred shall have the rights, preferences, privileges and restrictions set forth in the Restated Articles. The currently outstanding shares of Common Stock have been duly authorized and validly issued, and are fully paid and non-assessable, and have been issued in compliance with applicable securities laws. The shares of Series B Preferred to be issued and sold to the Purchaser have been duly authorized and, when issued in accordance with this Agreement and the Restated Articles, will be validly issued, fully paid and non-assessable. The Company has reserved 1,500,000 shares of Series B Preferred for issuance hereunder, 1,500,000 shares of Common Stock for issuance upon conversion of the Series B Preferred and 5,000,000 shares of its Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to the 1993 Stock Plan or other arrangements approved by the Board. Except as set forth above, there are no options, warrants, subscriptions, calls, puts, claims, commitments, convertible securities or other agreements or arrangements under which the Company is or may be obligated to issue or purchase, as the case may be, shares of the Company's capital stock. 3.5 AUTHORIZATION. All corporate action on the part of the Company, its -------------- directors and shareholders necessary for the authorization, execution, delivery and performance of the Agreements by the Company, the authorization, sale, issuance and delivery of the Series B Preferred (and the Common Stock issuable upon conversion of the Series B Preferred), and the performance of all of the Company's obligations hereunder has been taken or will be taken prior to each Closing. The Agreements, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, fully paid and non-assessable, and will have the rights, preferences and privileges described in the Restated Articles; the Common Stock issuable upon conversion of the Shares has been duty and validly reserved and, when issued in compliance with the provisions of the Restated Articles, will be validly issued, and will be fully paid and non-assessable; and the Shares and such Common Stock will be free of any liens or encumbrances, assuming each Purchaser takes the Shares with no notice thereof, other than any liens or encumbrances created by Purchaser; provided, however, that the Shares (and the Common Stock issuable upon conversion thereof) may be subject to restrictions on transfer under state or federal securities laws as set forth in this Agreement and the exhibits hereto. The Shares (and the Common Stock issuable upon the conversion thereof) are not subject to any preemptive rights or rights of first refusal. 3.6 LITIGATION, ETC. There are no actions, suits, proceedings or ----------------- investigations pending or, to the Company's knowledge, threatened against the Company or its properties before any court or governmental agency other than the suit filed by Digital Equipment is United States District Court for the District of Massachusetts (civil action 96-12192NG). 3.7 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company -------------------------------------------------------- is not in violation of any term of the Restated Articles or its Bylaws or any mortgage, indebtedness, indenture, judgment or decree, or in any material respect of any term or provision of any material contract, agreement or instrument, and to the best of its knowledge is not in violator) of any order, statute, rule or regulation applicable to the Company. The execution, delivery and performance of and compliance with the Agreements, and the issuance of the Series B Prefer-red and the Common Stock issuable upon conversion of the Series B Preferred, have not resulted and will not result in any violation of, or conflict with, or constitute a default under, the Restated Articles or the Company's Bylaws, nor will it result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. 3.8 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of --------------------------- or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of the Agreements, or the offer, sale or issuance of the Series B Preferred (and the Common Stock issuable upon conversion of the Series B Preferred), or the consummation of any other transaction contemplated hereby or thereby, except (a) filing of the Restated Articles in the office of the California Secretary of State, (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Series B Preferred (and the Common Stock issuable upon conversion of the Series B Preferred) under the California Corporate Securities Law of 1968, as amended, and other applicable Blue Sky laws, which filings and qualifications, if required, will be accomplished in a timely manner, and (c) filing of a notice, if required, pursuant to Regulation D of the Securities Act, which filing will be accomplished in a timely manner. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ----------------------------------------------- Each Purchaser hereby represents and war-rants to the Company with respect to the purchase of the Shares as follows: 4.1 EXPERIENCE. It has substantial experience in evaluating and ----------- investing in private transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests and bear the risk of loss of its entire investment. 4.2 INVESTMENT. It is acquiring the Series B Preferred and the ----------- underlying Common Stock for investment for its own account, not as a nominee - or agent, and not with the view to, or for resale in connection with, any distribution thereof It understands that the Series B Preferred to be purchased and the underlying Common Stock have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of --------- such Purchaser's representations as expressed herein. It is an "accredited investor' within the meaning of Regulation D, Rule 501 (a), promulgated by the Securities and Exchange Commission. 4.3 RULE 144. It acknowledges that the Series B Preferred and the ---------- underlying Common Stock must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. It is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker', and the number of shares being sold during any three-month period not exceeding specified limitations. 4.4 NO PUBLIC MARKET. It understands that no public market now exists ------------------ for any of the securities issued by the Company and that no assurances can be made that a public market will ever exist for the Company's securities. 4.5 ACCESS TO DATA. It has had an opportunity to discuss the Company's ----------------- business, management and financial affairs with its management and the opportunity to review the Company's facilities and has had access to all other information about the Company it deemed necessary in connection with the purchase of the Series B Preferred. It has also had an opportunity to ask questions of officers of the Company. It understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. 4.6 AUTHORIZATION. The Agreements, when executed and delivered by -------------- Purchaser, will constitute a valid and legally binding obligations of each Purchaser, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. 4.7 BROKERS OR FINDERS. The Company has not, and will not, incur, --------------------- directly or indirectly, as a result of any action taken by such Purchaser, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement. 4.8 TAX LIABILITY. It has reviewed with its own tax advisors the --------------- federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. It relies solely on such advisors and not on any statements or representations of the Company or any of its agents. It understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. SECTION 5 PURCHASERS' CONDITIONS TO CLOSING --------------------------------- The Purchasers' obligation to purchase the Shares at the Closing is, at the option of Purchasers, subject to the fulfillment of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties --------------------------------- made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date. 5.2 COVENANTS. All covenants, agreements and conditions contained in ---------- this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects, unless waived in writing by the Purchaser. 5.3 BLUE SKY. Me Company shall have obtained all necessary Blue Sky law ---------- permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Series B Preferred and the Common Stock issuable upon conversion of the Series B Preferred. 5.4 RESTATED ARTICLES. The Restated Articles shall have been filed with ------------------- the California Secretary of State. 5.5 REGISTRATION AND INFORMATION RIGHTS AGREEMENT The Company shall have --------------------------------------------- executed the Registration and Information Rights Agreement in substantially the form attached hereto as Exhibit D. 5.6 COMPLIANCE CERTIFICATE The Company shall have delivered to the ----------------------- Purchasers a certificate of the Company in substantially the form attached hereto as Exhibit E, executed by the President of the Company, dated the Closing Date, and certifying, among other things, the fulfillment of the conditions specified in Sections 5.1, 5.2 and 5.4 of this Agreement. SECTION 6 CONDITIONS TO CLOSING OF COMPANY -------------------------------- The Company's obligation to sell and issue the Shares at the Closing Date is, at the option of the Company, subject to the fulfillment as of the Closing Date of the following conditions: 6.1 REPRESENTATIONS. The representations made by the Purchasers in ---------------- Section 4 hereof shall be true and correct as of the Closing Date. 6.2 COVENANTS. All covenants, agreements, and conditions contained in ---------- this Agreement to be performed by the Purchasers on or prior to the Closing Date shall have been performed or complied with in all material respects unless waived in writing by the Company. 6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law --------- permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Series B Preferred and the Common Stock issuable upon conversion of the Series B Preferred. 6.4 RELATED ARTICLES. The Restated Articles shall have been filed with ------------------ the California Secretary of State. 6.5 LEGAL MATTERS. All material matters of a legal nature which pertain --------------- to this Agreement, and the transactions contemplated hereby, shall have been reasonably approved by counsel to the Company. SECTION 7 MISCELLANEOUS ------------- 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by --------------- the internal laws of the State of California. 7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the ------------------------- provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, provided, however, that the rights of the Purchasers to purchase the Series B Preferred shall not be assignable without the consent of the Company. 7.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents ----------------------------- delivered pursuant hereto at each Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 7.4 NOTICES, ETC. All notices and other communications required or -------------- permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Purchaser, at the address set forth on the Schedule of Purchasers attached hereto as Exhibit A, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to the Company, one copy should be sent AltaVista Technology, Inc. 1671 Dell Ave., Suite 209, Campbell, California 95008 and addressed to the attention of the President, or at such other address.-as the Company shall have furnished to the Purchaser, and one copy should be sent to Wilson, Sonsini, Goodrich & Rosati, Two Palo Alto Square, Palo Alto, California 94306, to the attention of Bruce D. Bower, Esq. Each such notice or other communication shall, for all intents and purposes of this Agreement, be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 7.5 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay ---------------------- or omission to exercise any right, power or remedy accruing to the Purchasers, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of the Purchasers nor shall it be construed to be a waiver of any, such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default thereto fore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of the Purchasers, or any waiver on the part of the Purchasers of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to the Purchasers, shall be cumulative and not alternative. 7.6 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES --------------------------------------- WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE -STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100,25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 7.7 COUNTERPARTS. This Agreement may be executed in any number of ------------- counterparts, each of which shall be enforceable against the party actually executing such counterpart, and all of which together shall constitute one instrument. 7.8 SEVERABILITY. In the event that any provision of this Agreement ------------- becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, provided that no such severability shall be effective if it materially changes the economic BENEFIT of this Agreement to any party. 7.9 TITLES AND SUBTITLES. The titles and subtitles used in this ---------------------- Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. EXHIBIT A SCHEDULE OF PURCHASERS Number of Series C Preferred Name and Address Shares Kris Chellam 150,000 2325 Orchard Parkway San Jose, CA 95131 [SERIES A PURCHASE AGREEMENT] The foregoing agreement is hereby executed as of the date first written above. "COMPANY" ALTAVISTA TECHNOLOGY, INC. BY: Jack Marshall President "PURCHASERS" Chris Chellam - -------------- EX-10.3 9 OEM / REMARKETING AGREEMENT This Remarketing Agreement ("Agreement") is made this November 15, 1996, by and between ArcSoft, Inc. ("OEM"), having principal place of business at 4015 Clipper Court, Fremont, CA 94538 and AltaVista, Inc.("Company"), having its principal place of business at 50 Curtner Avenue, Suite 2, Campbell CA 95008 and RECITALS Whereas, AttaVista manufactures computer software that consists of PHOTOEXPRESS ("Software"). Whereas, ArcSoft, Inc. desires to package AltaVista's computer software along with other software and computer equipment (the "OEM Package") and market the OEM Package to consumers. Now, therefore, in consideration of the foregoing premises and the mutual covenants in this Agreement, the parties agree as follows: 1. GRANT OF LICENSE 1.1 SOFTWARE. AltaVista hereby grants to ArcSoft a non-exclusive license to copy and distribute the Software when included as object code in conjunction to Photolmpression and/or PhotoStudio, to end-users worldwide. 2. ROYALTY. ArcSoft hereby agrees to pay AltaVista a royalty for each Software transferred or distributed by ArcSoft. The parties agree upon the following royalty payment structure: $1.50US/unit of licensed PHOTOEXPRESS. Royalty payments shall be made quarterly as they are shipped. ArcSoft shall allow AltaVista the right to examine its books and records relating to the transfer or distribution of PHOTOEXPRESS upon written request of AltaVista and at reasonable times. 3. PAYMENT. ArcSoft shall make an initial payment of $5,000 upon delivery of the Golden Master to be applied against the initial 3,333 unit order. Any additional Royalties shall be paid 30 days following the quarter ArcSoft ships the 3,334th unit. ArcSoft shall make payment to AltaVista for all Software purchased under this Agreement net thirty (30) days from the end of each quarterly shipping report. 3.1 EXPENSES. AltaVista is under no obligation or requirement to reimburse the ArcSoft for any expenses relating to the development, marketing or sale of the ArcSoft Packages. Any costs and expenses incurred by ArcSoft shall be the sole responsibility of ArcSoft. Any costs and expenses incurred by AltaVista relating to Gold Master CD's, web services, and/or tech support shall remain that of AltaVista. 2 3. 1.1 Should AltaVista cause any event which is considered a material breach of its obligations under this Agreement which causes ArcSoft undue harm, financial or otherwise, AltaVista then becomes fully responsible for all reparations caused by such actions. 4. TECHNICAL SUPPORT 4.1 ALTAVISTA SUPPORT. AltaVista shall provide initial technical support and training to the ArcSoft's technical personnel relating to PhotoExpress. 4.2 ALTAVISTA SUPPORT TO END USERS. AltaVista shall provide technical support to the end users for PhotoExpress should basic technical support issues go beyond the training or resources of ArcSoft's technical support staff. 5. ALTAVISTA LIMITED WARRANTIES 5.1 SOFTWARE WARRANTY. AltaVista warrants that the computer equipment delivered under this Agreement will be free from defect in materials and workmanship under normal use and service. ArcSoft, Inc. may pass this warranty on to end users. 5.2 SOLE WARRANTY. ArcSoft acknowledges and agrees that the provisions of this Section 5 warranty constitute the sole and exclusive remedy available to it regarding defective products. Except for the express warranties provided in this section, all warranties, whether express our implied, all guaranties and all representations as to performance, including all warranties that, but for this provision, might arise from the course of dealing or custom of trade and including all implied warranties of merchantability or fitness for a particular purpose, with respect to the computer equipment and software furnished by AltaVista are hereby expressly excluded and disclaimed by AltaVista. The exclusive remedy of ArcSoft and any end user for breach of the foregoing warranties shall be to seek repair or replacement of the affected Software at the expense of AltaVista. 6. INDEMNIFICATION 6.1 BY ALTAVISTA. AltaVista hereby indemnities and holds harmless ArcSoft from and against any claims, actions, or demands alleging that the computer equipment or Programs infringe any patent, trademark, copyright, or other intellectual property right of any third party. ArcSoft shall permit AltaVista to replace or modify any affected computer equipment or software so to avoid infringement, or to procure the right for ArcSoft to continue use and remarketing or such items. If neither or such alternatives is reasonably possible, the infringing items shall be returned to AltaVista and AltaVista's sole liability shall be to refund amounts paid, by ArcSoft. AltaVista shall have no 3 obligation for or with respect of claims, actions, or demands alleging infringement that arise by reason of combination of non-infringing items with any items not supplied by AltaVista. 6.3 NOTICE REQUIREMENT. The foregoing indemnities are conditioned on prompt written notice of any claim, action, or demand for which indemnity is claimed; complete control of the defense and settlement by the indemnifying party; and cooperation of the other party in such defense. 7. TERMINATION 7.1 TERMINATION. This Agreement may be terminated as follows: 7.1.1 Should either party commit a material breach of its obligations under this Agreement, or should any of the representations of either party in this Agreement prove to be untrue in any material respect, the other party may, at its option, terminate this Agreement, by 120 days' written notice of termination, that notice shall identify and describe the basis for such termination. If, prior to expiration of such period, the defaulting party cures such default, termination shall not take place. 7.1.2 Either party may, at its option and without notice, terminate this Agreement, effective immediately, should the other party (1) admit in writing its inability to pay its debts generally as they become due; (2) make a general assignment for the benefit of creditors-, (3) institute proceedings to be adjudicated a voluntary bankrupt, or consent of the filing of a petition of bankruptcy against it; (4) be adjudicated by a court of competent jurisdiction as being bankrupt or insolvent; (5) seek reorganization under any bankruptcy act, or consent to the filing or a petition seeking such reorganization, or (6) have a decree entered against it by a court of competent jurisdiction appoint a receiver, liquidator, trustee, or assignee in bankruptcy or in insolvency covering all or substantially all of such party's property or providing for the liquidation of such party's property or business affairs. 7.1.3 Termination of this Agreement shall not relieve either party of the obligations incurred under this Agreement, except that Section 8.5 shall survive termination. 7.1.4 On termination of this Agreement, no additional computer equipment or software shall be shipped to ArcSoft unless AltaVista is the breaching party. Otherwise, ArcSoft shall, at AltaVista's option, (1) return to AltaVista all computer equipment purchased by and delivered to ArcSoft, including all copies, whereupon AltaVista shall refund amounts paid with respect thereto by ArcSoft; or (2) dispose of any remaining OEM Packages embodying the computer equipment and programs obtained from AltaVista in accordance with the requirements of this Agreement. 4 8. GENERAL PROVISIONS 8.1 ASSIGNMENT. Except as set forth in this Agreement, neither this Agreement nor any rights within it, in whole or in part, shall be assignable or otherwise transferable by either party without the express written consent of the other party; any such attempt by either party to assign any of its rights or delegate any of its duties without the prior written consent of the other party shall be null and void. Subject to the above, this Agreement shall be binding upon and inure the benefit of the successors and assigns of the parties hereto. 8.2 WAIVER, AMENDMENT, MODIFICATION. No waiver, amendment or modification, including by custom, usage of trade, or course of dealing, of any provision of this Agreement will be effective unless in writing and signed by the party against whom such waiver, amendment or modification is sought to be enforced. No waiver by any party of any default in performance on the part of the other party under this Agreement or of any breach or series of breaches by the other party of any of the terms or conditions of this Agreement shall constitute a waiver of any subsequent default in performance under this Agreement or any subsequent breach of any terms or conditions within. Performance of any obligation required of a party under this Agreement may be waived only by a written waiver signed by a duly authorized officer of the other party, that waiver shall be effective only with respect to the specific obligation described therein. 8.3 FORCE MAJEURE. Neither party will be deemed in default of this Agreement of the extent that performance of its obligations, or attempts to cure any breach, are delayed or prevented by reason of circumstance beyond its reasonable control, including without limitation fire, natural disaster, earthquake, accident or other acts of God ("Force Majeure"), provided that the party seeking to delay its performance gives the other written notice of any such Force Majeure within 15 days after the discovery, and further provided that such party uses its good faith efforts to cure the Force Majeure. This Article shall not be applicable to any payment obligations of either party. 8.4 PROPRIETARY INFORMATION. Each party acknowledges that it may be furnished with or may otherwise receive or have access to information or material that relates to past, present or future products, software (including source code and object code), research development, inventions, processes, techniques, designs or technical information and data, and marketing plans. (The "Proprietary Information"). Each party agrees to preserve and protect the confidentiality of the Proprietary Information and all physical forms, whether disclosed to the other party before this Agreement is signed or afterward. In addition, a party shall not disclose or disseminate the Proprietary Information for its own benefit or for the benefit or any third party unless otherwise provided in this Agreement. The foregoing obligations do not apply to any information that (1) is publicly known; (2) is given to a party by someone else who is not obligated to maintain confidentiality; or (3) a party had already developed prior to the day this 5 Agreement is signed, as evidenced by documents unless, otherwise provided herein. Neither party shall take our cause to be taken any physical forms of Proprietary Information (nor make copies of same) without the other party's written permission. Within three (3) days after the termination of this Agreement (or any other time at the other party's request), a party shall return to the other party all copies of Proprietary Information in tangible form. Despite any other provisions of this Agreement, the requirements of this section shall survive termination of this Agreement. 8.5 INDEPENDENT CONTRACTOR. Nothing contained in this Agreement will be deemed to place the parties in the relationship of employer/employee, partners, or joint venturers. Neither party shall have any right to obligate or bind the other in any manner. Each party agrees and acknowledges that it shall not hold itself out as an authorized agent with the power to bind the other party in any manner. Each party will be responsible for any withholding taxes, payroll taxes, disability insurance payments, unemployment taxes, and other similar taxes or charges with respect to its activities in relation to performance of its obligations under this Agreement. 8.6 CUMULATIVE RIGHTS. Any specific right or remedy provided in this Agreement shall not be exclusive, but shall be cumulative upon all other rights and remedies set forth in this Agreement and allowed under applicable law. 8.7 GOVERNING LAW. This Agreement shall be governed by the laws of the State of California applicable to Agreements made and fully performed in California by California residents. 8.8 ENTIRE AGREEMENT. The parties acknowledge that this Agreement expresses their entire understanding and Agreement, and that there have been no warranties, representations, covenants or understandings made by either party to the other except such as are expressly set forth in this Agreement. The parties further acknowledge that this Agreement or contracts, whether written or oral, entered into between ArcSoft, Inc. and AltaVista with respect to the matters expressly set forth in this Agreement. 8.9 COUNTERPARTS. This Agreement may be executed in multiple counterparts, any of which will be deemed an original, but all of which shall constitute one and the same instrument. 8.10 ATTORNEY FEES. In the event that either party is required to retain the services of any attorney to enforce or otherwise litigate or defend any matter or claim arising out of or in connection with this Agreement, the prevailing party shall be entitled to recover from the other party, in addition to any other relief awarded or granted, its reasonable costs and expenses (including attorneys' fees) incurred in the proceeding. 6 8.11 COMPLIANCE WITH LAW. Both parties agree to comply with all applicable federal, state, and local laws and regulations in performing their duties. 8.12 RECORDS. ArcSoft, Inc. shall maintain for at least 1 year from the date of creation all records, contracts, and accounts relating to PHOTOEXPRESS production and distribution), and shall permit examination by authorized representatives of AltaVista at all reasonable times and at the latter's expense in order that it may verify compliance of this Agreement. 8.13 SEVERABILITY. In the event that any provision of this Agreement is found invalid or unenforceable pursuant to judicial decree or decision, the remainder shall remain valid and enforceable according to its terms. Without limiting the foregoing, it is expressly understood and agreed that each and every provision of this Agreement that provides for a limitation of liability, disclaimer of warranties, or exclusion of damages is intended by the parties to be severable and independent of any other provision and to be enforced as such. Further, it is expressly understood and agreed that in the event any remedy in this Agreement is determined to have failed of its essential purpose, all other limitations of liability and exclusion of damages set forth herein shall remain in full force and effect. 8.14 NOTICES. All notices, demands or consents required or permitted in this Agreement shall be in writing and shall be delivered or mailed certified return receipt requested to the respective parties at the addresses stated above or at any other address the party shall specify to the other party in writing. Any notice required or permitted to be given by the provisions of this Agreement shall be conclusively deemed to have been received on the day it is delivered to that party by U.S. Mail with Acknowledgment of Receipt or by any commercial courier providing equivalent acknowledgment of receipt. 9.1 DEVELOPMENT. Any development which ArcSoft supports specifically for the advancement of the PHOTOEXPRESS product shall remain an exclusive element within PHOTOEXPRESS and shall not become available to other AltaVista customers without the express written consent of ArcSoft. ArcSoft will notify AltaVista of this exclusivity via written memorandum. 10.1 FREE GOODS. AltaVista hereby authorizes ArcSoft to freely produce and distribute no more than 1,000 units of PHOTOEXPRESS for marketing and internal/external testing purposes. Captions and section headings used in this Agreement are for convenience only and are not a part of this Agreement and shall not be used in construing it. We have carefully reviewed this contact and agree to and accept its terms and conditions. We are executing this Agreement as of the day and year first above written. 7 First Second Party By By TITLE Date 8 Exhibit A AltaVista Software DESCRIPTION Initial Unit Price PhotoExpress Multimedia/Web $1.50/unit 9 EX-10.4 10 SOFTWARE LICENSE AGREEMENT THIS AGREEMENT is entered into as Jan 22,1997, by and between SEATTLE FILMWORKS, ----------- INC., a Washington corporation ("SFW") and ALTAVISTA Technology, Inc., a California corporation,("Software Publisher"). WHEREAS, ALTAVISTA Technology, Inc. owns rights in a certain software program known as Howdy!" (the "Software"); and WHEREAS, SFW desires to obtain, and ALTAVISTA Technology, Inc. desires to grant, a license to duplicate, distribute and license copies of the encrypted Software as one of the products distributed on the SFW Master CD, on the terms and conditions set forth in this Agreement; NOW, THEREFORE, the parties hereto agree as follows: 1 . GRANT OF LICENSE. 1.1 Software Publisher hereby grants to SFW a nonexclusive license (the 'License") to duplicate, distribute and license encrypted copies of the program files and support files of the Software pursuant to the terms of this Agreement, The documentation which is part of the Software may also be distributed in writing. SFW agrees that it will not reverse engineer, translate, disassemble, or decompile the Software, in whole or in part, modify, edit, revise or enhance the Software, or obscure, alter or remove any copyright, trademark or other proprietary rights notices contained therein. The Software as delivered to SFW hereunder is the proprietary and copyrighted property of ALTAVISTA Technology, Inc., and all title thereto shall remain with ALTAVISTA Technology, Inc. SFW shall have no right to grant sublicenses of any of its rights hereunder except that SFW may authorize persons to whom it distributes the Software in accordance with this Agreement to use the Software. 1.2 Software Publisher shall prepare and deliver to SFW a CD containing complete program and support files for the Software so that said Software can be loaded from the SFW Master CD by a user to provide a fully functioning product. 1.3 Software will be encrypted by SFW with a locking code which prevents user from unauthorized use. SFW will employ all measures it deems practical within its technical expertise to make sure the Software is secure from unauthorized use, duplication and distribution. However, SFW makes no claim and in no way warrants that Software which is encrypted on the SFW Master CD is 100% secure from such unauthorized use. Once user has paid SFW for Software, SPW will provide user with a code key to unlock Software and load the program to user's computer. 1.4 SFW shall pay Software Publisher a royalty of 20% of net paid sales excluding shipping, handling and taxes for each copy of Software sold. Net paid sales is defined herein as the net amount paid by user for the Software less any returns and will not be subject to sales and administrative expenses. The selling price of the Software mutually agreed upon by SFW and Software Publisher will be $14.95. SFW agrees that it will distribute to its first time buyers of Pictures On Disk the encrypted Software without charge to Software Publisher, and that all necessary support relative to the installation and basic use of the software will be provided by SFW customer service. To facilitate SFW customer support of the Software, Software Publisher agrees to provide each customer service representative a gratis copy of the Software and including the HELP file in text form or at least with the browse function turned on. 1.5 The term of the License shall commence on the date of this fully executed Agreement and continue until terminated as provided herein. SFW may terminate this License at any time in its sole discretion by delivery of 30 days written notice to Software Publisher. In addition, if Software Publisher fails to comply with any of the terms of this Agreement, SFW may, in addition to its other available remedies, terminate the License immediately upon delivery of written notice to Software Publisher. Upon termination of the License, SFW shall return the Software Publisher's master disk to Software Publisher with a certificate signed by an officer stating that the Software will no longer be duplicated. All remaining copies in inventory of the Software as embedded in the SFW Master CD may be sold by SFW. Any such residual sales will be credited to Software Publisher as per the royalty terms of this Agreement. 2. DELIVERY. Software Publisher shall deliver to SFW within ten days of the date of this fully executed Agreement one complete copy of the Software, including all support files. 3. REPORTS AND PAYMENTS: REPORTS AND PAYMENTS: During the term of this Agreement, SFW shall deliver a written quarterly report to Software Publisher on or before the 1 5" day of each month following each calendar year quarter (i.e., March, June, September and December), setting forth the number of copies of the Software sold on behalf of Software Publisher in the previous three-month period and the net paid sales for those units. Each such report will be accompanied by the royalty payment and a list containing the names and addresses of those who have purchased the Software. Such list will be on a floppy disk in a form easily read by Software Publisher. 4. SUPPORT AND SERVICE. SFW shall not be obligated to prepare any bug fixes or other updates to, or any new versions of, the Software. Any such updates or new versions or fixes, if and when provided to SFW, shall be deemed to be part of the Software as defined herein, and shall be governed by all rights and restrictions applicable to the Software hereunder. Software Publisher shall not be obligated to provide any service or support for the Software to SFW or any of its customers. Software Publisher will promptly notify SFW of any bugs or errors in the Software that Software Publisher becomes aware of. 5. Warranty by Software Publisher. Software Publisher warrants that the Software delivered to SFW will be free of defects and bugs and contain no significant reproducible errors or viruses. 6. NO WARRANTY BY SFW. SFW assumes no responsibility for the Software to achieve SFW' and its customers' intended results, and for the use of and results obtained by SFW customers from the Software. 7. CONFIDENTIALITY. Software Publisher agrees that all sales data provided by SFW will remain confidential. 8. NO ASSIGNMENT. The rights and obligations of Software Publisher hereunder are personal to Software Publisher under its current ownership and shall not be assigned, sublicensed or transferred to any third party, whether voluntarily or by operation of law (including without limitation any merger or other transaction which transfers control of Software Publisher to new owners) without the prior, written consent of SFW which shall not be unreasonably withheld in each instance. Any attempted assignment, sublicense or transfer in violation of this Section shall be void. 9. INDEMNIFICATION. Software Publisher shall defend, indemnify and hold SFW harmless from and against any and all claims, actions, losses, damages, liabilities, obligations, costs and expenses (including without limitation reasonable attorney fees) arising from or based upon (1) use by SFW or any of its customers of Software warranties, (2) any failure of the Software to meet any express or implied warranties made by Software Publisher or to satisfy the needs of any customer of SFW, or (3) any claims, that Software infringes any copyright, trademark or other legal rights of others. 10. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, SFW SHALL NOT UNDER ANY CIRCUMSTANCES BE LIABLE FOR ANY THIRD PARTY CLAIMS OR FOR ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT OR SPECIAL DAMAGES, INCLUDING ANY LOST PROFITS OR SAVINGS, ARISING FROM THE PERFORMANCE OR BREACH OF ANY PROVISION OF THIS AGREEMENT OR THE USE OR INABILITY TO USE THE SOFTWARE, OR ANY PORTION THEREOF, EVEN IF SFW HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, IN NO EVENT SHALL SFW'S LIABILITY, WHETHER IN TORT (INCLUDING NEGLIGENCE), CONTRACT, OR OTHERWISE, EXCEED $1,000. 11. GENERAL. 11.1 This Agreement is the complete and exclusive statement of the agreement between the parties and supersedes any and all prior or contemporaneous oral or written communications with respect to the subject matter hereof. Each party is not relying on any representation or warranty which is not expressly contained in this Agreement. Any provisions or conditions of any purchase order or other Software Publisher document shall be inapplicable and not binding upon SFW. No modification, waiver, or amendment hereof shall be binding unless stated in a writing signed by both parties, and no waiver of a right in any instance shall constitute a waiver of the same or any other right in any other instance. 11.2 In construing this Agreement, no weight or relevance shall be given to the fact that it or any particular provision of it may have been drafted by one or the other of the parties, the parties having had adequate opportunity to negotiate all provisions hereof. 11.3 This Agreement shall be governed and construed in accordance with the laws of the State of Washington and the United States of America, without regard to the rules relating to the conflict of laws. Any litigation between the parties concerning this Agreement shall be brought exclusively in King County, Washington. Software Publisher consents to the jurisdiction of the state and federal courts sitting in the State of Washington and service of process by registered or certified mail or such other methods permitted under the applicable long-arm statute. 11.4 If any provision of this Agreement is held to be invalid, illegal or unenforceable, such provision shall be enforced to the maximum extent permitted by law and the parties' fundamental intentions hereunder, and the remaining provisions shall not be affected. 11.5 Notices under this Agreement shall be sufficiently given if delivered in person or sent by mail or reputable courier service to the respective addresses stated below (or to such other address as a party may by notice specify for notices to it), and shall be effective upon the earlier of actual delivery or the third day after mailing. THE PARTIES AFFIRM THAT THEY HAVE READ AND UNDERSTOOD THIS ENTIRE AGREEMENT, INCLUDING THE EXCLUSIONS OF WARRANTIES AND LIMITATIONS OF REMEDIES STATED HEREIN, AND ACKNOWLEDGE THAT THE SAME CONSTITUTE AN AGREED ALLOCATION OF RISK REFLECTED IN THE PRICING OF THE LICENSE. SEATTLE FILMWORKS, INC. ALTAVISTA Technology, Inc., Inc: Address: 1260 16th Ave West Address: 1671 Dell Ave. Seattle, WA 98119 Suite 209 Campbell, CA 95008 By: By: /s/ Jack Marshall ----------------- Its: Its: President --------- Date: 1-14-97 Date: 1-22-97 EX-10.5 11 ALTAVISTA TECHNOLOGY, INC. ON-LINE DISTRIBUTION AGREEMENT This on-lineAgreement ("Agreement") is entered into as of___April 24,1999 by and between _____KC Audio with offices at Aptos Caalifornia ("Content --------- Developer"), and AltaVista Technology, Inc. with offices at 1671 Dell Ave. Suite #209 Campbell, CA 95008("AVT"). Recitals: Pursuant to an agreement between Content Developer and AVT, Content Developer has created original content for Howdy Me-Mail plug-ins called "Howdios" described in Exhibit A, which will also include any Exhibits and attachments which Content Developer and AVT desire to distribute from the AltaVista Technology, Inc. Web site. Agreement : NOW, THEREFORE, in consideration of the premises, conditions, covenants and warranties herein contained, the parties hereby agree to the following: 1. DEFINITIONS 1.1 "Content" shall mean digital content such as images, audios, text, poems, videos, animations, other items or any combination of the above that the Content Developer shall deliver to AVT in accordance to the terms of this agreement. 1.2 "Howdios" shall mean copies the content bundled with other content and software from AVT or third party. Each Howdio is detailed in a Delivery Schedule and attached to this agreement once approved by AVT as specified herein. 1.3 "Net Revenue" shall mean the price of a Howdio as listed in each attached Delivery Schedule. 1.4 "Territory" shall mean AVT's Internet Web page which is available throughout the world. 1.5 "Deliverable Item" shall mean each of the content components, materials, computer files or designs set forth in the relevant Delivery Schedule that Content Developer shall deliver to AVT in accordance with this Agreement. 1.6 "Deliverable Schedule" shall mean the schedule of Deliverable Items set forth in Exhibit A. 2. PROPRIETARY RIGHTS AND GRANT OF LICENSE 2.1 All rights to the Content, including but not limited to the copyrights, shall be the property of Content Developer. 2.2 Content Developer hereby grants to AVT, its successors and assigns, subject to the terms set forth herein, the perpetual and exclusive right, license and privilege throughout the Territory to : 2.2.1 produce, reproduce, manufacture, distribute, export, import, promote, advertise, market, rent, sell and exploit the Content including derivative works throughout the Territory; 2.2.2 translate the Content at into any non-English language, using whatever means, developers, contractors or sub-licensees deemed appropriate by AVT, and exercise the rights granted in Section 2.2.1 above in connection with the translated versions of the Content. Any expense incurred by AVT in the translating of the Content in to other languages shall be considered additional Advance against royalties to be recouped by AVT from the first dollar revenues of said translated content prio to the payment of royalties to Content Developer. AVT shall own the copyright in any such translations; 2.2.3 publicly display or perform and/or authorize others to display and perform the Content and any prototypes or demonstration versions of the Content, or any part thereof, solely in connection with the advertising, publicizing, marketing and distribution of the Content. Not withstanding anything contained here in to the contrary, it is understood and agreed that AVT retains exclusive rights to all content delivered during the life of this agreement. 2.2.4 Sub-license others to exercise any of the rights set forth in sections 2.2.1 through 2.2.3 above. 3. ROYALTIES 3.1 ROYALTIES ON THE CONTENT. AVT shall pay or credit Content Developer royalties as set forth in Exhibit A. 3.2 AVT will provide to Content Developer on a quarterly basis, within forty-five (45) days after the end of each calendar quarter during which the Content was sold, a written statement of royalties due to Content Developer with respect to such Content. Such statement shall be accompanied by a remittance of the amount due, if any. Content Developer shall have the right, upon reasonable notice, but no more than once per calendar year, to audit those records of AVT necessary to verify the royalties paid. Any such audit will be conducted at Content Developers expense, by certified public accountants, and at such times and in such a manner as to not unreasonably interfere with AVT's normal operations and Content Developer and its auditor shall be required to treat information revealed during the audit as Confidential Information. Should deficiency be shown by such audit, AVT and Content Developer shall immediately meet to resolve the conflict. 4. DEVELOPMENT AND APPROVAL PROCESS 4.1 Content Developer agrees to develop the Content in accordance with the terms of this and to deliver the Content and the Deliverable Items to AVT for approval, said approval to be at AVTs sole discretion , in a manner and on the dates specified in Delivery Schedule. 4.2 No Deliverable Item shall be considered approved by AVT until Content Developer has received written confirmation of such approval from AVT. 4.3 Upon receipt of the initial Content, AVT shall, within 15 business day, provide Content Developer with either or written acceptance or a written list of changes that must be made before AVT will accept the Content. 4.4 If changes are required by AVT before AVT will accept the Content then the steps outlined in Section 4.3 will be repeated until the Content is accepted or until AVT terminates this Agreement or exercises its completion rights. If Content Developer has not provided an acceptable Deliverable Schedule Content Developer will have an additional 30 days to remedy the situation. If Content Developer fails to provide an acceptable Deliverable Item within the allocated extension, AVT, at its sole discretion, may terminate this agreement and/or exercise its completion rights. 4.5 On or before the date on which the Content was originally due to be delivered in accordance with the Delivery Schedule, Content Developer has not provided an acceptable Deliverable Item within one (1) month of the date such Deliverable Item was originally due in accordance with the Delivery Schedule, AVT shall be entitled to terminate this agreement or exercise its completion rights. 4.6 Content Developer shall be responsible for all development costs associated with the Content, including but not limited to, the costs of any fees payable for software or other licensing rights or acquiring services or materials in connection with the Content. If any Deliverable Item contains any non-original material, including music, poems images, pictures, animations or text, Content Developer shall identify the material and the owner or copyright holder thereof at the time of delivery of such Deliverable Item, and Content Developer shall obtain, at Content Developer's expense, all authorizations necessary to secure from the owner or copyright holder of such material the rights for AVT granted in Section 2 above in connection with such material without additional costs to AVT and without restriction. In addition, Content Developer shall deliver to AVT along with the Deliverable Item containing such material, all documentation establishing, to AVT's satisfaction, Content Developer's and AVT's right to use such material. 5. WARRANTIES, INDEMNIFICATION, AND REMEDIES 5.1 Content Developer represents, warrants and covenants that: it has full right, power and authority to enter into this Agreement and to grant all rights granted herein without violating any other agreement or commitment of 1 any sort; that Content Developer has the requisite corporate authority to enter into this Agreement and to enter into all transactions and grant all rights contained in this Agreement; that it has no outstanding agreements or understandings, written or oral, concerning the Content; that Content Developer has not previously sold, licensed, encumbered or pledged the Content or any portion thereof as security to any third party; the Deliverable Items provided hereunder shall be original; and that the Content does not and will not infringe or constitute a misappropriation of any trademark, patent, copyright, trade secret or other proprietary, publicity, or privacy right of any third party and AVT's use, reproduction, sale, licensing and/or distribution of Content as provided in this Agreement shall not violate any rights of any kind or nature of any third party. 5.2 Content Developer shall defend, indemnify and hold harmless AVT, its successors, assigns, parents, subsidiaries, affiliates, licensees and sublicensees, and their respective officers, directors, agents and employees, from and against any action, suit, claim, damages, liability, costs and expenses (including reasonable attorneys' fees), arising out of or in any way connected with any breach of any representation or warranty made by Content Developer herein or any claim that the Content infringes any intellectual property rights or other rights of any third party. AVT shall give Content Developer prompt notice of any such claim or of any threatened claim and shall reasonably cooperate with Content Developer in the defense thereof. 5.3 If AVT receives notice of any claim, demand or suit, or of any facts which would lead a reasonable person to believe that there has been a breach of Content Developer's representations or warranties as set forth herein, AVT shall have the right to withhold from any payments due to Content Developer under this Agreement reasonable amounts as security for Content Developer's obligations hereunder, unless Content Developer posts other security reasonably acceptable to AVT. Upon resolution of the claim, the amount in escrow thereon shall be distributed to Content Developer after deductions of any amounts required to be paid to AVT or third parties under this indemnity. 5.4 AVT hereby represents, warrants and covenants that it has the full right, power and authority to enter into this Agreement. AVT shall defend, indemnify and hold harmless Content Developer, its successors, assigns, parents, subsidiaries, affiliates, licensees and sublicensees, and their respective officers, directors, agents and employees, from and against any action, suit, claim, damages, liability, costs and expenses (including reasonable attorneys' fees), arising out of or in any way connected with any breach of any representation or warranty made by AVT herein. Content Developer shall give AVT prompt notice of any such claim or of any threatened claim, and shall reasonably cooperate in the defense thereof. 5.5 Neither Content Developer nor AVT shall agree to the settlement of any such claim, demand or suit prior to final judgment therein without the consent of the other party, whose consent shall not unreasonably be withheld. 5.6 The parties' indemnification obligations set forth in the foregoing sections shall survive termination of this Agreement. 6. TERM 6.1 This Agreement shall automatically renew without notice, 12 months -- from the effective date first set forth above, unless the parties have mutually agreed in writing not to renew the agreement for an additional 12 month term, which agreement must be made in writing within 45 days of the second anniversary of the agreement. 7. TERMINATION 7.1 This Agreement shall terminate upon the earlier of (a) the thirtieth (30th) day after one party gives the other notice of a material breach by the other of any term of this Agreement, unless the breach is cured before that day, or (b) the thirtieth (30th) day after AVT gives Content Developer notice of its intention to terminate the Agreement. In the event of a material breach of this Agreement by Content Developer, AVT shall have the right to suspend payment of royalties from the time AVT notifies Content Developer of a breach until the time such breach is cured by Content Developer. 7.2 This Agreement also may be terminated by AVT immediately upon notice pursuant to the terms of Section 4.5 above. 8. ASSIGNMENT 8.1 This Agreement may not be assigned by Content Developer without the prior written consent of AVT. AVT may assign this Agreement without limitation. Subject to the foregoing, this Agreement will bind, and inure to the benefit of, the parties and their respective successors and permitted assigns. 9. FORCE MAJEURE 9.1 If the performance of this Agreement or any obligation under it (except payment of monies due) is prevented, restricted or interfered with by reason of acts of God, acts of government, or any other cause not within the control of either party, the party so affected shall be excused from such performance, but only for so long as and to the extent that such a force prevents, restricts or interferes with that party's performance. Notwithstanding the foregoing, the non-affected party may terminate this Agreement immediately upon written notice if the force majeure circumstances continue for more than sixty (60) days. 10. INTEGRATION 10.1 This Agreement, together with all Delivery Schedule attached hereto, sets forth the entire agreement between the parties with respect to the subject matter hereof, and may not be modified or amended except by written agreement executed by each of the parties hereto. 11. GOVERNING LAW 11.1 This Agreement shall be governed by the laws of the State of California applicable to agreements made and to be wholly performed therein (without reference to conflict of laws). Content Developer hereby consents to the jurisdiction of the state and federal courts having jurisdiction in San Jose, California. In any action to enforce the terms of this Agreement, the prevailing party shall be entitled to recover its reasonable attorneys' fees and expenses. 12. INDEPENDENT CONTRACTOR 12.1 Content Developer shall be deemed to have the status of an independent contractor, and nothing in this Agreement shall be deemed to place the parties in the relationship of employer-employee, principal-agent, partners or joint ventures. Content Developer shall be responsible for any withholding taxes, payroll taxes, disability insurance payments, unemployment taxes and other similar taxes or charges on the payments received by Content Developer hereunder. IN WITNESS WHEREOF, the parties have caused this Development Agreement to be executed on the date set forth by their duly authorized representatives. AltaVista Technology, Inc. ------------------------ Signature: Darren Shadwick Signature: ------------------- ------------------- Name: Name: ------------------------ ------------------------ Title: Co-Owner K.C. Audio Title: ----------------------- ----------------------- Date: April 24, 1997 Date: ------------------------ ------------------------ 2 EXHIBIT "A" DELIVERY SCHEDULE Attached hereto and made part here of that certain on-line Distribution Agreement by and between _________________ Content Developer and AltaVista Technology, Inc. dated ____________. Howdio Name: Friend 1 --------- Total Howdio Price: $_______ Content Percentage: _______% Content Developer Royalty: $_______ Delivery Date: ________ Content Description & Specification: Audios3 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ALTAVISTA TECHNOLOGY, INC. Signature: s. Jack Marshall Signature: s. Darren Chadwick ------------------- ------------------- Name: Name: ------------------------ ------------------------ Title: President Title: ----------------------- ------------------ Date: Date: ------------------------ ------------------------ Other Content Description : Name Quantity Content Developer 1. _______________ ______ _______________ 2. _______________ ______ _______________ 3. _______________ ______ _______________ 4. _______________ ______ _______________ 5. _______________ ______ _______________ 7. _______________ ______ _______________ 8. _______________ ______ _______________ 9. _______________ ______ _______________ 10. _______________ ______ _______________ 3 EX-10.6 12 OEM LICENSE AGREEMENT FOR ALTAVISTA TECHNOLOGY FNC.'S PRODUCTS (Reproducing) This Agreement (the "Agreement") is made by and between AltaVista Technology Inc. ("AVT"), having its principal place of business at 1671 Dell Avenue, Suite #209, Campbell, CA 95008 and AITech International ("OEM"), having its principal place of business at 47971 Fremont Blvd, Fremont, CA 94538 for the purpose of licensing AVT's software produces for bundling with certain of OEM's products. The effective date of this Agreement shall be the latest date set forth on the signature page of this Agreement (the "Effective Date"). The parties agree as follows: 1. DEFINITIONS. ----------- 1.1 Documentation is defined as (i) AVT's End User manuals, and (ii) the End ------------- User license agreement, (iii) the End User warranty statement all of which are intended to be provided to the End User in on-line format. 1.2 End User(s)is defined as a third party wing the Programs for ordinary ------------ and customary business or for personal purposes, and not for redistribution. 1.3 Master Copy is defined as the Program in machine readable form embodied ------------ on magnetic media to be used in making serialized reproductions of the AVT Program. 1.4 New Release is defined as the then-current release of a particular ------------ Program designated by AVT by a change in the version number digits of the tenths decimal place, or one decimal to the left of the decimal point. 1.5 OEM Hardware & Software is defined as the hardware and software -------------------------- developed by OEM that is marketed by or supported by OEM 1.6 Programs are defined as the AVT proprietary computer program products -------- listed in Exhibit A ("AVT Programs"). The list in Exhibit A ("AVT Programs") may be amended in writing by the parties from time to time. 2. LICENSE AND OEM CERTIFICATION. -------------------------------- 2.l OEM Certification. OEM certifies that the Programs and Documentation ------------------ acquired under this Agreement we to be distributed with the OEM Hardware & Software which is remarketed to unaffiliated third-party End Users, value-added dealers, distributors, systems integrators, and retail dealers in the regular course of OEM's business. OEM acknowledges that any other transfer of the Programs and Documentation acquired pursuant to this Agreement is expressly prohibited. 2.2 Bundling. OEM agrees to bundle the Programs and Documentation with -------- shipments of its OEM Hardware & Software during the term of the Agreement. OEM understands and agrees that it has no right to distribute the Programs separately or unbundled from the OEM Hardware & Software. 2.3 Distribution License Grant. AVT hereby grants to OEM and OEM hereby ---------------------------- accepts from AVT, in accordance with the terms and conditions of this Agreement, a non-exclusive, worldwide, non-transferable license, for the fee set forth in Section 5 ("Royalties") to distribute the Programs and Documentation bundled with the OEM Hardware & Software directly and indirectly through OEM's usual channels of distribution. 2.4 Reproduction. ------------- 2.4.1 Reproduction of the Program. AVT hereby grants to OEM in ------------------------------- accordance with the terms and conditions of this Agreement, a non-exclusive, worldwide, non-transferable license, to reproduce copies of the Programs, made from the Master Copy. OEM may not sublicense its right to reproduce the Programs to any third party unless AVT consents in writing to the sublicense. OEM may use its own company label as the main label on the media containing the Programs, provided, however, that each copy of the media embodying the Programs, other than a hard disk, must contain (i) a label bearing the same AVT copyright notice as contained on the label on the Master Copy received from AVT and (ii) a label bearing the particular Program trademark. 2.5 Limited Right to Use Trademarks. AVT hereby grants to OEM a ----------------------------------- non-exclusive, nontransferable limited right, to the extent that AVT has the authority to grant such limited right, to use the relevant AVT trademarks on the Programs and in OEM's product literature, promotion and advertising for the Programs. OEM agrees that it will include the AVT trademarks on the Programs and in any literature, Promotion or advertising concerning the Programs or the features or functionality provided to the OEM Hardware & Software by the Programs. 3. DELIVERY. -------- 3.1 Delivery of the Master Copy. AVT shall deliver to OEM a Master Copy of ---------------------------- the particular Program(s) ten (IO)days after the execution of this Agreement. 4. MAFNTENANCE AND SUPPORT. ------------------------- 4.1 End User Support. AVT shall provide End User warranty and continuing ----------------- support for Programs directly to End Users by telephone during normal business hours in accordance with AVT's standard customer support policies and then-current rates. 4.2 End User Warranty. AVT warrants the Programs only pursuant to the ------------------- terms and conditions of the End User license agreement and warranty statement provided with the Documentation and no warranty is extended to OEM except as an End User. 4.3 Support to OEM. For the term of this agreement and any renewals ---------------- thereof, AVT shall, during normal business hours, provide to OEM telephone assistance and response to written requests received by telecopy concerning Program errors and possible work wounds for AVT's then-current release of the Programs or the then-immediately prior release, at the same level m AVT supplies to its End User customers under the Standard Passport Support Program. 5. ROYALTIES. --------- 5.1 Royalty The royalty rate for the Software Product shall be $0.00 per ------- ----- copy of the Howdy Software Product bundled with the Combined Product throughout the term of this agreement. There shall be no royalty due for WebCannon. There shall be no royalty due for my backup or replacement copies and OEM shall be given full credit in the mount of full royalty paid by OEM for my for my Software bundle that is returned to OEM. OEM agrees to make quarterly reports and payments to AVT within thirty (30) days after the end of each quarter. Each report shall specify the number of Combined Products shipped during that month, 5.3 Taxes and Fees. In addition to any other charges due under this ----------------- Agreement, OEM agrees to pay, indemnify and hold AVT harmless from any sales, use, excise, import or export, value added or similar tax, not based on AVT 's net income or my other duty or fee (collectively tire "Taxes") and any penalties or interest associated with any of the Taxes, imposed by my governmental authority with respect to either or both of any payment to be made by OEM to under this Agreement or any Program package to be delivered by AVT to OEM under this Agreement. 5.4 Payment Upon Termination. Upon termination of this Agreement, the -------------------------- payment date of all monies due AVT shall automatically be accelerated so that they shall become due and payable on the effective date of termination, even if longer terms had been provided previously. 5.5 Shipping Costs and Insurance. All shipping charges and insurance shall ----------------------------- be borne by OEM, and said charges will appear on AVT's invoice OEM shall, at its expense, make and negotiate all claims against any carrier, for any loss or damage. 5.6 Revenue Sharing Program. AVT will pay OEM 20% of the one yen hosting fee ----------------------- for any customer who signs up for one (1) year of hosting with AVT. The percentage will be based on the amount of the hosting fee at the time the user registers for the service. AVT reserves the right to change the price of the one (1) year hosting fee at any time. Tracking is done by a private file that is sent to AVT via e-mail by any OEM Customer that is using AVT to host their site. Payment will only be made for customers whose e-mail contains this file. Payments will be made to the OEM within thirty (30) days after the end of each quarter. 6. TERM OF AGREEMENT. The term of the Agreement shall commence on the -------------------- Effective Date and unless sooner terminated in accordance with the terms of this --- Agreement, shall continue for one (1) year (the "Initial Tem"). The Agreement will renew automatically for successive one (1) year terms (the "Renewal Terms") unless written notice of termination is received by either parry thirty (30) days prior to the end of the Initial Term or any Renewal term. 7. OWNERSHIP OF PROPRIETARY RIGHTS AND RESTRICTED RIGHTS. ----------------------------------------------------------- 7.1 Proprietary Rights. OEM acknowledges that the Programs, ------------------- Documentation, including the structure, sequence and organization of the Programs are proprietary to AVT and that AVT retains exclusive ownership of the Programs, Documentation and proprietary rights associated with the Programs, and Documentation, OEM wilt take all reasonable measures to protect AVT s proprietary rights in the Programs, Documentation including AVT's patents, trademarks, copyrights and trade secrets. Except m provided herein, OEM is not granted any rights to patents, copyrights, trade secrets, trade names, trademarks (whether registered or unregistered), or any other rights, franchises or licenses with respect to the Programs, and Documentation. 8. NON-DISCLOSURE. During the term of this Agreement, certain information -------------- will be disclosed to OEM concerning the Programs, proposed new AVT software, pricing, business plans and customers which is the confidential and proprietary information of AVT and not generally known to the public (herein "Confidential Information"). OEM agrees that during and after the term of this Agreement, it will not use or disclose to any third parry any Confidential Information without the prior written consent of AVT. AVT hereby consent to the disclosure of its Confidential Information to certain employees of OEM w is reasonably necessary in Order to allow OEM to perform Under this Agreement and to obtain the benefits This Paragraph shall not apply to proposed new Program information after such information is made public by AVT. 9. PROPRIETARY RIGHTS INDEMNITY. AVT shall defend at its own expense my ------------------------------ claim, suit or proceeding brought against OEM insofar as it is based on a claim that a Program constitutes a direct infringement of a U.S. copyright of a third party. To qualify for such defense and payment OEM must- (i) give AVT prompt written notice of my such claim; and (if) allow AVT to control and fully cooperate with AVT in the defense and all related settlement negotiations. AVT shall pay all damages (including reasonable attorneys' fees) finally awarded to third panics against OEM which OEM is obligated to pay but shall not be responsible for my compromise made without its consent. Upon notice of an alleged infringement or if in AVT's opinion such a claim is likely, AVT shall have the right, at its option, to obtain the right to continue the distribution of the Programs, substitute other computer software with similar operating capabilities, or modify the Program so that it is no longer infringing. In the event that none of the above options we reasonably available in AVT's opinion, OEMs sole and exclusive remedy shall be to terminate this Agreement, return all copies of the Documentation paid for and in OEM's inventory and obtain a refund from AVT of the fee paid by OEM for such Documentation inventory. THE FOREGOING STATES OEM's SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO CLAIMS OF INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS OF ANY KIND. AVT will have no liability to OEM if any alleged copyright infringement or claim thereof is based upon the use of the Programs in connection or in combination with equipment, devices or software not delivered by AVT (if such infringement or claim would have been avoided by the use of the Programs with other equipment, devices or software) or use of the Programs in a manner for which they were not intended or use of other than the most current release of the Programs if such claim would have been prevented by the use of such most current release. 10. LIMITATIONS AND DISCLAIMER. EXCEPT FOR THE EXPRESS WARRANTY SET FORTH IN --------------------------- THE END USER LICENSE AND WARRANTY STATEMENT, AVT MAKES NO OTHER WARRANTIES RELATING TO THE PROGRAMS, EXPRESS, OR IMPLIED, AND EXPRESSLY EXCLUDES ANY WARRANTY OF NON-INFRINGEMENT, FITNESS FOR A PARTICULAR PURPOSE OR MERCFIANTABILITY. NO PERSON IS AUTHORIZED TO MAKE ANY OTHER WARRANTY OR REPRESENTATION CONCERNING THE PROGRAMS OTHER THAN AS PROVIDED IN THE END USER LICENSE AND WARRANTY STATEMENT. OEM SHALL MAKE NO OTHER WARRANTY, EXPRESS OR IMPLIED, ON BEHALF OF AVT. 11. INDEMNITY. OEM agrees to indemnify and bold AVT harmless from any claim ---------- or damages (inclusive of AVT's attorneys' fees) m fOEMorrepresentativesofOEM. OEM shall be solely responsible for my claims, warranties or representations made by OEM or OEM's employees or agents which differ from the warranty provided by AVT in its End User agreement. 12. CONSEQUENTIAL DAMAGES WAIVER. AVT WILL NOT BE LIABLE FOR ANY LOSS OF ------------------------------ USE, INTERRUPTION OF BUSINESS, OR ANY INDIRECT, SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOST PROFITS) REGARDLESS OF THE FORM OF ACTION WHETHER IN CONTRACT, TORT (INCLUDING NEGLIGENCE), STRICT PRODUCT LIABILITY OR OTHERWISE, EVEN IF AVT HAS BEEN ADVISED OF THE POSSIBII.ITY OF SUCH DAMAGES. 11. LIMITATION OF LIABILITY. Notwithstanding any other provisions of this ------------------------- Agreement, AVT's total liability to OEM under this Agreement shall be limited to replacement of the Programs, and Documentation. 14. TERMINATION. ----------- 14.1 Without Cause. This Agreement may be terminated at any time by -------------- either party without cause upon thirty (30) days prior written notice. 14.2 With Cause. ----------- 14.2.1 AVT may terminate this Agreement upon thirty (30) days written notice of a material breach of this Agreement if such breach is not cured within such thirty (30) day period. 14.2.2 Notwithstanding the above, AVT may terminate this Agreement immediately, upon written notice, for a material breach of Paragraph 2 ("License and OEM Certification"), 7 ("Ownership of Proprietary Rights and Restricted Rights"), 8 ("Non-Disclosure") or the failure to make any payments due under this Agreement. 14.2.3 AVT may immediately terminate this Agreement after giving written notice (i) if OEM shall become insolvent, (ii) if OEM shall fail to pay its obligations as they arise, (iii) upon any proceeding being commenced by or against OEM under any law providing relief to OEM as debtor, (iv) if OEM shall make a composition with its creditors, or (v) if OEM shall have a receiver appointed over the whole or any pan of its assets. 14.3 Rights upon Termination. Upon termination of this Agreement: 14 3.1 OEM's appointment as an authorized OEM for the AVT Programs and Documentation shall immediately terminate. 14 3.2 OEM shall immediately discontinue all representations that it is an authorized AVT OEM. 14.3.3 OEM shall have no further right to reproduce the Programs or to distribute the Programs or Documentation. 14.3.4 OEM shall destroy or create all copies of the Programs and certify such destruction to AVT in writing within ten (10) days of the termination date. Additionally, OEM shall immediately return the Master Copy magnetic media to the AVT. 14.3.4 OEM shall have sixty (60) days from the effective date of termination to distribute its inventory of the current versions of the Programs and Documentation in accordance with the terms of this Agreement. 15. NOTICES. All notices permitted or required under this Agreement ------- shall be in writing and shall be delivered @ follows with notice deemed given as indicated: (I) by personal delivery when delivered personally, (it) by overnight courier upon written notification of receipt, (iii) by telecopy or facsimile transmission when continued by tclecopier or facsimile transmission, or (iv) by certified or registered mail, return receipt requested, five (5) days after deposit in the mail. All notices must be sent to the address first described above or to such other address that the receiving party may have provided for the purpose of notice in accordance with this Paragraph 15. 16. FORCE MAIEURE. Neither party shall be liable hereunder by reason of my -------------- failure or delay in the performance of its obligations hereunder (except for the payment of money) on account of strikes, shortages, riots, insurrection, fires, flood, storm, explosions, acts of God, war, governmental action, labor conditions, earthquakes, or any other cause which is beyond the reasonable control of such party. 17. WAIVER. The failure of either party to require performance by the other ------- party of my provision hereof shall not affect the full right to require such performance at any time thereafter, nor shall the waiver by either party of a breach of my provision hereof be taken or held w be a waiver of the provision itself. 18. SEVERABILITY. In the event that any provision of this Agreement shall be ------------- unenforceable or invalid under any applicable law or be so held by applicable court decision, such unenforceability or invalidity shall not render this Agreement unenforceable or invalid m a whole. 19. INJUNCTIVE RELIEF. It is expressly agreed that a material breach of ------------------ this Agreement will cause irreparable harm to AVT and that a remedy at law would be inadequate. Therefore, in addition to any and all remedies available at law, AVT will be entitled to an injunction or other equitable remedies in all legal proceedings in the event of any threatened or actual violation of my or all of the above provisions. 20. CONTROLLING LAW. This Agreement shall be governed in all respects by --------------- the laws of the United States of America and the State of California m such laws are applied to agreements entered into and to be performed entirely within California between California residents. OEM and AVT acknowledge that the United Nations Convention on Contracts for the International Sale of Goods (1980) is specifically excluded from application to this Agreement, This Agreement is prepared and executed in the English language only and any translations of this Agreement into any other language shall have no effect, All proceedings related to this Agreement shall be conducted in the English language 21. NO AGENCY. Nothing contained herein shall be construed as creating any ---------- agency, partnership, or other form of joint enterprise between the parties. 22. HEADRNGS. The paragraph headings appearing in this Agreement are --------- inserted only as a matter of convenience and in no way define, limit, construe or describe the scope or extent of such paragraph or in any way affect such paragraph. 23. SUBCONTRACTING AND ASSIGNMENT. This Agreement shall be binding and ------------------------------- inure to the benefit of the parties hereto and their respective successor and assigns, Neither part), shall assign any of its rights nor delegate my of its obligations under this Agreement to any third party without the express written consent of the other except to the surviving entity in a merger or consolidation in which it participates or to a purchaser of all or substantially all of its assets, so long @ such surviving entity or purchaser shall expressly assume in writing the performance of all of the terms of this Agreement. Notwithstanding the foregoing, AVT may sell, pledge or otherwise transfer its right to receive payments under this Agreement, Any act in derogation of the foregoing shall be null and void. 24. EXPORT. OEM acknowledges that the laws and regulations of the United ------- States may restrict the export and re-export of certain commodities and technical data of United States origin, including the Programs in any medium OEM agrees that it will not export or re-export the Programs in any form without the appropriate United States and foreign government licenses. OEM also agrees that its obligations Pursuant to this section shall survive and continue after my termination or expiration of rights under this Agreement. 25. SURVIVAL. The rights and obligations contained in Paragraphs 8 --------- ("Non-Disclosure"), 10 ("Limitations and Disclaimer"), 12 ("Consequential Damages-Waiver") and 14 ("Termination") shall survive any termination or expiration of this Agreement. 26. ENTIRE AGREEMENT. This Agreement is the entire agreement between the ---------------- parties regarding its subject matter. It supersedes and its terms govern, all prior proposals, agreements, or other communications between fire parties, oral or written regarding such subject matter. This Agreement shall not be modified unless done so in a writing signed by officers of both AVT and OEM. IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Agreement. AVT OEM Alta Vista Technology, Inc. AITech International 1671 Dell Ave Suite #209 47971 Fremont Blvd. Campbell, CA 95008 Fremont, CA94538 By: s. Jack Marshall By: s. Jack Li ------------------ ------------ Name: Jack Marshall Name: Jack Li Title: President Title: Chief Operating Officer Date: 5-22-98 Date: 5-19-98 Exhibit "A" Programs Howdy! 2.lx (demo) WebCannon! 2. 1 x AVT OEM Alta Vista Technology, Inc. AITech International 1671 Dell Ave Suite #209 47971 Fremont Blvd. Campbell, CA 95008 Fremont, CA94538 By: s.Jack Marshall By: s. Jack Li -------------- ------------ Name: Jack Marshall Name: Jack Li Title: President Title: Chief Operating Officer Date: 5-22-98 Date: 5-19-98 EX-10.7 13 I ALTAVISTA TECHNOLOGY, INC. SERIES C PREFERRED STOCK PURCHASE AGREEMENT JUNE 11, 1997
TABLE OF CONTENTS SECTION I AUTHORIZATION AND SALE OF SERIES C PREFERRED STOCK 1.1 Authorization 1.2 Sale of Preferred SECTION 2 CLOSING DATE; DELIVERY 2.1 Closing Date 2.2 Delivery SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY 3.t Organization and Standing; Articles and Bylaws 3.2 Corporate Power 3.3 Subsidiaries 3.4 Capitalization 3.5 Authorization 3.6 Litigation, etc. 3.7 Compliance with Other Instruments, None Burdensome, etc. 3.8 Governmental Consent, etc. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER 4.1 Experience 4.2 Investment 4.3 Rule 144 4.4 No Public Market 4.5 Access to Data 4.6 Authorization 4.7 Brokers or Finders 4.8 Tax Liability SECTION 5 PURCHASERS' CONDITIONS TO CLOSING 5.1 Representations and Warranties Correct 5.2 Covenants 5.3 Blue Sky 5.4 Restated Articles 5.5 Registration and Information Rights Agreement 5.6 Compliance Certificate SECTION 6 CONDITIONS TO CLOSING OF COMPANY 6.1 Representations 6.2 Covenants 6.3 Blue Sky 6.4 Restated Articles 6.5 Legal Matters SECTION 7 MISCELLANEOUS 7.1 Governing Law 7.2 Successors and Assigns 7.3 Entire Agreement; Amendment 7.4 Notices, etc. 7.5 Delays or Omissions 7.6 California Corporate Securities Law 7.7 Counterparts 7.8 Severability 7.9 Titles and Subtitles
ALTAVISTA TECHNOLOGY, INC. SERIES C PREFERRED STOCK PURCHASE AGREEMENT This Agreement is made as of June 5, 1997 by and among AltaVista Technology, Inc., a California corporation (the "Company"), the individuals and entities set forth on the Schedule of Purchasers attached hereto as Exhibit A (the ---------- "Purchasers"), and any other person or persons who shall have executed this Agreement in connection with their purchase of Additional Shares, as defined below (such persons listed on the Schedule of Purchasers and such persons who shall have purchased Additional Shares collectively being referred to as "Purchasers"), which person or persons shall be added to the Schedule of Purchasers at such time as they shall purchase such Additional Shares pursuant hereto. SECTION I AUTHORIZATION AND SALE OF SERIES C PREFERRED STOCK -------------------------------------------------- 1.1 AUTHORIZATION. The Company will authorize the sale and issuance of -------------- up to 1,500,000 shares of its Series C Preferred Stock (the "Shares"), having the rights, preferences, privileges and restrictions as set forth in the Amended and Restated Articles of Incorporation ("Restated Articles") in substantially the form attached hereto as Exhibit B. ---------- 1.2 SALE OF PREFERRED. Subject to the terms and conditions hereof, the -------------------- Company will issue and sell to the Purchasers, and the Purchasers will purchase severally, and not jointly, from the Company, up to all of the Shares, (i) of which not less than 10,000 of the Shares (the "Initial Shares') will be sold to the Purchasers at the Initial Closing, as defined below, in the amounts specified opposite the name of each such Purchaser in the column designated "Initial Shares" on the Schedule of Purchasers, at a per share purchase price of $.75, and (ii) of which up to 1,490,000 Shares (the "Additional Shares") may, at the election of the Company, be sold to the Purchasers at one or more additional closings subsequent to the Initial Closing (the "Subsequent Closing(s)"), in the amounts as shall be specified opposite the name of each such Purchaser in the column designated "Additional Shares" on the Schedule of Purchasers, at a per share purchase price of $.75. SECTION 2 CLOSING- DATE: DELIVERY ----------------------- 2.1 CLOSING DATE. The closing of the purchase and sale of the Initial -------------- Shares hereunder (the "Initial Closing") shall be held at the offices of Wilson, Sonsini, Goodrich & Rosati, Two Palo Alto Square, Palo Alto, California, at I 0:00 a.m. on January , 1994, or at such other time and place upon which the Company and the Purchasers shall agree. The Subsequent Closing(s), if any, shall be held at the offices of Wilson, Sonsini, Goodrich & Rosati, Two Palo Alto Square, Palo Alto, California at such time(s) and date(s) as the Company shall specify. The date(s) of the Subsequent Closing(s) shall hereinafter be referred to as the "Subsequent Closing Date(s)." The Initial Closing and the Subsequent Closing(s) are sometimes hereinafter referred to as the "Closings.' The Initial Closing Date and the Subsequent Closing Date(s) are sometimes hereinafter referred to as the "Closing Dates." 2.2 DELIVERY. At the Initial Closing, the Company will deliver to each --------- Purchaser a certificate or certificates representing the number of Shares set forth opposite such Purchaser's name in the column designated "Shares' on the Schedule of Purchasers against payment of the purchase price therefor by check payable to the Company or by wire transfer made pursuant to the Company's instructions. At the Subsequent Closing(s), the Company will deliver to each Additional Purchaser who shall have executed this Agreement a certificate or certificates representing the number of shares as shall be specified opposite the name of each Purchaser in the column designated "Additional Shares" on the Schedule of Purchasers, against payment of the purchase price therefor, by check payable to the Company or by wire transfer made pursuant to the Company's instructions. At each Subsequent Closing, if any, a Supplemental Schedule of Purchasers shall be added to this Agreement as Exhibit A. 1. At each Subsequent Closing, if any, the Purchaser purchasing Additional Shares therein shall execute a signature page to this Agreement. SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY --------------------------------------------- Except as set forth on Exhibit Cattached hereto, the Company represents and --------- warrants to the Purchasers as follows: 3.1 ORGANIZATION AND STANDING: ARTICLES AND BYLAWS. The Company is a --------------------------------------------------- corporation duly organized and existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate power and authority to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted. The Company is not presently qualified to do business as a foreign corporation in any jurisdiction, and the failure to be so qualified will not have a material adverse effect on the Company's business as now conducted. The Company has furnished each Purchaser with copies of the Restated Articles and of its Bylaws, which are true, correct and complete and contain all amendments through the Closing Date. 3.2 CORPORATE POWER. The Company will have at the Closing Date all ----------------- requisite legal and corporate power and authority to execute and deliver this Agreement and the Registration and Information Rights Agreement in substantially the form attached hereto as Exhibit D (the "Registration and Information Rights --------- Agreement"), to sell and issue the Shares hereunder, to issue the Common Stock issuable upon conversion of the Series C Preferred Stock, a and to carry out and per-form its obligations under the terms of this Agreement and the Registration and Information Rights Agreement (together the "Agreements"). 3.3 SUBSIDIARIES. The Company has no subsidiaries or affiliated ------------- companies and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity. 3.4 CAPITALIZATION. The authorized capital stock of the Company, upon --------------- the filing of the Restated Articles, consists of I 0,000,000 shares of Common Stock, of which 500,000 shares are issued and outstanding, and 10,000,000 shares of Preferred Stock, of which 1,500,000 shares have been designated Series C Preferred Stock ("Series C Preferred'), none of which are issued and outstanding stock immediately prior to the Initial Closing. The Series C Preferred shall have the rights, preferences, privileges and restrictions set forth in the Restated Articles. The currently outstanding shares of Common Stock have been duly authorized and validly issued, and are fully paid and non-assessable, and have been issued in compliance with applicable securities laws. The shares of Series C Preferred to be issued and sold to the Purchaser have been duly authorized and, when issued in accordance with this Agreement and the Restated Articles, will be validly issued, fully paid and non-assessable. The Company has reserved 1,500,000 shares of Series C Preferred for issuance hereunder, 1,500,000 shares of Common Stock for issuance upon conversion of the Series C Preferred and 5,000,000 shares of its Common Stock for issuance to officers, directors, employees and consultants of the Company pursuant to the 1993 Stock Plan or other arrangements approved by the Board. Except as set forth above, there are no options, warrants, subscriptions, calls, puts, claims, commitments, convertible securities or other agreements or arrangements under which the Company is or may be obligated to issue or purchase, as the case may be, shares of the Company's capital stock. 3.5 AUTHORIZATION. All corporate action on the part of the Company, its -------------- directors and shareholders necessary for the authorization, execution, delivery and performance of the Agreements by the Company, the authorization, sale, issuance and delivery of the Series C Preferred (and the Common Stock issuable upon conversion of the Series C Preferred), and the performance of all of the Company's obligations hereunder has been taken or will be taken prior to each Closing. The Agreements, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, fully paid and non-assessable, and will have the rights, preferences and privileges described in the Restated Articles; the Common Stock issuable upon conversion of the Shares has been duly and validly reserved and, when issued in compliance with the provisions of the Restated Articles, will be validly issued, and will be fully paid and non-assessable; and the Shares and such Common Stock will be free of any liens or encumbrances, assuming each Purchaser takes the Shares with no notice thereof, other than any liens or encumbrances created by Purchaser; provided, however, that the Shares (and the Common Stock issuable upon conversion thereof) may be subject to restrictions on transfer under state or federal securities laws as set forth in this Agreement and the exhibits hereto. The Shares (and the Common Stock issuable upon the conversion thereof) are not subject to any preemptive rights or rights of first refusal. 3.6 LITIGATION, ETC. There are no actions, suits, proceedings or ----------------- investigations pending or, to the Company's knowledge, threatened against the Company or its properties before any court or governmental agency other than the suit filed by Digital Equipment is United States District Court for the District of Massachusetts (civil action 96-12192NG). 3.7 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company -------------------------------------------------------- is not in violation of any term of the Restated Articles or its Bylaws or any mortgage, indebtedness, indenture, judgment or decree, or in any material respect of any term or provision of any material contract, agreement or instrument, and to the best of its knowledge is not in violation of any order, statute, rule or regulation applicable to the Company. The execution, delivery and performance of and compliance with the Agreements, and the issuance of the Series C Preferred and the Common Stock issuable upon conversion of the Series C Preferred, have not resulted and will not result in any violation of, or conflict with, or constitute a default under, the Restated Articles or the Company's Bylaws, nor will it result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company. 3.8 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of --------------------------- or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of the Agreements, or the offer, sale or issuance of the Series C Preferred (and the Common Stock issuable upon conversion of the Series C Preferred), or the consummation of any other transaction contemplated hereby or thereby, except (a) filing of the Restated Articles in the office of the California Secretary of State, (b) qualification (or taking such action as may be necessary to secure an exemption from qualification, if available) of the offer and sale of the Series C Preferred (and the Common Stock issuable upon conversion of the Series C Preferred) under the California Corporate Securities Law of 1968, as amended, and other applicable Blue Sky laws, which filings and qualifications, if required, will be accomplished in a timely manner, and (c) filing of a notice, if required, pursuant to Regulation D of the Securities Act, which filing will be accomplished in a timely manner. SECTION 4 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER ----------------------------------------------- Each Purchaser hereby represents and warrants to the Company with respect to the purchase of the Shares as follows: 4.1 EXPERIENCE. It has substantial experience in evaluating and ----------- investing in private transactions of securities in companies similar to the Company so that it is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its own interests and bear the risk of loss of its entire investment. 4.2 INVESTMENT. It is acquiring the Series C Preferred and the underlying Common Stock for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. It understands that the Series C Preferred to be purchased and the underlying Common Stock have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of --------- such Purchaser's representations as expressed herein. It is an "accredited investor' within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission. 4.3 RULE 144. It acknowledges that the Series C Preferred and the ---------- underlying Common Stock must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from such registration is available. It is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including, among other things, the existence of a public market for the shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker', and the number of shares being sold during any three-month period not exceeding specified limitations. 4.4 NO PUBLIC MARKET. It understands that no public market now exists ------------------ for any of the securities issued by the Company and that no assurances can be made that a public market will ever exist for the Company's securities. 4.5 ACCESS TO DATA. It has had an opportunity to discuss the Company's ----------------- business, management and financial affairs with its management and the opportunity to review the Company's facilities and has had access to all other information about the Company it deemed necessary in connection with the purchase of the Series C Preferred. It has also had an opportunity to ask questions of officers of the Company. It understands that such discussions, as well as any written information issued by the Company, were intended to describe certain aspects of the Company's business and prospects but were not a thorough or exhaustive description. 4.6 AUTHORIZATION. The Agreements, when executed and delivered by -------------- Purchaser, will constitute a valid and legally binding obligations of each Purchaser, enforceable in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors arid rules of law governing specific performance, injunctive relief or other equitable remedies. 4.7 BROKERS OR FINDERS. The Company has not, and will not, incur, --------------------- directly or indirectly, as a result of any action taken by such Purchaser, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement. 4.8 TAX LIABILITY. It has reviewed with its own tax advisors the --------------- federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. It relies solely on such advisors and not on any statements or representations of the Company or any of its agents. It understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement. SECTION 5 PURCHASERS' CONDITIONS TO CLOSING --------------------------------- The Purchasers' obligation to purchase the Shares at the Closing is, at the option of Purchasers, subject to the fulfillment of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties --------------------------------- made by the Company in Section 3 hereof shall be true and correct in all material respects as of the Closing Date. 5.2 COVENANTS. All covenants, agreements and conditions contained in ---------- this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects, unless waived in writing by the Purchaser. 5.3 BLUE SKY. Me Company shall have obtained all necessary Blue Sky law ---------- permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Series C Preferred and the Common Stock issuable upon conversion of the Series C Preferred. 5.4 RESTATED ARTICLES. The Restated Articles shall have been filed with ------------------ the California Secretary of State. 5.5 REGISTRATION AND INFORMATION RIGHTS AGREEMENT The Company shall have --------------------------------------------- executed the Registration and Information Rights Agreement in substantially the form attached hereto as Exhibit D. 5.6 COMPLIANCE CERTIFICATE The Company shall have delivered to the ----------------------- Purchasers a certificate of the Company in substantially the form attached hereto as Exhibit E, executed by the President of the Company, dated the Closing Date, and certifying, among other things, the fulfillment of the conditions specified in Sections S. 1, 5.2 and 5.4 of this Agreement. SECTION 6 CONDITIONS TO CLOSING OF COMPANY -------------------------------- The Company's obligation to sell and issue the Shares at the Closing Date is, at the option of the Company, subject to the fulfillment as of the Closing Date of the following conditions: 6.1 REPRESENTATIONS. The representations made by the Purchasers in ---------------- Section 4 hereof shall be true and correct as of the Closing Date. 6.2 COVENANTS. All covenants, agreements, and conditions contained in ---------- this Agreement to be performed by the Purchasers on or prior to the Closing Date shall have been performed or complied with in all material respects unless waived in writing by the Company. 6.3 BLUE SKY. The Company shall have obtained all necessary Blue Sky law --------- permits and qualifications, or have the availability of exemptions therefrom, required by any state for the offer and sale of the Series C Preferred and the Common Stock issuable upon conversion of the Series C Preferred. 6.4 RELATED ARTICLES. The Restated Articles shall have been filed with ------------------ the California Secretary of State. 6.5 LEGAL MATTERS. All material matters of a legal nature which pertain to -------------- this Agreement, and the transactions contemplated hereby, shall have been reasonably approved by counsel to the Company. SECTION 7 MISCELLANEOUS ------------- 7.1 GOVERNING LAW. This Agreement shall be governed in all respects by --------------- the internal laws of the State of California. 7.2 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the ------------------------- provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto, provided, however, that the rights of the Purchasers to purchase the Series C Preferred shall not be assignable without the consent of the Company. 7.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents ----------------------------- delivered pursuant hereto at each Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought. 7.4 NOTICES, ETC. All notices and other communications required or -------------- permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand or by messenger, addressed (a) if to a Purchaser, at the address set forth on the Schedule of Purchasers attached hereto as Exhibit A, or at such other address as such Purchaser shall have furnished to the Company in writing, or (b) if to the Company, one copy should be sent AltaVista Technology, INC. 1671 Dell Ave., Suite 209, Campbell, California 95008 and addressed to the attention of the President, or at such other address.-as the Company shall have furnished to the Purchaser, and one copy should be sent TO Wilson, Sonsini, Goodrich & Rosati, Two Palo Alto Square, Palo Alto, California 94306, to the attention of Bruce D. Bower, Esq. Each such notice or other communication shall, for all intents and purposes of this Agreement, be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 7.5 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay ---------------------- or omission to exercise any right, power or remedy accruing to the Purchasers, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of the Purchasers nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default thereto fore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of the Purchasers, or any waiver on the part of the Purchasers of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to the Purchasers, shall be cumulative and not alternative. 7.6 CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES --------------------------------------- WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100,25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. 7.7 COUNTERPARTS. This Agreement may be executed in any number of ------------- counterparts, each of which shall be enforceable against the party actually executing such counterpane and all of which together shall constitute one instrument. 7.8 SEVERABILITY. In the event that any provision of this Agreement ------------- becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, provided that no such severability shall be effective if it materially changes the economic BENEFIT of this Agreement to any party. 7.9 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement. EX-10.8 14 DISTRIBUTION AND REPUBLISHING AGREEMENT CONVENED OF THE FIRST PART Softpool, - A Division of infoMedia GmbH, hereafter named Softpool, of Berliner Strasse I01, Ratingen 40880, Germany. OF THE OTHER PART ALTA VISTA INC., of 1671 Dell Avenue, Suite 209, Campbell, CA 95008, USA Both parties mutually acknowledge the requisite capacity and standing to execute this document, and hereby state as follows: a) Softpool's business activity is concentrated on the production, publication and marketing of all types of software. b) ALTA VISTA'S business activity concentrates on the production, development, promotion and sale of computer games, and it holds the exploitation rights to the work INTERNET POSTCARTS/Howdy. Softpool is interested in acquiring the exploitation rights to the aforesaid work and, in this being so, both parties have agreed to sign this LICENSING AGREEMENT, and submit to the following conditions for the purpose of regulating it: CONDITIONS 1. DEFINITIONS The words and expressions mentioned below shall have the following meanings for the purposes of this agreement: INTERNET Postcarts A work to be distributed by Softpool consisting of a CD-ROM containing intemet utility software, bookmarks and intemet access software. Unit sold: Unit actually invoiced by Softpool, except those which can be delivered as samples of no value (not for resale), and those returned by customers. Stocks: Units of the INTERNET POSTCARTS/Howdy work manufactured and not sold by Softpool until the expiry date of the effective period of this agreement. Launch: Day on which the work INTERNET POSTCARTS/Howdy is available for purchase by consumers at any points of sale. 2. OBJECT OF THE AGREEMENT Under this agreement ALTA VISTA assigns to Softpool exclusively during a period of 18 months, for the territories of Germany, Austria and Switzerland, the rights to distribute, republish, bundle and sublicense the work called "INTERNET POSTCARTS/Howdy " and in particular those of transformation, reproduction, compilation and distribution for said product. 3. INTELLECTUAL PROPERTY RIGHTS ALTA VISTA will remain the holder of all the intellectual property rights to the work INTERNET POSTCARTS/Howdy. ALTA VISTA grants, that there are no rights payable to GEMA or any other organization by using the music, videos and pictures from the CD and by using any INTERNET POSTCARTS created with the work. Softpool will be required to include in the INTERNET POSTCARTS/Howdy work the ALTA VISTA name and logotype, and also the copyright message, all in relation to the INTERNET POSTCARTS/Howdy. 4. FINANCIAL CONSIDERATION As financial consideration for the assignment which is the object of this agreement, Softpool shall deliver to ALTA VISTA as fees for rights payments 2 DM per unit from retail product and from bundling and licensing. For these purposes, a minimum advance on royalties is established in the amount of DM 4,000. This amount will be invoiced on signature of this agreement, and is payable on invoice, directly to InterActiv Arts, based in UK. Bank details to be supplied. The launch date must be no later than 30 October 1997. The future royalty payments will be made direct to ALTA VISTA, after delivery of the corresponding invoice, by a bank transfer. ALTA VISTA must provide appropriate bank details. 5. DECLARATION OF FEES Softpool will be required to make quarterly declarations of fees. The said declarations will include the product identification details, the units sold and where applicable the amount of fees accrued in favour of ALTA VISTA. Declarations will be made within 15 days of the end of the quarter. When each declaration has been made and upon presentation by ALTA VISTA of the corresponding invoice. Softpool will pay this by bank transfer. In the event of a discrepancy in the determination of fees, the parties undertake to appoint an external auditor to verify the declarations made. The expenses will be charged to the party requesting the verification. Should a discrepancy of more than 10% be discovered, Softpool will pay the auditor costs, and any additional owed royalties. 6. LIQUIDATION If, after a certain period of time, the units sold of the product decrease to under 100 units per month, then both parties may mutually agree to consider liquidation of any remaining stocks. In this case the Licensor will not pay a license fee, until the production costs have been recovered. If there is any profit exceeding the production cost, both partners will share that equally. 6. LOCALISATION In addition to all the obligations derived from the exact fulfillment of this agreement and contractual good faith, ALTA VISTA undertakes to ensure technical guidance is provided where required for localization, as long as Softpool has sought and received approval from ALTA VISTA where required. 8. MARKETING OF THE PRODUCT ALTA VISTA authorizes lnfomedia to market, sell and sub-license the work using all the distribution channels available to it within the assigned territory, both traditional and non-traditional, and to promote this in any medium of communication. 9. EFFECTIVE PERIOD This agreement will be valid for 18 months from its signature, renewed automatically for a further 12 months, unless otherwise notified by either party, in writing, 3 months prior to expiration. Upon expiry of the validity period, InfoMedia will have a period of 3 months in which to liquidate stocks. 10. CONFIDENTIALITY The details supplied relating to the activity of InfoMedia and ALTA VISTA, and in particular all the elements which might come to the knowledge of the parties within the framework of this agreement are understood to be confidential and they must be safeguarded. II. COMMUNICATION BETWEEN THE PARTIES In order to have full contractual effects, communications between the parties must be sent (i) by registered post with advice of receipt. ii)by overnight courier delivery with advice of receipt, iii) by fax transmission, or iv) by electronic mail, to the addresses and telephone numbers of the parties which appear in this agreement, or those which may validly replace them. 12. THIRD PARTY CLAIMS ALTA VISTA declares to InfoMedia that it is duly empowered for the assignment formalized, undertaking for this reason to hold harmless from any claim based on the infringement or alleged infringement of any intellectual property right existing on the INTERNET POSTCARTS/Howdy, as long as InfoMedia has sought and received approval from ALTA VISTA where required. 13. TERMINATION OF THE AGREEMENT. The total or partial default by either party of what is agreed in this agreement will empower the other party to terminate it, in addition to requiring the indemnity for damage and losses suffered. 14. SETTLEMENT OF DIFFERENCES. For the better settlement of any differences existing in the fulfillment and interpretation of this agreement, the parties agree to submit to arbitration. And as proof of agreement, both parties sign this agreement in duplicate as below: Jack Marshall - -------------- ALTA VISTA Softpool 10/17/99 8/27/97 - -------- ------- Date Date AMENDMENT TO THE DISTRIBUTION AND REPUBLISHING AGREEMENT COVERING THE PRODUCT "HOWDY" DATED THE 17.10.97 Between infoMedia Software Publishing GmbH, Heltorfer Str. 12; 40472 D sseldorf hereafter referred to as the "licensee" and PhotoLoft.com Inc., of 300 Orchard City Drive, Suite 142, Campbell, CA 95008, USA, hereafter referred to as the "Licensor" 1.0 EXTENSION OF TERM The duration of the term has been extended for a further 24 month. 2.0 FINANCIAL CONSIDERATION For bundling and sub-licensing purposes infoMedia shall deliver to licensor 40% of the net profits gained from such a deal. All other matters arising out of this agreement are covered in the main contract and those are applicable at all times. NAME:____________________________ Date: ____12 Feb. 99 ---------------- InfoMedia Software Publishing GmbH. NAME: s. Jack Marshall ------------------ Date: 2/25/99 ------- PhotoLoft.com Inc AMENDMENT TO THE DISTRIBUTION AND REPUBLISHING AGREEMENT COVERING THE PRODUCT "HOWDY" DATED THE 17.10.97 Between infoMedia Software Publishing GmbH, Heltorfer Str. 12; 40472 D sseldorf hereafter referred to as the "licensee" and PhotoLoft.com Inc., of 300 Orchard City Drive, Suite 142, Campbell, CA 95008, USA, hereafter referred to as the "Licensor" 1.0 EXTENSION OF TERM The duration of the term has been extended for a further 24 month. 2.0 FINANCIAL CONSIDERATION For bundling and sub-licensing purposes infoMedia shall deliver to licensor 40% of the net profits gained from such a deal. All other matters arising out of this agreement are covered in the main contract and those are applicable at all times. NAME:____________________ Date: ___________________________ infoMedia Software Publishing GmbH. NAME: s. Jack Marshall ------------------ Date: 2/4/99 ------ PhotoLoft.com Inc EX-10.9 15 October 24, 1997 Mr. Jack Marshall AltaVista Technologies, Inc. 1671 Dell Avenue, Suite 209 Campbell, CA 95008 Engagement Letter Business Development Services Situation and Objectives AltaVista Technologies, Inc. (the "Client") would like Kremen, Father & Partners (the "Firm") to help develop the Client and refer potential investors to the Client. Study Plan The Firm will use Client materials such as the business plan, publications, and other materials and Firm contacts to identify and introduce potential investors tot he Client. The firm will provide business plan and development advice to the Client. From time-to-time, the firm will assist the Client's Officers with advice on business structure, markets, and communications with potential investors. Upon commencement, the Firm will suggest revisions in the business plan to facilitate investor referrals. The Firm is not obligated to cultivate any specific investors nor is the Client obligate to communicate with or accept any specific investor introduced by the Firm. The Firm does not warrant the qualifications or legal acceptability of potential investors. The Client will be responsible for all accounting, legal, and financing activities. The Client will be responsible for all requirements and liabilities of relationships with parties that invest in the Client. Structure and Fees
Engagement Number: VC01 Engagement Director: Jack Marshall Team Members: Kremen, Father & Partners and others as required by the Firm Subject Matter: Business Development Services Billing Rate: For the cash component of the following, retroactive to August 1, 1977: $3,000 in reduction of amount per month due for the past purchase of $50,000 of Alta vista Series C stock. Additionally "bargain" options to purchase 1% of the Company on a fully diluted for every three months of successful work (if not fully successful on a vested on a pro-rata weighted average). A work list will be provided (to be agreed upon mutually) for November 1997 and every month beyond. With respect to find raising, We are to be compensated on a standard Lehman compensation formula (attached in finders agreement). With respect to partner finding, we are to be compensated as according to a standard independent sales agreement (attached). Expenses: Due in cash as described in the Firm's then current Expense Policy. Additional Terms: The Firm will seek prior oral approval from the ED for single expense items over $250.00 or monthly expenses over $500.00 The Firm may choose to bill the Client in order to time bills for collection at financial closings, meet management needs, improve collection, and meet other needs of the Firm. The Firm may designate individual owners of common stock or options due the Firm as payment for fundraising and consulting services. The Client agrees to issue such instruments in the names designated by the Firm provided the designees accept and agree to the Client's standard subscription agreement.
Acceptance s. Gary Kremen Date: 10-31-97 - ---------------- Gary Kremen Kremen, Father & Partners 843 Montgomery, Suite 300 San Francisco, CA 94133 Client warrants that it has read this entire engagement letter, fully understands the engagement letter, agrees to all terms and conditions herein, and authorizes the work described herein. s. Jack Marshall Date: 10-30-97 - ------------------ Mr. Jack Marshall AltaVista Technologies, Inc. 1671 Dell Avenue, Suite 209 Campbell, CA 95008 EX-10.10 16 VENTURE BANKING GROUP February 12, 1998 Alta Vista Technology, Inc. dba Magicbit 1671 Dell Avenue, Suite 209 Campbell, CA. 95008 Attn: Jack Marshall President Re: Revolving Line of Credit Dear Jack: We are pleased to commit to you the following credit facility ("Credit Facility") subject to the terms and to the prior satisfaction of the conditions set forth below. This commitment letter agreement is not meant to be, nor shall it be construed as, an attempt to define all of the terms and conditions involved in this financing. Rather, it is intended only to outline certain of the basic points of our understanding around which the final terms and documentation are to be structured. Further negotiations adding to or modifying the general scope of these major terms shall not be precluded by the issuance of this commitment letter agreement and its acceptance by you. I. PARTIES Lender: CUPERTINO NATIONAL BANK & TRUST ("Lender") Borrower: Alta Vista Technology ("Borrower") II. THE CREDIT FACILITY Amount: Up to $200,000 Loan Cap: Borrowings under the line will be limited to $100,000 until fulfillment of the milestone covenants and payment of the additional loan fee. A DIVISION OF CUPERTINO NATIONAL BANK Three Palo Alto Sqare. Suite 150. Palo Alto, CA 94306. 415.813.3819. Fax 415. 843. 6969. Website: www.venlen.com Alta Vista Technology, Inc. Commitment Letter February 12, 1998 Page 2
Purpose: To supplement short term working capital needs. Maturity: The loan under the Credit Facility shall have a maturity date of one year from the date of documents. Interest Rate: Interest shall accrue at the rate of 2.0% over Lender's Prime Rate. Interest shall be calculated on the basis of a 360 day year, actual days lapsed. Upon fulfillment of the milestone covenants and payment of the additional fee, the interest shall accrue at the rate of 1.0% over Lenders Prime Rate. Loan Fee: $1,000 Additional Loan Fee: An additional $500 loan fee will be paid upon fulfillment of The milestone covenants to remove the loan cap. Repayment: Advances under the Credit Facility shall be repaid on or Before maturity with interest payable monthly. Loan Documentation: The terms and conditions of the Credit Facility shall be set Forth in the loan agreement and, and the indebtedness shall be evidenced by a promissory note. III.SUPPORT Security: The Borrower shall grant a first priority security interest in all of its corporate assets, including but not limited to, accounts receivable inventory with proceeds thereof, equipment and all other tangible and intangible assets.
IV.REPRESENTATINOS, WARRANTIES, COVENANTS AND CONDITIONS Specifically included, without limitation, will be the following: Advances against the borrowing base shall not exceed 70% of eligible accounts receivable, not to exceed $100,000. Upon fulfillment of the milestone covenants and payments of the additional AltaVista Technology, Inc. Commitment Letter February 12, 1998 Page 3 loan fee, the Loan Cap will be removed and advances against the borrowing base shall not exceed 70% of eligible accounts receivable, not to exceed $200,000. Loan advances are subject to a "satisfactory" initial A/R examination. Bank to perform A/R exams at Borrower's expense on an annual basis, or at any time the Bank deems appropriate. Bank shall remain the primary bank depository. Borrower shall provide CPA-audited financial statements to the Bank annually within 120 days of each fiscal year-end. Borrower shall provide monthly financial statements in form and substance satisfactory to the Bank within 30 days of each Fiscal month-end. Borrower shall provide the Bank with monthly A/R and A/P agings within 15 days of monthend, with supporting Borrowing Base Certificates. The following financial covenants shall be tested monthly unless otherwise noted. Financial Covenants - -------------------- Minimum Quick Ratio (Cash plus Accounts Receivable) of 1.20. Minimum Tangible Net Worth (TNW) of $75,000. Maximum Debt to TNW (Total Liabilities to Tangible Net Worth) of 2.50. Borrower shall maintain quarterly profitable operations under the following schedule:
Net Profit after tax for the quarter ended March 31, 1998 of greater than $20,000. Net Profit after tax for the quarter ended June 30, 1998 of greater than $30,000. Net Profit after tax for the quarter ended September 30, 1998 of greater than $50,000. Net Profit after tax for the quarter ended December 31, 1998 of greater than $75,000.
Upon achievement of the following milestone covenants, Borrower may elect to remove the Loan Cap after payment of the additional fee. Milestone Covenants - -------------------- Minimum Quick Ratio (Cash plus Accounts Receivable) of 1.50. Minimum Tangible Net Worth (TNW) of $600,000. Maximum Debt to TNW (Total Liabilities to Tangible Net Worth) of 1.50. AltaVista Technology, Inc. Commitment Letter February 12, 1998 Page 4 Minimum Quarterly Net Profit After Tax of greater than zero. Note: Tangible Net Worth is calculated excluding existing Shareholder and Employee Notes Receivable as intangible. Borrower shall maintain adequate hazard insurance with the Bank named as "Loss Payee". Borrower shall not make further shareholder loans or employee advances without prior written Bank Approval. Borrower shall notify the Bank immediately if it becomes involved in any litigation. Borrower shall not declare or pay any cash dividend on the capital stock of Borrower, or purchase or acquire in any way for consideration, any shares of such capital stock. Borrower shall not acquire through stock purchases, or otherwise, the assets or business of any other person or entity, and not liquidate or dissolve, merge or consolidate with any other person or entity by purchase, sale or otherwise. Borrower shall not change the present character of the business. Conditions: The obligations of the Lender to advance under the Credit Facility shall be subject to the prior and continuing satisfaction of certain conditions including: i) Receipt by the Lender from the Borrower of reasonable certificates, authorizations and closing documentation's evidencing the satisfaction or the ability to satisfy the requirements of the Credit Facility. ii) Execution and recordation of the security documents. iii) No material adverse changes in the financial conditions or results of Operations of the Borrower. This commitment letter agreement is provided to you solely for the purpose described herein and may not be disclosed to or relied upon by any other part without the Lender's prior written consent. AltaVista Technology, Inc. Commitment Letter February 12, 1998 Page 5 Upon default by you under any of the conditions of this agreement, or any other documents executed by you in connection with this credit accommodation, the credit shall, at the option of the Bank, immediately terminate and all sums of interest and principal remaining unpaid on loans made and notes issued shall become immediately due and payable without notice. No failure or delay on the part of the Bank to exercise any power or right under this agreement or declare a default hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any other right. This agreement, and all other documents executed in connection with the credit, shall be governed and construed under the laws of the State of California. Borrower shall reimburse Bank for all costs, expenses and reasonable attorney's fees incurred by Bank in enforcing this agreement or in collecting any sum which becomes due Bank on any loan made or note issued hereunder. AltaVista Technology, Inc. Commitment Letter February 12,1998 Page 6 If the foregoing terms and conditions are satisfactory to you, please indicate your acceptance of this commitment by signing and returning the enclosed copy of this letter. In reliance upon such acceptance we shall thereafter commence documentation of the Credit Facility on the understanding that our expense, including fees of our counsel, incurred after the date of your acceptance will be immediately reimbursed by you whether or not this Credit Facility is consummated. Your agreement to borrow and our agreement to lend are subject to your and our acceptance and execution of the Note. The commitment set forth in this letter will expire unless your acceptance has been received by us prior to 5:00 p.m. on February 20, 1998 commitment set forth in this letter will expire even after your acceptance, if the loan documents and instructions have not been executed and delivered prior to 5:00 P.M. on March 13, 1998. We appreciate the opportunity to make this proposal to you and hope it lays the foundation for a long and mutually satisfactory relationship. Very truly yours, CUPERTINO NATIONAL BANK & TRUST s. Guy A. Syty - ----------------- Guy A. Syty Commercial Lender Venture Banking Group The undersigned has read the foregoing letter, understands its terms and conditions, and agree that Borrower, Alta Vista Technology, Inc. shall be bound in accordance thereby. s. Jack Marshall - ------------------ Jack Marshall Alta Vista Technology, Inc. Date February 20,1998 EX-10.11 17 DISTRIBUTION AGREEMENT THIS DISTRIBUTION AGREEMENT (this "Agreement") is made and entered into this ___ day of March, 1998, by and between AltaVista Technology Inc., a California corporation with its principal executive offices located at 1671 Dell Avenue, Suite 209; Campbell, CA 95008 ("AVT"), and Kuni Research International Corporation, a Corporation incorporated in Japan with its principal executive offices located at Ebodori Center Building, 11F, 2-1-1 Ebodori, Nishi-Ku, Osaka, Japan ("Kuni"). RECITALS -------- WHEREAS, AVT. which operates a division known as "Magic Bit", provides a multimedia email tool to send personalized Valentine cards complete with pictures, audio and text on-line throughout the World Wide Web; WHEREAS, AVT's technological core is the ME-Mail(TM) engine (i.e., Multimedia E-mail) which allows any ME-Mail message to be sent directly to an end user or sent to the Magic Bit web server where it will instantly be converted into a series of web pages and posted "live" on the Internet; WHEREAS, AVT is the registered owner of all right, title, and interest in and to the trademarks and any and all trade dress, labels, and designs associated therewith, together with the goodwill of the business symbolized thereby in connection with the Products (as defined below); WHEREAS, Kuni has substantial resources for the localization, advertising and promotion of AVT's Products in the Territory; WHEREAS, Kuni desires to obtain from AVT, and AVT is wining to grant to Kuni and its affiliates, an exclusive right and license in the AVT products and services for the purposes of enabling Kuni to distribute the AVT Products (as defined below) and services in the Territory; and WHEREAS, AVT and Kuni mutually desire to enter into this Agreement, pursuant to which AVT grants certain rights to Kuni for the localization, translation, production, distribution, packaging and marketing of the Products (as defined below) in accordance with the provisions hereof. NOW, THEREFORE, in consideration of the foregoing promises and the mutual representations and agreements set forth herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, hereby agree as follows: 1 AGREEMENT --------- 1. Definitions. For the purposes of this Agreement, the following terms shall have the respective meanings indicated below: "Affiliate" shall mean any corporation, limited liability company, partnership or other entity (collectively, an "Entity"): (1) that is controlled by or controls a party (collectively, a "Controlled Entity"); or (2) that is controlled by or controls any such Controlled Entity, in each instance of clause (1) or (2) for so long as such control continues. For purposes of this definition, "control" shall mean the possession, directly or indirectly, of power to direct or cause the direction of the management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). Without limiting the foregoing, joint control of an Entity with one or more other persons or Entities shall be deemed to constitute control for purposes hereof, "Code" means computer programming code. If not otherwise specified, Code shall include both Object Code and Source Code. Code shall include Maintenance Modifications and Upgrades thereto if, when, and to the extent such Maintenance Modifications and/or Upgrades are delivered to Kuni by AVT under this Agreement or under any other agreement or arrangement between the parties. "Competitive Products" means any products that are competitive with the Products or Kuni Derivative Works. "Confidential Information' means any data or information, oral or written, treated as confidential that relates to either party's (or, if either party is bound to protect the confidentiality of any other person's information, such other person's) past, present, or future research, development or business activities, including any unannounced products and services, and including any information relating to services, developments, inventions, processes, plans, proposals, projects, financial information, customer and supplier lists, forecasts and projections. Confidential Information shall also include the terms of this Agreement. Notwithstanding the foregoing, Confidential Information shall not be deemed to include information that (1) is publicly available or in the public domain at the time disclosed; (2) is or becomes publicly available or enters the public domain through no fault of the party receiving such information; (3) is rightfully communicated to the recipient by persons not bound by confidentiality obligations with respect thereto; (4) is already in the recipient's possession free of any confidentiality obligations with respect thereto at the time of disclosure; (5) is independently developed by the recipient; or (6) is approved for release or disclosure by the disclosing party without restriction. "Corporate License Agreements" means the AVT form corporate license agreements set forth in Exhibit B1 hereto granted to corporate End Users to ----------- 2 reproduce and install the Kuni Derivative Works for internal use as may be amended by AVT from time to time; "Dealer" means and includes all subdistributors, dealers, authorized sublicensees, agents or other representative of K@, other than End Users. "Derivative Work" means a work that is based upon one or more preexisting works, such as a revision, modification, translation, abridgement, condensation, expansion, of any other form in which such preexisting works may be recast, transformed, or adapted, and that, if prepared without authorization of the owner of the copyright in such preexisting work, would constitute a copyright infringement. For the purposes hereof, a Derivative Work shall also include any localization of a pre-existing product. "Development Environment" means any devices, programming or documentation, including compilers and higher level languages used by AVT for the development, maintenance, and implementation of the Products, but only to the extent that the device, programming, or documentation so used would be necessary for the preparation of the Kuni Localized Japanese Versions, the Kuni Derivative Works and Maintenance Modifications and Upgrades thereof. "Documentation" means user manuals and other written materials that relate to the Products. Documentation shall include Maintenance Modifications and Upgrades thereto, if, when, and to the extent such Maintenance Modifications and/or Upgrades are delivered to Kuni by AVT under this Agreement or under any other agreement or arrangement between the parties. "End User(s)" means any person or entity that obtains copies of the Kuni Derivative Works solely to fulfil its own internal data processing needs. "End User License Agreement" means the AVT form End User license agreements set forth in Exhibit B2 hereto granted to End Users to use the Kuni Derivative ---------- Works -solely to fulfil their own internal data processing needs as may be amended from time to time by AVT. "Intellectual Property Rights" means the intangible legal rights or interests evidenced by or embodied in (1) any idea, design, concept, technique, invention, discovery, or improvement, regardless of patentability, but including patents, patent applications, trade secrets and know-how; (2) any work of authorship, regardless of copyrightability, but including copyrights and any moral rights recognized by law; and (3) any other similar rights, including trademarks, in each case on a worldwide basis. "Kuni Bundle" means a bundle or package sold or distributed by Kuni in a single sales transaction comprising any of the Products or Kuni Derivative Works and any other Kuni Product(s). 3 "Kuni Derivative Work" means a Japanese Localized Version packaged with other material that is created by Kuni and approved in advance by AVT. "Kuni Localized Japanese Versions" means versions of the Products localized by Kuni, to the extent necessary or appropriate, to operate solely on Japanese language localized computers and operating systems used in the Territory. "Kuni Products' means all current and future products distributed or to be distributed by Kuni. "Licensed Marks" means "AVT" and any and all trade dress, labels, and designs associated therewith, together with the goodwill of the business symbolized thereby in connection with the Products. "Maintenance Modifications" means modifications, Upgrades or revisions made by AVT to the Products that correct errors or support new releases of operating systems. "Minimum Revenue Quota" means ten percent (10%) of AVT's Net Revenue generated within the United States for that Product during the preceding six (6) month period. "Net Revenue" means revenue less returns and taxes withheld under Section 3.6 of this Agreement. "Object Code" means Code in machine-readable form. "Other Products" shall mean any product other than any of the Products created, developed, localized or licensed by AVT. "Products" means those AVT software products listed in Exhibit A. "Royalties" shall have the meaning ascribed to it in Section 3.1 hereof. "Source Code' means Code in human readable programming languages plus all related development documents. "Territory" shall not mean or include any specific geographical or physical to and include all dialects or variations of the Japanese, Chinese and Korean languages, individually or collectively. "Upgrade" means revised versions of the Products that result in (1) substantial performance, structural or functional improvements or additions, including the substantial redesign or replacement of any part of the Source Code and (2) a change in the Version number (including any changes to the number to the right of the decimal point) of the Product. 4 2. Grant of License ---------------- 2.1 License. Subject to all of the terms and conditions set forth in this Agreement, AVT hereby grants to Kuni, and Kuni hereby accepts from AVT, non-transferable licenses to engage in the following activities: (a) to create the Kuni Localized Japanese Versions of the Products set forth on Exhibit A ("Localization License"); ---------- (b) to distribute physical packages of the Kuni Derivative Works to End Users and to Dealers in the Territory for further distribution to other End Users or Dealers in the Territory (the "Package Distribution License"); (c) to reproduce the Kuni Derivative Works in physical packages for the sole purpose of exercising its license under Section 2.1 (b) (the Package Reproduction License'); (d) to place the Kuni Derivative Works on one or more servers owned or controlled by Kuni and to electronically transmit copies of such Kuni Derivative Works to End Users in Territory (the "Electronic Transmission License"); (e) to grant licenses to End Users to reproduce and install the Kuni Derivative Works for internal use pursuant to the terms and conditions of the Corporate License Agreements and End User License Agreements; and (f) to use the Licensed Marks solely in connection with and solely to the extent reasonably necessary for, the marketing, distribution, and support of the Kuni Derivative Works in the Territory. 2.2 Mutual Right to Enter Into OEM Arrangements. Kuni and have a ------------------------------------------------- co-exclusive right to enter into OEM arrangements with third-parties world-wide with respect to the Products. Each to this Agreement may exercise such right provided that the other party gives its prior written agreement that the exercise of such right is consistent with the terms of this Agreement. Such prior written agreement to the exercise of such right shall not be unreasonably withheld by ether non-exercising party. 2.3 Exclusivity. (a) During the term of this Agreement, AVT shall not ----------- grant (i) any similar rights to license and/or support, whether exclusive or non-exclusive, to any person or entity to use, display, reproduce, modify, and customize, for the purpose of developing, creating, operating, maintaining, marketing, promoting, distributing, or otherwise commercially exploiting a version of any Product that is customized, or localized for the Territory (i.e., the Kuni Localized Japanese Versions) or (ii) any similar rights to license, localize or support other versions of the Products for use on Japanese, Korean or Chinese language localized computers and operating systems used in the Territory, to any other person or entity. 5 2.4 Independent Contractor Relationship. The relationship of AVT and -------------------------------------- Kuni established by this Agreement is of licensor licensee or independent contractors and nothing in this Agreement shall be construed: (i) to give either party the power to direct or control the daily activities of the other party, or (ii) to constitute the parties as principal and agent, employer and employee, partners, joint ventures, co-owners or otherwise as participants in a joint undertaking. AVT and Kuni understand and agree that, except as specifically provided for in this Agreement, AVI does not grant Kuni the power or authority to make or give any agreement, statement, representation, warranty or other commitment on behalf of AVT, or to enter into any contract or otherwise incur any liability or obligation, express or implied, on behalf of AVT, or to transfer, release or waive any right, title or interest of AVT. Likewise, AVT and Kuni understand and agree that, except as specifically provided for in this Agreement, Kuni does not grant AVT the power or authority to make or give any agreement, statement, representation, warranty or other commitment on behalf of Kuni, or to enter into any contract or otherwise incur any liability or obligation, express or implied, on behalf of Kuni, or to transfer, release or waive any right title or interest of Kuni. 2.5 Reservation of Rights. All rights not specifically granted to Kuni --------------------- hereunder are reserved by AVT. Except as provided in this Agreement, Kuni shall have no right whatsoever to utilize, receive, review, or otherwise have access to the source code for the Products distributed by AVT in object code form only. 2.6 Changes in products and Support. AVT reserves the right at any ----------------------------------- time without liability or prior notice to (i) determine what constitutes each Product, including, but not limited to its features, characteristics, documentation and related materials; (ii) discontinue its distribution of any or all Products or discontinue distribution of any Product to the retail channel, which may include, but not be limited to, discontinuation due to the grant to a third party of the copyright or exclusive distribution or marketing rights to one or more Products; (iii) change or terminate any of the features of the Products, or (iv) change or terminate the level or type of support or service which AVT makes available for each Product. 2.7 Other Products. In the event that AVT creates, develops, --------------- localizes, obtains or licenses any Other Product, the parties agree that AVT will automatically grant to Kuni non-transferable licenses to engage in the those activities set forth in Section 2.3 above with respect to such Other Product and upon the acceptance by Kuni, at its sole option of those non-transferable licenses, such Other Product shall become a Product and, as a result, each of the parties hereto shall enjoy all of the rights and obligations created hereunder with respect to that new Product. In the event that Kuni determines not to accept such non-transferable license to distribute the Other Product, then Kuni shall notify AVT in writing and AVT shall be entitled to license such Other Product for distribution in the Territory to a third party that which is acceptable to Kuni. 2.8 Affiliates of Kuni. Kuni may transfer, assign, or sublicense the -------------------- rights and licenses granted hereunder to one or more of its Affiliates, and each 6 such Affiliate may correspondingly transfer, assign, or sublicense such rights and licenses to any other subsidiaries of Kuni, provided in each case that such Affiliates agree to be bound by the terms of this Agreement. 2.9 Ancillary Rights. The rights and licenses granted hereunder shall include the right and license to copy and display all pictorial, graphic, or audio-visual works created as a result of the development or preparation of the Products, even if such pictorial, graphic, or audio-visual works are created by or with other programming or through other means, provided, however, that it is understood by the parties hereto that AVT is not transferring any rights to Kuni pertaining to any third party content of AVT in using a Product. 2.10 Patent Rights. AVT further grants to Kuni, its successors, and --------------- assigns, and any sublicensees and customers, a world-wide. royalty-free, irrevocable and non-exclusive immunity from suit under any patents owned or licensable by Kuni at any time during the term of this Agreement and solely with respect to any changes made by Kuni to AVT's Products pursuant to this Agreement, as necessary for Kuni to exercise any other rights and licenses granted under this Agreement. 3. Royalties and Payments. ------------------------ 3.1 Royalties. Kuni shall pay AVT a royalty payment (the "Royalties") --------- of twenty percent (20%) of its Net Revenue derived from its exercise of the license rights set forth in Section 2 above. If Kuni is distributing any Product or Kuni Derivative Work in a Kuni Bundle, the Royalty payable by Kuni to AVT shall be calculated as follows: where: r is the Royalty payable by Kuni to AVT a is the AVT Web Site List Price of the Product(s) or Kuni Derivative Work(s), b is the total AVT Web List Price of all the Kuni Products in the Kuni Bundle, including the Product(s) and the Kuni Derivative Work(s), and c is the total Net Revenue received by Kuni from the sale and distribution of the Kuni Bundle. (b) AVT has represented to Kuni that AVT has entered into distribution agreements with each of Hewlett Packard Company, Arcsoft, Inc., SyQuest Technology, Inc., Creative Labs, Inc., New Media Corporation, Sony Inc., Seattle Filmworks, Inc and Visioneer, Inc. Furthermore, each party hereto recognizes that such party may enter into binding distribution agreements with manufacturers (collectively, "OEMs") and software development companies (collectively, "Developers"), and that certain provisions of such OEMs and/or Developers may come into conflict with the 7 restrictions set forth in Section 2.3 above (collectively, the "Developers Agreements"). In such event the parties agree that notwithstanding the formula set forth in subparagraph (a) above, upon the sale, distribution or marketing of any Kuni Localized Version of any Product by any OEM or Developer in the Territory then (i) if the proceeds of such sale are recouped by Kuni then Kuni shall be obligated to disburse to AVT an amount equal to twenty percent (20.0%) of the moneys earned by Kuni under such Developers Agreements from the sale of any Kuni Localized Version of any Product in the Territory and (ii) if the proceeds of such sale are recouped by AVT then AVT shall be obligated to disburse to Kuni an amount equal to eighty percent (90.0%) of the moneys earned by AVT under such Developers Agreements from the sale of any Kuni Localized Version of any Product in the Territory. 3.2 Guarantee of Minimum Revenue. Kuni agrees that during each successive six (6) month period after the effective date of this Agreement, it will achieve the Minimum Revenue Quota. If Kuni fails to achieve the Minimum Revenue Quota in any six month period, AVT will give Kuni notice thereof and Kuni may, within 30 days of receipt of such notice, elect to make payment to AVT of such shortfall. In the event that Kuni elects not to make such shortfall payment, AVT may terminate the exclusivity portion of this Agreement (Section 2.3) upon giving Kuni thirty days written notice thereof and Kuni shall become a non-exclusive distributor of the AVT Products in the Territory with the right (i) to continue to distribute the Products in the Territory for the duration of the Agreement or (ii) terminate the Agreement and the provisions of Section 11.2 shall apply. 3.3 Kuni shall pay to AVT the Royalties together with a statement detailing such payment within thirty (30) days after the end of-each calendar quarter ending March 31, June 30, September 30 and December 31 during the term of this Agreement. 3.4 Promotional Materials and Advertising. Kuni shall use its ----------------------------------------- commercially reasonable efforts to maximize customer sales of the Products by providing marketing support, product promotion, and local customer service, including a Japan-based sales training program and Japanese-language literature for the Kuni Derivative Work. 3.5 Currency. Kuni shall pay AVT the Royalties in United States -------- currency, in cash or demand draft, at AVT's United States offices. In the event that the Royalties payable to AVT hereunder are determined on the basis of the suggested list prices in the currency of Japan, the rate of exchange shall be the rate in effect on the date such payment is due. In the event that any currency controls imposed by the government of Japan do not allow payment to be made by Kuni to AVT in United States dollars, Kuni shall notify AVT of the same immediately, and if so instructed by AVT, deposit all monies due to AVT to AVT's account in a bank in Japan of AVT's choice. If any currency legislation or exchange controls under applicable law preclude Kuni from making payments to AVT in United States dollars for a period exceeding ninety (90) days, AVT shall have right to terminate this Agreement; provided, however, that such 8 termination shall not relieve Kuni of its Payment Obligations hereunder. Notwithstanding the foregoing, AVT shall have the unqualified right, at any time or times, to notify Kuni in writing to make any Royalty payment due and payable, or any part thereof, to be paid to AVT in an alternative manner, form or currency, and Kuni shall comply with such notice subject to Kuni's necessary compliance with the laws of Japan and/or any other applicable laws. 3.6 Withholding. In the event that Kuni is required to taxes on amounts payable to AVT in accordance with this Agreement put laws and regulations of Japan, Kuni shall be entitled to deduct and withhold( unless AVT shall furnish to Kuni duly executed forms sufficient under the laws of Japan to exempt sums payable to AVT hereunder from such taxes, in withhold herein provided, Kuni shall furnish AVT with a certificate of deduction an and a true copy of the governmental receipt establishing the payment thereof. Kuni shall further obtain and furnish to AVT on a timely basis official tax receipts or such other evidence of payment as AV-r may be required to submit in order to establish AVT's right to a foreign tax credit with respect to its United States federal income tax liability. 4. Duties of AVT 4.1 Delivery of Products and Development Environment. AVT shall deliver to Kuni a complete and updated version of the Products including all Source Code to the Code portion of the Products and the Development Environment within thirty (30) days after the execution of the Agreement. 4.2 On-going Training AVT shall provide to Kuni's software engineers ------------------ reasonable on-going support and training during the term of this Agreement. In particular, Kuni's software engineers must be trained concerning any Upgrades to the Products within thirty (30) days of such implementation, Such training shall be provided at the offices of AVT and in the event that Kuni requires such initial training to be conducted in Japan instead, Kuni shall be responsible for any additional costs of conducting such training in Japan. 4.3 Third Party Assistance. AVT shall have no objection to the provision of technical assistance regarding the Products to Kuni by a third party not located within the United States. Kuni shall contract directly with such third Party and shall be responsible for all payments to the third party for such technical assistance. 4.4 On-going commitment. AVT shall during the term of this Agreement, provide Kuni with timely supply of high quality Upgrades or Maintenance Modifications to the Products. AVT shall further use its commercial best efforts to provide new products and develop product improvements and extensions 5. Duties of Kuni. ---------------- 9 5.1 Development of Japanese Localized Versions. Kuni shall use -------------------------------------------- reasonable efforts to obtain and use Code necessary for the use, production and development of the Japanese Localized Versions of the Products and the Kuni Derivative Works. The Japanese Localized Versions and the Kuni Derivative Works shall be based upon the Products or well known standards and techniques used for the Products that have been published by AVT. 5.2 Marketing Materials Kuni shall use best efforts to publicize and -------------------- market the Kuni Derivative Works, including the creation and distribution of, among other things, Japanese literature and customary marketing and promotional materials therefor. Without limiting the generality of the foregoing, Kuni will advertise the Kuni Derivative Works in appropriate media and participate in trade shows, conferences, expositions, and promotional seminars, all with due consideration for the local marketing environment in Japan. Kuni shall conduct its marketing activities in a lawful manner with the highest standards of fair trade, fair competition, and business ethics, and shall cause its employees to do the same. 5.3 Personnel. Kuni shall use reasonable efforts to train salesmen and customer support personnel in the maintenance, support and use of the Products including providing at least one (1) manager or specialist whose duties shall be solely to manage and service the Products. 5.4 Program Reproduction and Distribution. Kuni shall be responsible --------------------------------------- for reproduction (including all costs related thereto) of the Kuni Derivative Works, as well as the AVT End User license agreement, registration card and such other inserted materials as may be reasonably requested by AVT. From time to time as reasonably requested by AVT, Kuni shall provide to AVT (Attention: Business Development) sample packages and promotional materials relating thereto, so that AVT can verify that the quality of Kuni's reproduction, use of AVT's trademarks, and application of the proprietary notices required hereunder, is comparable to that of AVT's own reproduction and use or otherwise complies with the terms hereof. Kuni agrees to treat all AVT Products at least as favorably as it treats any other products distributed by Kuni that are competitive with any AVT Product. Specifically, Kuni agrees that it will not market or promote any AVT Product or any other product in a manner that states or could be reasonably interpreted to imply that the AVT Product is inferior or secondary to the other product. For example, Kuni will not market or promote any other product as "preferred", "premier', "primary" or the like as compared with the AVT Products. 5.5 After Sales Support. Kuni shall have the sole responsibility for --------------------- all after sales and support services for the Kuni Derivative Works distributed by Kuni, and shall provide comprehensive technical assistance to the End Users thereof. Kuni shall perform and provide to End Users such warranty and other maintenance services as reasonably specified by AVT from time to time. 5.6 Quarterly Reports. Kuni shall provide AVT with quarterly ------------------ financial reports with respect to the calculation and payment of the Royalties by Kuni 10 together with the payment of Royalties to which it relates. In addition to such financial reports, Kuni shall provide AVT with a list of all registered End Users of the Kuni Derivative Works, so far as such information is available to Kuni. Kuni shall also provide AVT with a written or oral summary of its marketing activities with respect to the Kuni Derivative Works, of competing products and activities in the Territory, and, upon the reasonable request of AVT, any additional information concerning the distribution of Kuni Derivative Works within the Territory. 5.7 Competing Products. For the term of this Agreement, Kuni will ------------------- refrain from distributing, marketing or promoting any Competitive Products, provided, however, that nothing in this Section 5.7 shall prohibit or restrict ------- Kuni from distributing any Competitive Products that are packaged or "bundled" with other products such as personal computers, printers, add-on boards, modems, and other computer hardware or with value added application, utility or software or with books and other publications of any other entity with whom (i) Kuni has an existing relationship, or (ii) with whom Kuni forms a relationship after the execution of this Agreement if at the time that such relationship is formed, such entity is not the owner or developer of a Competitive Product. 6. Proprietary Protection. Kuni acknowledges that the Source Code ----------------------- Documentation and the Development Environment consist of Confidential Information of AVT. Kuni shall treat the Confidential Information in confidence and shall not use, copy, or disclose them, nor permit any of its personnel to use, copy, or disclose them, for any purposes that are not specifically contemplated by this Agreement, 7. Representations and Warranties. -------------------------------- 7.1 Right and Authority. AVT represents and warrants that (i) it is the ------------------- owner of the Products, including, without limitation, the Code, Documentation, and Development Environment, including all intellectual property rights therein under copyright, patent, trademark, @e secret, and other applicable law; (ii) it has the fall and sufficient right and authority to grant the rights and licenses granted here, (iii) the Code and Documentation have not been published under circumstances that have caused loss of any U.S. or other patent or copyright therein; and (iv) the Code, Documentation and Development Environment, to the best of AVT's knowledge, do not infringe any patent, copyright or other intellectual property right of any third party. 7.2 Adequacy of Source Code and Development Environment. AVT --------------------------------------------------------- represents and warrants that, to the best of its knowledge, (i) the Source Code, it and the Development Environment delivered to Kuni are and shall be understandable and usable by trained computer-programming personnel; (ii) such Code does not involve any proprietary languages or programming components that such personnel could not reasonably be expected to understand; and (iii) such Source Code, Documentation and the Development Environment include all of the devices, programming and documentation necessary used by AVT in the development of the products. 11 7.3 Conformity, Performance and Compliance. AVT represents and ----------------------------------------- to the best of its knowledge, (i) the Code and Documentation to be delivered to AVT hereunder have been prepared in a workmanlike manner and with professional diligence and skill: (ii) such Code and Documentation will function on the machines and with operating systems for which they are designed and (iii) the Code and Documentation when delivered to Kuni conform to their specifications in all material respects, and are free from defects in materials and workmanship. 7.4 Scope of Warranty and Representations. ------------------------------------------ (a) Except as set forth in this Section 7.1, 7.2, 7.3 and in Section 12.1 hereof, AVT makes no warranties or representations as to the performance of the Product(s) to Kuni or to any other person, except as set forth in AVTs form limited warranty (the "Limited Warranty") which is included with Alta Vista's End User product packages. AVT reserves the right to change the warranty and service policy set forth in such Limited Warranty, or otherwise, at any time, without further notice and without liability to Kuni or any other person. (b) AVT does not warrant the output of the Product(s) to meet the standards or requirements that may be applicable to any End User's business. Except as herein provided, AVT does not make or give any representation or warranty with respect to the usefulness or the efficiency of the Product(s), it being understood that the degree of success with which equipment, software programs and materials can be applied to data processing is dependent upon many factors, many of which are not under AVT's control. 7.5 Kuni Representation. Kuni represents and warrants that it has had -------------------- a fall opportunity to test the operation of each Product and to verify that such Product runs properly on Japanese operating platforms. AVT makes no representation or warranty that the Product(s) will run on Japanese operating platforms or that the Product(s) will run on the Japanese operating platforms fully in accordance with the End User Documentation specifications. 8. Audit Rights. Each party shall have the right during the term of this Agreement, to engage an independent auditor to review the books and records of the other party to determine the accuracy of the Royalties set forth above and otherwise to verify the audited party's Net Revenue for the purpose of verifying the auditing and the audited parties' performance of their obligations hereunder, upon five (5) days written notice to the party to be audited. The cost of such audits shall be home by the auditing party. Any audit shall be conducted during customary business hours at any premises where the relevant books and records may be located. In addition, each party agrees to maintain accurate books and records concerning all transactions relating to their respective obligations and duties under this Agreement for a period of two (2) years following the expiration or termination of this Agreement. Each party shall have the right for up to two (2) years after the termination of this Agreement, to audit the other party's books and records. 12 9. Intellectual Property Rights ------------------------------ 9.1 Owndership of Intellectual Property Rights. Kuni acknowledges AVT's ------------------------------------------- exclusive right, title and interest in and to any and all Intellectual Property Rights in and to the Products and Licensed Marks, and Kuni will not at any time do or cause to be done any act or thing impairing or tending to impair any part of said right, title and interest. Kuni acknowledges and agrees that all of such Intellectual Property Rights shall remain the exclusive property of AVT. AVT agrees that Kuni shall own all right, title and interest in and to any and all Intellectual Property Rights in or relating to any software or other materials added to the Products that were necessary to create the Kuni Localized Japanese Versions or Kuni Derivative Works ("New Kuni Matter"). Upon the expiration or termination of this Agreement, AVT may at its option, purchase any or all of the New Kuni Matter at a price (the "Purchase Price") to be determined as set forth herein, Purchase Price=x(1.15)^a - ------------------------- WHERE X IS THE AGGREGATE COST INCURRED BY KUNI IN DEVELOPING CREATING THE NEW KUNI MATTER AND A IS THE NUMBER OF ROUNDED UP TO A WHOLE NUMBER, OF THE TERM OF THIS AGREEMENT PRIOR TO TERMINATION. 9.2 Copyright Notices. Kuni agrees to include AVT's copyright notices ------------------- and/or trademark notices in the Kuni Derivative Works and shall not market or license the Products under any other name, sign or logo. Kuni also agrees that during the term of this Agreement or at any time thereafter it will not register or use any of AVT's trademarks or trade names or any word, symbol or design confusingly similar thereto, as part of its corporate name.Kuni will assist AVT in obtaining registration of the tradenames and trademarks in AVT's name or, if necessary, Kuni's rights to make use of AVT's tradenames and trademarks as part of Kuni's marketing activities. 10. Prosecution and Defense of Infringement Claims --------------------------------------------------- 10.1 Notice and Prosecution of Infringement of Licensed Marks . AVT and -------------------------------------------------------- Kuni shall each provide the other with prompt notice of any apparent infringement of the Licensed Marks including any Kuni Derivative Work thereof, any petition to cancel any registration of any of the Licensed Marks, or attempted use of or any application to register any mark confusingly similar to, or a colorable imitation of, any of the Licensed Marks of which it becomes aware. AVT shall have primary responsibility to: (a) Institute and prosecute any actions for such infringement of the Licensed Marks; (b) Defend any petition to cancel any registration of any of the Licensed Marks; and 13 (c) Oppose any attempted use of or any application to register any mark confusingly similar to, or a colorable imitation of, any of the Licensed Marks. Any damages and costs recovered through such proceedings shall belong ------- exclusively to AVT and AVT shall be solely responsible for all costs and expenses (including attorney's fees) of prosecuting such actions; provided, however, that if AVt recovers damages in an action for infringement of the Licensed Marks, Kuni shall be entitled to receive an equitable share of the damages recovered and, provided it exercises such entitlement, Kuni shall be obligated to contribute its proportionate share of the costs and expenses (including attorney fees) incurred in connection with the recovery of damages, which sums shall be deducted from such recovered damages and paid to AVT. Kuni shall provide AVT with reasonably requested assistance in connection with such proceedings, and AVT shall reimburse Kuni's reasonable out-of-pocket costs of providing such assistance. AVT shall keep Kuni informed of the status of any proceeding and supply Kuni with any reasonably requested documents regarding such proceedings. 10.2 Kuni Right to Institute Infringement Actions. In the event AVT does not institute and prosecute any action for infringement of the Licensed Marks, defend any petition to cancel any registration of any of the Licensed Marks, or oppose any attempted use of or any application to register any mark confusingly similar to, or a colorable imitation of, any of the Licensed Marks within a reasonable period of time (having due regard for the protection of the Licensed Marks), Kuni shall have the right to do so, but only in the Territory, but shall not be obligated to, either in its own name or in the name of AVT. Any damages or costs recovered through such proceeding shall belong exclusively to Kuni, and Kuni shall be solely responsible for all costs and expenses (including attorney's fees) of prosecuting such proceeding. If Kuni elects to prosecute an alleged infringement, Kuni shall obtain AVT's approval before entering into any compromise, settlement or stipulation with respect to such proceeding, which approval AVT shall not unreasonably withhold. 11. Term and Termination. ---------------------- I1.1 Term of Agreement and Renewal. This Agreement shall become ------------------------ -------- effective on the first day that it has been executed by both parties and, unless sooner terminated hereunder, shall remain in force for a period of five (5) years. This Agreement may be further renewed for such period as the parties may mutually agree. Nothing contained herein shall be interpreted as requiring either party to renew or extend this Agreement. Notwithstanding other provisions of this Section 11, or any other provisions of this Agreement, and in addition to any other rights to terminate set forth in this Agreement, this Agreement may be terminated prior to the expiration of its stated term as set forth below. 14 11.2 Termination. Either party may also terminate this Agreement, by giving written notice to the other party upon the occurrence of any of the following events: (a) Material breach of this Agreement by either party; (b) The enactment of any law, decree, or regulation by any governmental unit within the Territory or the United States which would impair or restrict (i) the right of either party to terminate or elect not to renew this Agreement as herein provided, (ii) either party's right, title or interest in the Intellectual Property Rights as provided herein, or (iii) AVT's rights to receive the royalties as set forth in Section 3 of this Agreement; or (c) Upon the acquisition of direct or indirect control of Kuni by any person which manufactures or markets products competing or likely to compete with the Products or the Kuni Derivative Works. 11.3 Automatic Termination. This Agreement terminates automatically, --------- with no further action by either party, if a receiver is appointed for either party or its property, either party makes an assignment for the benefit of its creditors, any proceedings are commenced by, for or against either party under any bankruptcy, insolvency or debtor's relief law or either party is liquidated or dissolved. 11.4 Effect of Termination. ----------------------- (a) Upon the expiration or termination of this Agreement, regardless of the cause thereof, the parties shall abide by and uphold any rights or obligations accrued or existing on the date of termination or expiration, and the parties agree to continue to cooperate with each other and to carry out an orderly termination of their relations. (b) Without limiting the generality of Section 11.4(a), within thirty (30) days after such termination or expiration, (i) Kuni shall pay to AVT all sums then due and owing, (ii) the due date of all outstanding invoices, if any, will automatically be accelerated so that they become due and payable on the effective date of termination, even if longer terms had been provided previously, (iii) Kuni shall promptly pay to AVT any other sums that shall become subsequently due and owing as they become due and owing, and (iv) all orders for the Product or portions thereof remaining undelivered to Kuni as of the effective date of termination shall automatically be cancelled, unless Kuni is obligated to deliver such order to a Dealer or End User under an existing written purchase order. (c) Upon such termination or expiration, (i) Kuni will cease all display, advertising and use of the Licensed Marks and will not thereafter use, advertise or display any of the Licensed Marks; (ii) Kuni shall discontinue marketing and reproduction of the Kuni Derivative Works and shall promptly return and make no 15 further use of property, materials and other items and all copies thereof belonging to AVT relating to this Agreement, and (iii) Kuni shall destroy all copies of Kuni Derivative Works reproduced hereunder and not yet distributed, and shall furnish to AVT an affidavit signed by an officer of Kuni certifying that, to the best of its knowledge, such return or destruction, has been fully effected. Notwithstanding the foregoing, and provided Kuni fulfils its obligations specified in this Agreement with respect to such materials, Kuni may continue to use and retain copies of the Kuni Derivative Works and the Products to the extent, but only to the extent, necessary to support the Kuni Derivative Works rightfully distributed to End Users by Kuni prior to the termination of this Agreement. Upon such termination or expiration, and upon AVT's request, Kuni shall return any confidential information provided by AVT hereunder. (d) Notwithstanding termination or expiration of this Agreement, Or any Addendum hereto, all End User License Agreements which have been properly granted pursuant to Section 2.1(e) of this Agreement prior to such termination or expiration shall survive. (e) Upon expiration or termination of this Agreement, for any reason whatsoever, neither party shall have any further obligations to the other party other than those set forth in this Section 11. Without limiting the generality of the foregoing, neither party shall not be liable to the other party for, and each party hereby expressly waives all rights to, compensation or damages of any kind, in connection with the expiration or termination of this Agreement, whether on account of the loss by such party of present or prospective profits, commissions, anticipated orders, expenditures, investments, or commitments made in connection with this Agreement, goodwill created, or on account of any other reason whatsoever. 12. Indemnification. --------------- 12.1 Scope of AVT's Indemnification. AVT hereby indemnifies and holds ------------------------------- harmless Kuni, its successors and assigns, including any customers, from any loss, liability, claim or damage regarding the Code, Documentation or Development Environment supplied hereunder, based on any actual or alleged infringement of a patent, copyright, @e secret, or other intellectual proprietary right of any third party. If such claim arises, or if in AVT's judgment is likely to arise, Kuni agrees to allow AVT, at AVT's option, to procure the right for Kuni to continue to exercise its rights and licenses granted herein, or to replace or modify them in a functionally equivalent manner so they become noninfringing. The foregoing remedial actions, however, shall not relieve AVT of its indemnity obligations with respect to any loss, liability, or damage that may be incurred with respect to the Products unless such loss, liability or damage arises from or is based upon (a) use of other than the current unaltered release of any of the Products, or (b) the combination, operation or use of any of the Products with equipment, data or programming not supplied by AVT, if such loss, liability or damage would have been avoided but for such use, operation or combination. 16 12.2 Scope of Kuni's Indemnification. Kuni shall indemnify and hold AVT ------------------------------- and its shareholders, managers, officers, directors, agents and employees harmless against any and all losses, damages, liabilities, costs and expenses (including reasonable attorneys' fees) resulting from (i) any breach by Kuni of this Agreement or any duty, warranty or obligation hereunder; (ii) any breach by any Dealer of the sub-license and subdistribution agreement with Kuni or any duty, warranty or obligation thereunder; (iii) any claim that may be made by reason of any act or omission of Kuni or any of its shareholders, managers, officers, directors, agents, employees subdistributors and representatives; or (iv) any claim of any Dealer made against AVT for any reason whatsoever. 13. Miscellaneous. ------------- 13.1 Survival of Warranties. The warranties. representations, and ------------------------ covenants of the parties hereto contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the parties hereto. 13.2 Successors and Assigns. Neither party hereto may assign this ------------------------ Agreement or any of its rights or obligations hereunder (including without limitation its rights and duties of performance) to any third party Or entity, and this Agreement may not be involuntarily assigned or assigned by operation of law or change of control, without the prior written consent of the other party, which consent shall be given or withheld by such non-assigning party in the exercise of its sole discretion. The foregoing shall be interpreted as including, but not being limited to, the right of AVT to withdraw from the market one or more Products in Exhibit A attached hereto from this Agreement. --------- This Agreement shall be binding upon and inure to the benefit of each of the parties hereto and, except as otherwise provided herein, its respective legal successors and permitted assigns, Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any right, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 13.3 Governing Law. This Agreement shall be governed by and construed -------------- under the laws of the State of California. 13.4 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 13.5 Titles and Subtitles. The titles and subtitles used in this ---------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 13.6 Notices. Unless otherwise provided, any notice required or ------- permitted under this Agreement shall be given in writing and shall be deemed effectively 17 given upon personal delivery to the party to be notified or five (5) days following deposit with the United States Post Office, or ten (10) days following deposit with the Japanese Postal Service, as applicable, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other party. 13.7 Finder's Fee. Each party represents that it neither is nor will be obligated for any finder's or broker's fee or commission in connection with this transaction. 13.8 Expenses/Attorneys' Fees. Each party shall pay all costs and -------------------------- expenses that it incurs with respect to the negotiation, execution, delivery, and performance of this Agreement. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs, and necessary disbursements in addition to any other relief to which such party may be entitled. 13.9 Amendments and Waivers. Any term of this Agreement may be amended ---------------------- and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of each of the parties hereto. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), and each future holder of all such securities. 13.10 Severability. If one or more provisions of this Agreement are ------------ held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision was so excluded and shall be enforceable in accordance with its terms. WITHOUT LIMITING THE FOREGOING, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND EVERY PROVISION OF THIS AGREEMENT WHICH PROVIDES FOR A LMTATION OF LIABILITY, DISCLAIMER OF WARRANTIES OR EXCLUSION OF DAMAGES IS INTENDED BY THE PARTIES TO BE SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION AND TO BE ENFORCED AS SUCH. FURTHER, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT IN THE EVENT ANY REMEDY HEREUNDER IS DETERMINED TO HAVE FAILED OF ITS ESSENTIAL PURPOSE, ALL LIMITATIONS OF LIABILITY AND EXCLUSION OF DAMAGES SET FORTH HEREIN SHALL REMAIN IN FULL FORCE AND EFFECT. 13.11 Entire Agreement. This Agreement and the documents referred to ----------------- herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein. 18 13.12 Confidentiality. Each of AVT and Kuni hereby agrees to maintain --------------- the confidentiality of the terms and conditions of this Agreement and of the facts, contentions, and allegations of the parties related to this Agreement, and shall not disclose, discuss, or comment on the same to any third party except as may be necessary for the implementation of this Agreement or as may be otherwise required by the order of any judicial or administrative tribunal, or as may be required to comply with applicable laws, regulations or requirements of any self regulatory organization. 13.13 Arbitration. In the event of any future dispute, controversy or claim between the parties arising from or relating to this Agreement, its breach, or any matter addressed by this Agreement, it will be resolved through binding confidential arbitration to be conducted by the American Arbitration Association in San Francisco, California, pursuant to its Commercial Arbitration Rules, and judgment upon the award Tendered by the Arbitrator(s) may be entered by any court having jurisdiction of the matter. This paragraph shall not alter the right of the parties hereto to seek and obtain injunctive relief from a court of law. 13.14 Freely Executed. In entering into this Agreement, the parties ---------------- represent and warrant that they do so freely and voluntarily, after having had the opportunity to meet and confer with their respective attorneys regarding the contents and legal effect of this Agreement. 13.15 English Version to be conclusive. This Agreement is in the ------------------------------------ English language only, which language shall be controlling in all respects, and all versions hereof in any other language shall not be binding on the parties hereto. All communications and notices to be made or given pursuant to this Agreement shall be in the English language. 13.16 Governmental Approvals. Kuni undertakes full responsibility for ----------------------- obtaining all Japanese governmental approvals necessary for each party to perform its obligations hereunder. Kuni agrees to indemnify AVT against any and all claims, demands, actions, proceedings, investigations, losses, liabilities, costs or expenses suffered or incurred by AVT wising out of or relating to any failure (whether intentional or unintentional) by Kuni or any of its customers to obtain any such governmental approvals. 19 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date fust above written. "AVT" ALTAVISTA TECHNOLOGY, INC. a Califomia corporation By: /S/ Jack Marshall ------------------------- Jack Marshall, President: "KUNI" KUNI RESEARCH NTERNATIONAL CORPORATION a Japan corporation By: /S/ Iwao Deguchi ------------------------- Iwao Deguchi, President 20 EXHIBIT A --------- List of Products All past, current and future AVT multimedia email and web authoring software, including, without limitation, Howdy!, the multimedia Internet postcard maker. ------ 2. WebCannon, AVT's Web site authoring software 3. All Other Web Sites that host images that AVT Code creates 21 EXHIBIT DI ---------- Corporate License Agreement 22 EXHIBIT-B2 --------- End User License Agreement 23 EX-10.12 18 LEASE AGREEMENT Between THE MANUFACTURERS LIFE INSURANCE COMPANY, (U.S.A.) Company, Ltd., As Landlord And Alta vista Technology, Inc., a California Corporation As Tenant Dated as of July 8, 1998 Property: 3oo Orchard City Drive Campbell, California Property Number. 566 INDEX Page 1. LEASED PREMISES 2. TERM (a) Term (b) Delay in Occupancy (c) Overholding 3. RENT (a) Basic Rent (b) Additional Rent (c) Payment - Additional Rent (d) Recovery of Rent (e) Accrual of Rent (f) Limitations 4. SECURITY DEPOSIT 5. GENERAL COVENANTS 4 (a) Landlord's Covenant (b) Tenant's Covenant 6. USE AND OCCUPANCY (a) TJ@ (b) Waste, Nuisance, etc (c) Insurance Risks (d) Compliance with Law (e) Environmental Compliance (f) Rules and Regulations 7. ASSIGNMENT AND SUBLETTNG (a) No Assignment and Subletting (b) Assignment, Subletting Procedures (c) Excess Transfer Rent (d) Assumption of obligations (e)Tenant's Continuing obligations (f) Change of Control 8. REPAIR AND DAMAGE (a) Landlord's Repairs to Building and Property (b) Landlord's Repairs to the Leased Premises6 (c) Tenant's Repairs (d) Indemnification (e) Damage and Destruction 9. INSURANCE AND LIABILITY (a) Landlords Insurance (b) Tenant's Insurance (c) Litigation of Landlord's Liability (d) Indemnity of Landlord (e) Definition of "Insured Damage" (I) INDEX Page 10. EVENTS OF DEFAULT AND REMEDIES (a) Events of Default and Remedies 9 (b) Payment of Rent etc. on Termination 10 ADDITIONAL PROVISIONS 11. Common Areas 11 12. Relocation of Leased Premises 11 13. Subordination and Attornment 11 14. Certificates 11 15. Inspection of and Access to the Leased Premises 12 16. Delay 12 17. Waiver 12 18. Sale, Demolition and Renovation 12 19. Public Taking 13 20. Registration of Lease 13 21. Lease Entire Agreement 13 22. Notices 13 23. Interpretation 13 24. Extent of Lease Obligations 14 25. Use and Occupancy Prior to Term 14 26, Limitation on Landlord Liability 14 27. Waiver of jury Trial 15 28. Choice of Law 15 29. Schedules 15 Definitions of Principal Terms Paragraph Page Additional Rent 3 (b) 2 Additional Services 4 (b) D-2 Basic Rent 3 (a) 2 Building 1 1 Debts, Liabilities & Obligations 4 3 Fiscal Period 3 (c) 2 Insured Damage 9 (e) 9 Landlord 1,11 Landlord's Taxes 2 (a) C-1 Leased Premises 1 1 Leasehold Improvements 1 F-1 Landlord's Work 2 F-1 Operating Costs 5 D-2 Property 1 1 Public Taking 19 13 Rent 3 (d) 3 Taxes 2 (b) C-1 Tenant 1 Tenant's Proportionate Share 2(d) C-2 Tenants Proportionate Share 7 D-3 Tenant's Taxes 2 (e) C-1 Team 2 (a) 1 THIS AGREEMENT made this 8th day of July 1998. BETWEEN: THE MANUFACTURERS LIFE INSURANCE COMPANY (U.S.A.), a company domiciled in the State of Michigan and having an office at 200 Bloor Street East, Toronto, Ontario M4W lE5, and having a local office at 865 South Figueroa Street, Suite 2,300 in the City of Los Angeles, California (hereinafter called the "Landlord") OF THE FIRST PART, --- and -- Alta Vista Technology, Inc., a California Corporation having an office at 1500 Dell Avenue in the City of Campbell, CA 95008 (hereinafter called the tenant") OF THE SECOND PART, In consideration of the rents, covenants and agreements hereinafter contained, the Landlord and Tenant hereby agree as follows: 1. LEASED PREMISES LEASED PREMISES The Landlord does demise and lease to the Tenant the premises (the "Leased Premises") located in A building (the "Building") having a municipal address of 300 Orchard City Drive in the City of Campbell and known as Suite 142, Water Tower a) (the Leased Premises, the Building, together with the lands described in Schedule "A" attached hereto and present and future improvements, additions and changes thereto being herein called the "Property"). The Leased Premises are located on the first list) floor(s) and the approximate location is outlined in heavy black and cross hatched on the plan or plans marked Schedule(s) "B1" attached hereto. The parties agree that the Rentable Area of the Leased Premises is two thousand six hundred twenty-eight square feet (2,628 square feet) and has been measured in accordance with the provisions of Schedule "B' attached hereto. 2. TERM (a) TO HAVE AND TO HOLD the Leased Premises for and during the term of three(3)years and zero (0) days (the "Tem") to be computed from the far day of September 1998, and to be fully complete and ended on the 31st day of August 2001, unless otherwise terminated. (b) If the Leased Premises or any part thereof are not ready for occupancy on the date of commencement of the Term, no part of the "Rent" (as hereinafter defined) or only a proportionate part thereof, in the event that the Tenant shall occupy a part of the Leased Premises, shall be payable for the period prior to the date when the entire Leased Premises are ready for occupancy and the full Rent shall accrue only after such last mentioned date. The Tenant agrees to accept any such abatement of Rent in full settlement of all claims which the Tenant might otherwise have by reason of the Leased Premises not being ready for occupancy on the date of commencement of the Term, provided that when the Landlord has completed contraction of such part of the Leased Premises as it is obliged hereunder to construct, the Tenant shall not be entitled to any abatement of Rent for any delay in occupancy due to the Tenant's failure or delay to provide plans or to complete any special installations or other work required for its purposes or due to any other reason, nor shall the Tenant be entitled to any abatement of Rent for any delay in occupancy if the Landlord has been unable to complete construction of the Leased Premises by reason of such failure or delay by the Tenant. A certificate of the Landlord as to the date the Leased Premises were ready for occupancy and such construction as the Landlord is obliged to complete is substantially completed, or as to the date upon which the same would have been ready for occupancy and completed respectively but for the failure or delay of the Tenant, shall be conclusive and binding on the Tenant and Rent in full shelf seems and become payable from the date set out in the said certificate. Notwithstanding any delay in occupancy, the expiry date of this Lease shall remain unchanged. (e) If at the expiration of the Term or sooner termination hereof, the Tenant shall remain in possession without any further written agreement or in circumstances where a tenancy would thereby be created by implication of law or otherwise, a tenancy from year to year shall not be created by implication of law or otherwise, but the Tenant shall be deemed to be a monthly tenant only, at double "Basic Rent' (as hereinafter defined) payable monthly in advance plus "Additional Rene, (as hereinafter defined) and otherwise upon and subject to the same terms and conditions as herein contained, excepting provisions for renewal (if any) and leasehold improvement allowance (if any), contained herein, and nothing, including the acceptance of any Rent by the Landlord, for periods other than monthly periods, shall extend this Lease to the contrary except an agreement in writing between the Landlord and the Tenant and the Tenant hereby authorizes the Landlord to apply any moneys received from the Tenant in payment of such monthly Rent, Notwithstanding the foregoing, in the event that the Tenant shall field over after the expiration of the Term and the Landlord shall desire to regain possession of the Leased Premises promptly at the expiration of the Term, then the Landlord, at its sole option, may forthwith re-enter and take possession of the Leased premises without process, or by any legal process in force, Tenant hereby expressly waiving any and all notices to cure or vacate or to quit the Leased Premises provided by current or future law (except for those notices specifically outlined in this Lease). 3. RENT BasicRent (a) (i) The Tenant shall without demand, deduction or right of offset pay to the Landlord yearly and every year during the Term as rental (herein called "Basic Rent"), the sum of Thirty-Three Thousand One Hundred Eight and Of)/100 Dollars ($33,108.00) of lawful money of the jurisdiction in which the Leased Premises are located, in equal monthly installments of Two Thousand Seven Hundred Fifty-Nine and 00/100 Dollars ($2,759.00) each in advance on the first day of each month during the Term, the first payment to be made on the 1st day of September 199B. Increase in rent (ii) Commencing on the 1st day of November l998 and continuing until the 3lst day of August 1999, the Basic Rent shall be increased to Sixty-Six Thousand Two Hundred Twenty-Eight and 00/100 Dollars ($66,228.00) per annum of lawful money of the jurisdiction in which the Leased Premises are located payable in equal monthly installments of Five Thousand Five Hundred Nineteen and 00/100 Dollars ($5,519.00) each in advance on the first day of each month during the Term, the first payment to be made on the tat day of November 1998. (iii) Commencing on the 1st day of September l999 and continuing until the 3lst day of August 2OOO, the Basic Rent shall be increased to Sixty-Seven Thousand Eight Hundred and OO/100 Dollars ($67,800.00) per annum of lawful money of the jurisdiction in which the Leased Premises are located payable in equal monthly installments of Five Thousand Six Hundred Fifty and 00/100 Dollars ($5,650.GO) each in advance on the first day of each month during the Term, the first payment to be made on the tat day of September 1999. (iv) Commencing on the 1st day of September 2OOO and continuing until the 3lst day of August 2001, the Basic Rent shall be increased to Sixty-Nine Thousand Three Hundred Eighty-Four and 00/100 Dollars($69,384.00)per annum of lawful money of the jurisdiction which the Leased Premises are located payable in equal monthly installments of Five Thousand Seven Hundred Eighty-Two and 00/100 Dollars ($5,782.00) each in advance on the first day of each month during the Term, the first payment to be made on the tat day of September 2000. Additional Rent (b) The Tenant shall, without deduction or right of offset pay to the Landlord yearly and every year during the Term as additional rental (herein called 'Additional Rent") (i) the amounts of any Taxes payable by the Tenant to the Landlord pursuant to the provisions of Schedule "C" attached hereto; and (ii) the amounts required to be paid to the Landlord pursuant to the provisions of Schedule "D" attached hereto. Payment Additional Rent (c)Additional Rent shall be paid and adjusted with reference to a fiscal period of twelve (12) calendar months ("Fiscal Period"), which shall be a calendar year unless the Landlord shall from time to time have selected a fiscal Period which is not a calendar year by written notice to the Tenant. The Landlord shall advise the Tenant in writing of its estimate of the Additional Rent to be payable by the Tenant during the Fiscal Period (or broken portion of the Fiscal Period, as the case may be, if applicable at the commencement or end of the term or because of a change in Fiscal Period) which commenced upon the commencement date of the Term and for each succeeding Fiscal Period or 2 broken portion thereof which commences during the Term. Such estimate shall in every case be a reasonable estimate and, if requested by the Tenant, shall be accompanied by reasonable particulars of the manner in which it was calculated. The Additional Rent payable by the Tenant shall be paid in equal monthly installments in advance at the same time as payment of Basic Rent is due hereunder based on the Landlords estimate as aforesaid. From time to time, the Landlord may re-estimate, on a reasonable basis, the amount of Additional Rent for any Fiscal Period or broken portion thereof, in which case the Landlord shall advise the Tenant in writing of such re-estimate and fix new equal monthly installments for the remaining balance of such Fiscal Period or broken portion thereof. After the end of each such Fiscal Period or broken portion thereof the Landlord shall provide the Tenant with a statement of the actual Additional Rent payable in respect of such Fiscal Period or broken portion thereof and a calculation of the amounts by which the Additional Rent payable by the Tenant exceeds or is less than (as the case may be) the aggregate installments paid by the Tenant on account of Additional Rent for such Fiscal Period. Within thirty (30) days after the submission of such statement either the Tenant shall pay to the Landlord any amount by which the amount found payable by the Tenant with respect to such Fiscal Period or broken portion thereof exceeds the aggregate of the monthly payments made by it on account thereof during such Fiscal Period or broken portion thereof, or the Landlord shall pay to the Tenant any amount by which the amount found payable as aforesaid is less than the aggregate of such monthly payments. Recovery of Rent (d) In this Lease 'Rent' means all amounts required to be paid by the Tenant pursuant to this Lease including without limitation Basic Rent and Additional Rent. Accrual of Rent (e) Basic Rent and Additional Rent shall be considered as accruing from day to day, and for an irregular period of less than one year or less than one calendar month shall be apportioned and adjusted by the Landlord for the Fiscal Periods of the Landlord in which the tenancy created hereby commences and expires. Where the calculation of Additional Rent for a period cannot be made until after the termination of this Lease, the obligation of the Tenant to pay Additional Rent shall survive the termination hereof and Additional Rent for such period shall be payable by the Tenant upon demand by the Landlord. If the Term commences or expires on any day other than the first or the last day of a month, Basic Rent and Additional Rent for such fraction of a month shall be apportioned and adjusted as aforesaid and paid by the Tenant on the commencement date of the Term. (f) The information set out in Statements, documents or other writings setting out the amount of Additional Rent submitted to the Tenant under or pursuant to this Lease shall be binding on the Tenant and deemed to be accepted by it and shall not be subject to amendment for any reason unless the Tenant gives written notice (the "Dispute Notice") to the Landlord within sixty (60) lays of the Landlord's submission of such statement, document, or writing identifying the statement, document, or writing. The Dispute Notice shall set out in reasonable detail the reason why such statement, document or writing is in error or otherwise should not be binding on the Tenant. If the Tenant disputes the amount of the Additional Rent as aforesaid, and if such dispute is not resolved within thirty (30) days after the Tenant delivers the Dispute Notice to the Landlord, then the Landlord shall cause an audited statement of Additional Rent to be prepared by an independent nationally recognized firm of chartered accountants. The statement of Additional Rent as prepared by such accountants shall be final and binding upon the parties hereto and within fifteen (15) days after delivery of such statement of Additional Rent to the parties by the accountants the Landlord sort Tenant shall readjust Additional Rent as contemplated by section 3(c). The cost of preparation of such audited statement shall be paid by the Tenant as Rent unless the amount of Additional Rent payable by the Tenant as set forth in such audited financial statement is at least 4% less than the amount of Additional Rent demanded by the Landlord la accordance with the statement delivered to the Tenant pursuant to section 3(c). 4. SECURITY DEPOSIT Security Deposit The Tenant shall pay to the Landlord on execution of this Lease by the Tenant the sum of Five Thousand Five Hundred Nineteen Dollars ($5,519.00) as a deposit to the Landlord to stand as security for the payment by the Tenant of any and all present and future debts and liabilities of the Tenant to the Landlord and for the performance by the Tenant of all of its obligations arising under or in connection with this Lease (the "Debts, Liabilities and Obligations"). The Landlord shall not be required to keep the deposit separate from its general funds. In the event of the Landlord disposing of its interest in this Lease, the Landlord shall credit the deposit to its successor and thereupon shall have no liability to the Tenant to repay the security deposit to the Tenant, Subject to the foregoing and to the Tenant not being in default under this Lease, the Landlord shall repay the security deposit to the Tenant without interest at the end of the Term or sooner termination of 3 the Lease provided that all Debts, Liabilities and Obligations of the Tenant to the Landlord are paid and performed in full, failing which the Landlord may on notice to the Tenant elect to retain the security deposit and to apply it in reduction of the Debts, Liabilities and Obligations and the Tenant shall remain fully liable to the Landlord for payment and performance of the remaining Debts, Liabilities and Obligations. 5. GENERAL COVENANTS Landlord's Covenant (a) The Landlord covenants with the Tenant: (i) for quiet enjoyment; and (ii) to observe and perform all the covenants and obligations of the Landlord herein. Tenant's Covenant (b) The Tenant covenants with the Landlord: (i) to pay Rent, and (ii) to observe and perform ail the covenants and obligations of the Tenant herein. 6. USE AND OCCUPANCY The Tenant covenants with the Landlord: (a) not to use the Leased Premises for any purpose other than an office for the conduct of the Tenant's business which is general office use and such use shall be consistent with the character of the Property and compatible with the other uses of the Property; Waste, Nuisance, etc.(b) not to commit, or permit, any waste, injury or damage to the Property including the Leasehold Improvements and any trade fixtures therein, any loading of the floors thereof in excess of the maximum degree of loading as determined by the Landlord acting reasonably, any nuisance therein or any use or manner of use causing annoyance to other tenants and occupants of the Property or to the Landlord; Insurance Risks (c) not to do, or permit to be done or omitted to be done upon the Property anything which would cause to be increased the Landlord's cost of insurance or the costs of insurance of another tenant of the Property against perils as to which the Landlord or such other tenant has insured or which shall cause any policy of insurance on the Property to be subject to cancellation; Compliance with Law (d) to comply at its own expense with all governmental laws, regulations and requirements pertaining to the occupation and use of the Leased Premises, the condition of the Leasehold Improvements, trade fixtures, furniture and equipment installed by or on behalf of the Tenant therein and the making by the Tenant of any repairs, changes or improvements therein; Environmental Compliance (e) (i) not to conduct and maintain its business and operations at the Leased Premises so as to comply in all respect with common law and with all present and future applicable federal, provincial/ state, local, municipal, governmental or quasi-governmental laws, by-laws, rules, regulations, licenses, orders, guidelines, directives, permits, decisions or requirements concerning occupational or public health and safety or the environment and any order, injunction, judgment, declaration, notice or demand issued thereunder, ("Environmental Laws"); (ii) not to permit or suffer any substance which is hazardous or is prohibited, restricted, regulated or controlled under any Environmental Law to be present at, on or in the Leased Premises, unless it has received the prior written consent of the Landlord which consent may be arbitrarily withheld; Rulesand Regulations (f) to observe and perform, and to cause its employees, invited and others over whom the Tenant can reasonably be expected to exercise control to observe and perform, the Rules and Regulations contained in Schedule "E" hereto, and such further and other reasonable rules and regulations and amendments and additions therein as may hereafter be made by the Landlord and notified in writing to the Tenant, except that no change or addition may be made that is inconsistent with this Lease unless as may be required by governmental regulation or unless the Tenant comments thereto. The imposition of such Rules and Regulations shall not create or imply any obligation of the Landlord to enforce them or create any liability of the Landlord for their non-enforcement or otherwise. 7. ASSIGNMENT AND SUB-LETTING No Assignment and Subletting (a) The Tenant covenants that it will not assign this Lease or sublet all or any part of the Leased Premises or mortgage or encumber this Lease or the Leased Premises or any part thereof, or suffer or permit the occupation of all or any part thereof by others (each of which is a 'Transfer') without the prior written consent of the Landlord, which consent the Landlord covenants not to withhold unreasonably (i) as to any assignee, subtenant or occupant (the 'Transferee') who is in a satisfactory financial condition, agrees to use the Leased Premises for those purposes permitted hereunder, and is otherwise satisfactory to the Landlord, and (ii) as to any portion of the Leased Premises which, in the Landlord's sole judgment, is a proper and rational division of the Leased Premises, subject to the Landlord's right of termination arising under this paragraph, This prohibition against a Transfer shall be construed to include a prohibition against any Transfer by operation of law. Assignment or Subletting procedures (b) The Tenant shall not effect a Transfer unless; (i) it shall have received or procured a bona fide written offer to take an assignment or sublease which is not inconsistent with the Lease, and the acceptance of which would not breach any provision of this Lease if this paragraph is complied with and which the Tenant has determined to accept subject to this paragraph being complied with, and (ii) it shall have first requested and obtained the consent in writing of the Landlord thereto. Any request for consent shall be in writing and accompanied by a copy of the offer certified by the Tenant to the best of its knowledge to be true and complete, and the Tenant shall furnish to the Landlord all information available to the Tenant and requested by the Landlord as to the responsibility, financial standing and business of the proposed Transferee. Notwithstanding the provisions of sub-paragraph (a), within twenty (20) days after the receipt by the Landlord of such request for consent and of all information which the Landlord shall have requested hereunder, the Landlord shall have the right upon written notice of termination submitted to the Tenant, if the request is to assign this Lease or sublet the whole of the Leased Premises, to cancel and terminate this Lease, or if the request is to sublet a part of the Leased Premises only, to cancel and terminate this Lease with respect to such part, in each case as of a termination date to be stipulated in the notice of termination which shall be not less than sixty (60) days or more than ninety (90) days following the giving of such notice. In such event the Tenant shall surrender the whole or part, as the case may be, of the Leased Premises in accordance with such notice of termination and Basic Rent and Additional Rent shall be apportioned and paid to the date of surrender and, if a part only of the Leased Premises is surrendered, Basic Rent and Additional Rent shall after the date of surrender abate proportionately. If such consent shall be given the Tenant shall effect the Transfer only upon the terms set out in the offer submitted to the Landlord as aforesaid and not otherwise. Any consent shall be given without prejudice to the Landlord's rights under the Lease and shall be limited to the particular Transfer in respect of which it was given and shall not be deemed to be an authorization for or cement to any further or other Transfer. Excess Transfer Rent (c) In the event the Landlord consents to any Transfer, the Tenant shall pay to the Landlord, as and when amounts on account are due or paid by the Transferee to the Tenant, all excess Transfer rents (hereinafter called the "Excess Transfer Rent"), if any, as Rent. The Excess Transfer Rent shall be determined in accordance with the following formula: all gross revenue received by the Tenant from the Transferee and attributable to the Transfer less: (i) the Rent paid by the Tenant to the Landlord during the term of the Transfer, (ii) any reasonable and customary out of pocket transaction costs incurred by the Tenant in connection with such Transfer including attorney's fees, brokerage commissions, cash inducements and alteration costs (which transaction costs shall be amortized on a straight line basis over the term of the Transfer). The Tenant agrees to promptly furnish such information with regard to the Excess Transfer Rent as the Landlord may request from time to time. Assumption of Obligation (d) No Transfer shall be effective unless the Transfer shall execute an agreement on the Landlord's form, assuming all the obligations of the Tenant hereunder, and shall have paid to the Landlord its reasonable fee for processing the Transfer. Tenant's Continuing Obligations (e) The Tenant agrees that any consent to a Transfer shall not thereby release the Tenant of its obligations hereunder. Change of Control (f) if the Tenant or occupant of the Leased Premises at any time is a corporation, it is acknowledged and agreed that the transfer of the majority of the issued capital stock of the corporation or the transfer or issuance of any capital stock of the corporation sufficient to transfer effective voting content of the corporation to others than the shareholder or shareholders having 5 effective voting control of the corporation immediately prior to such transfer or issuance, shall be deemed for all purposes of this paragraph 7 to be a Transfer and, accordingly, a violation of this paragraph 7 respecting assignment of this Lease unless the prior written consent of the Landlord is first obtained, and the Landlord shall have all of the same rights in respect thereof as though any such transfer or issuing of shares or proposed transferring or issuing of shares were a Transfer. The Landlord shall have access at all times to the corporate books and records of the Tenant, and the Tenant shall make the same available to the Landlord or its representatives upon request, for inspection and copying at all times in order to ascertain whether or not there has at any time during the Term of this Lease been a transfer or issuing of shares sufficient to constitute a change in the effective voting control of the Tenant. This subparagraph 7 (f) shall not apply to the Tenant if and for so long as the Tenant is a corporation whose shares are listed and traded on any recognized stock exchange in Canada or the United States. (g) Notwithstanding anything in this Lease to the contrary, the Tenant shall not be permitted without the written consent of the Landlord to effect a Transfer to tenants currently occupying space in the Property. S. REPAIR & DAMAGE Landlord's repairs to building and property (a) The Landlord covenants with the Tenant to keep in a good and reasonable state of repair and decoration: (i) those portions of the Property consisting of the entrance, lobbies, stairways, corridors, landscaped areas, parking areas, and other facilities from time to time provided for use in common by the Tenant and other tenants of the Building or Property, and the exterior portions (including foundations and roofs) of all buildings and structures from time to time forming part of the Property and affecting its general appearance; and (ii) the Building (other than the Leased Premises and premises of other tenants) including the systems for interior climate control, the elevators and escalators (if any), entrances, lobbies, stairways, corridors and washrooms from time to time provided for use in common by the Tenant and other tenants of the Building or Property and the systems provided for use in common by the Tenant and other tenants of the Building or Property and the systems provided for bringing utilities to the Leased Premises. Landlord's repairs to the Leased premises (b) The Landlord covenants with the Tenant to repair, so far as reasonably feasible, and as expeditiously as reasonably feasible, defects in standard demising walls or in structural elements, exterior walls of the Building, suspended ceiling, electrical and mechanical installations standard to the Building installed by the Landlord in the Leased Premises (if and to the extent that such defects are sufficient to impair the Tenant's use of the Leased Premises while using them in a manner consistent with this Lease) and "Insured Damage" (as herein defined). The Landlord shall in no event be required to make repairs to Leasehold Improvements made by the Tenant, or by the Landlord on behalf of the Tenant or another tenant or to make repairs to wear and tear within the Leased Premises. Tenant's repairs (c) The Tenant covenants with the Landlord to repair, maintain and keep at the Tenant's own cost, except insofar as the obligation to repair rests upon the Landlord pursuant to this paragraph, the Leased Premises, including Leasehold Improvements in good and substantial repair, reasonable wear and tear excepted, provided that this obligation shall not extend to structural elements or to exterior glass or to repairs which the Landlord would be required to make under this paragraph but for the exclusion therefrom of defects not sufficient to impair the Tenant's use of the Leased Premises while using them in a manner consistent with this Lease. The Landlord may enter the Leased Premises at all reasonable times upon twenty-four (24) hours notice, except in case of emergency and view the condition thereof and the Tenant covenants with the Landlord to repair, maintain and keep the Leased Premises in good and substantial repair according to notice in writing, reasonable wear and tear excepted. If the Tenant shall fail to repair as aforesaid after reasonable notice to do so, the Landlord may upon twenty-four (24) hours notice, except in case of emergency, effect the repairs and the Tenant shall pay the reasonable cost thereof to the Landlord on demand. The Tenant covenants with the Landlord that the Tenant will at the expiration of the Term or sooner termination thereof peaceably surrender the Leased Premises and appurtenances in good and substantial repair and condition, reasonable wear and tear excepted. Indemnification (d) If any part of the Property becomes out of repair, damaged or destroyed through the negligence of, or misuse by, the Tenant or its employees, agents, invitees or others under its control, the Tenant shall pay the Landlord on demand the expense of repairs or replacements, including the Landlord's reasonable administration charge thereof, necessitated by such negligence or misuse. 6 Damage and Destruction (e) It is agreed between the Landlord and the Tenant that: (i) in the event of damage to the Property or to any part thereof, if in the reasonable opinion of the Landlord the damage is such that the Leased Premises or any substantial part thereof is rendered not reasonably capable of use and occupancy by the Tenant for the purposes of its business for any period of time in excess of ten (10) days, then (1) unless the damage was caused by the fault or negligence of the Tenant or its employees, agents, invitees or others under its control, from the date of occurrence of the damage and until the Leased Premises are again reasonably capable for use and occupancy as aforesaid, the Rent payable pursuant to this Lease shall abate from time to time in proportion to the part or parts of the Leased Premises not reasonably capable of such use and occupancy, and (2) unless this Lease is terminated as hereinafter provided, the Landlord or the Tenant as the case may be (according to the nature of the damage and their respective obligations to repair as provided in sub-paragraphs (a), (b) and (c) of this paragraph) shall repair such damage with all reasonable diligence, but to the extent that any part of the Leased Premises is not reasonably capable of such use and occupancy by reason of damage which the Tenant is obligated to repair hereunder, any abatement of Rent to which the Tenant would otherwise be entitled hereunder shall not extend later than the time by which, in the reasonable opinion of the Landlord, repairs by the Tenant ought to have been completed with reasonable diligence; (ii) if the damage is such that the Leased Premises are rendered untenantable, in whole or in part, and if, in the opinion of the Landlord, the damage cannot be repaired with reasonable diligence within one hundred and eighty (180) days from the happening of the damage, then the Landlord may, within thirty (30) days after the date of the damage, terminate this Lease by notice to the Tenant. Upon the Landlord giving such notice, this Lease shall be terminated as of the date of the damage and the Rent and all other payments for which the Tenant is liable under the terms of this Lease shall be apportioned and paid in full to the date of the damage; (iii) the Landlord shall not be required to use plans and specifications and working drawings used in the original construction of the Building and nothing in this Section requires the Landlord to rebuild the Building in the condition and state that existed before the damage, but the Building, as rebuilt, will have reasonably similar facilities and services to those in the Building prior to the damage; and (iv) if premises whether of the Tenant or other tenants of the Property comprising in the aggregate half or more of the total number of square feet of rentable office area in the Property or half or more of the total number of square feet of rentable office area in the Building (as determined by the Landlord) or portions of the Property which affect access or services essential thereto, are substantially damaged or destroyed by any cause and if in the reasonable opinion of the Landlord the damage cannot reasonably be repaired within one hundred and eighty (180) days after the occurrence thereof, then the Landlord may, by written notice to the Tenant given within thirty (30) days after the occurrence of such damage or destruction, terminate this Lease, in which event neither the Landlord nor the Tenant shall be bound to repair as provided in sub-paragraphs (a) (b) and (c) of this paragraph, and the Tenant shall instead deliver up possession of the Leased Premises to the Landlord with reasonable expedition but in any event within sixty (60) days after delivery of such notice of termination, and Rent shall be apportioned and paid to the date upon which possession is so delivered up (but subject to any abatement to which the Tenant may be entitled under sub-paragraph (a) (i) of this paragraph). 9. INSURANCE AND LIABILITY Landlord's Insurance (a) The Landlord shall take out and keep in force during the Term insurance with respect to the Property except for the "Leasehold Improvements" (as hereinafter defined) in the Leased Premises. The insurance to be maintained by the Landlord shall be in respect of perils and in amounts and on terms and conditions which from time to time are insurable at a reasonable premium and which are normally insured by reasonable prudent owners of properties similar to the Property, all as from time to time determined at reasonable intervals by insurance advisors selected by the Landlord, and whose opinion shall be conclusive. Unless and until the insurance advisors shall state that any such perils are not customarily insured against by owners of properties similar to the Property, the perils to be insured against by the Landlord shall include, without limitation, public liability, boilers and machinery, fire and extended perils and may include at the option of the Landlord losses suffered by the Landlord in its capacity as Landlord through business interruption. The insurance to be maintained by the Landlord shall contain a waiver by the insurer of any rights of subrogation or indemnity or any other claim over which the insurer might otherwise be entitled against the Tenant or the agents or employees of the Tenant. Tenant's Insurance (b) The Tenant shall take out and keep in force during the Term: (i) comprehensive general public liability insurance all on an occurrence basis with respect to the business carried on in or from the Leased Premises and the Tenant's use and occupancy of the Leased Premises and of any other part of the Property, with coverage for any one occurrence or claim of not less than Two Million Dollars ($2,{)00,000) or such other amount as the Landlord may reasonably require upon not less than one (2) month notice at any time during the Term, which insurance shall include the Landlord as a named insured and shall contain a cross liability clause protecting the Landlord in respect of claim by the Tenant as if the Landlord were separately insured; (ii) insurance in respect of fire and such other perils @ are from time to time in the usual extended coverage endorsement covering the Leasehold Improvements, trade fixtures, and the furniture and equipment in the Leased Premises for not less than 80% of the full replacement cost thereof, and which insurance shall include the Landlord as a named insured as the Landlord's interest may appear, and (iii) insurance against such other perils and in such amounts as the Landlord may from time to time reasonably require upon not less than ninety (90) days' written notice, such requirement to be made on the basis that the required insurance is customary at the time for prudent tenants of properties similar to the Property. All insurance required to be maintained by the Tenant shall be on terms and with insurers satisfactory to the Landlord. Each policy shall contain: (A) a waiver by the insurer of any rights of subrogation or indemnity or any other claim over to which the insurer might otherwise be entitled against the Landlord or the agents or employees of the Landlord, (B) a cross liability clause and (C) an undertaking by the insurer that no material change adverse to the Landlord or the Tenant will be made, and the policy will not lapse or be canceled, except after not less than thirty (30) days' written notice to the Landlord of the intended change, lapse or cancellation. The Tenant shall furnish to the Landlord, if and whenever requested by it, certificates or other evidences acceptable to the Landlord as to the insurance from time to time effected by the Tenant and its renewal or continuation in force, If the Tenant shall fail to take out, renew and keep in force such insurance, or if the evidences submitted to the Landlord are unacceptable to the Landlord (or no such evidences are submitted within a reasonable period after request therefor by the Landlord), then the Landlord may give to the Tenant written notice requiring compliance with this sub-paragraph and specifying the respects in which the Tenant is not then in compliance with this sub-paragraph. If the Tenant does not within forty-eight (48) hours provide appropriate evidence of compliance with this sub-paragraph, the Landlord may (but shall not be obligated to) obtain some or all of the additional coverage or other insurance which the Tenant shall have failed to obtain, without prejudice to any other rights of the landlord under this Lease or otherwise, and the Tenant shall pay all premiums and other reasonable expenses incurred by the Landlord to the Landlord on demand. Limitations of Landlord's Liability (c ) The Tenant agrees that the Landlord shall not be liable for any bodily injury or death of, or loss or damage to any property belonging to, the Tenant or its employees, invitees or licensees or any other person in, on or about the Property unless resulting from the actual willful misconduct or gross negligence of the Landlord or its own employees. In no event shall the Landlord be liable for any damage, including indirect, special or consequential damages, which is caused by steam, water, rain or snow or other thing which may leak into, issue or flow from any part of the Property or from the pipes or plumbing works, including the sprinkler system (if any) therein or from any other place or for any damage caused by or attributable to the condition or arrangement of any electric or other wiring or of sprinkler heads (if any) or for any such damage caused by anything clone or omitted by any other tenant. Indemnity of Landlord (d) Except with respect to claims or liabilities in respect of any damage which is Insured Damage to the extent of the cost of repairing such Insured Damage, the Tenant agrees to indemnify and save harmless the Landlord in respect of: (i) all claim for bodily injury or death, property damage or other loss or damage arising from the conduct of any work or any act or omission of the Tenant or any assignee, sub-tenant, agent, employee, contractor, invites or licensee of the Tenant, and in respect of all costs, expenses and liabilities incurred by the Landlord in connection with or arising 8 out of all such claims, including the expenses of any action or proceeding pertaining thereto; and (ii) any loss, cost, (including, without limitation, lawyers' fees and disbursements), expense or damage suffered by the Landlord arising from any breach by the Tenant of any of its covenants and obligations under this Lease. Definition of "Insured Damages" (e) For purposes of this Lease, "Insured Damage" means that part of any damage occurring to the Property of which the entire cost of repair (or the entire cost of repair other than deductible amount Dproperly collectable by the Landlord as part of the Additional Rent) is actually recovered by the Landlord under a policy or policies of insurance from time to time effected by the Landlord pursuant to sub-paragraph (a) Where an applicable policy of insurance contains an exclusion for damages recoverable from a third party, claims as to which the exclusion applies shall be considered to constitute Insured Damage only if the Landlord successfully recovered from the third party. 10. EVENTS OF DEFAULT AND REMEDIES Events of Default and Remedies (a) In the event of the happening of any one of the following events: (i) the Tenant shall have failed to pay an installment of Rent or any other amount payable hereunder when due, and such failure shall be continuing for a period of more than ten (10) days after the date such installment or amount was due; (ii) there shall be a default of or with any condition, covenant, agreement or other obligation on the part of the Tenant to be kept, observed or performed hereunder (other than the obligation to pay Rent or any other amount of money) and such default shall be continuing for a period of more than thirty (30) days after written notice by the Landlord to the Tenant specifying the default and requiring that it be cured; (iii) if any policy of insurance upon the Property or any part thereof from time to time effected by the Landlord shall be canceled or about to be canceled by the insurer by reason of the use or occupation of the Leased Premises by the Tenant or any assignee, sub-tenant or licensee of the Tenant or anyone permitted by the Tenant to be upon the Leased Premises and the Tenant after receipt of notice in writing from the Landlord shall have failed to take such immediate steps in respect of such use or occupation as shall enable the Landlord to reinstate or avoid cancellation (as the case may be) of such policy of insurance; (iv) the Leased Premises shall, without the prior written consent of the Landlord, be used by any other persons than the Tenant or a permitted Transferee or for any purpose other than that for which they were leased or occupied or by any persons whose occupancy is prohibited by this Lease; (v) the Leased Premises shall be abandoned without the prior written consent of the Landlord for fifteen (15) consecutive days or more while capable of being occupied; (vi) the balance of the Term of this Lease or any of the goods and chattels of the Tenant located in the Leased Premises, shall at any time be seized in execution or attachment; or (vii) the Tenant shall make any assignment for the benefit of creditors or become bankrupt or insolvent or take the benefit of any statute for bankrupt or insolvent debtors or, if a corporation, shall take any steps or suffer any order to be made for Its winding-up or other lamination of its corporate existence; or a trustee, receiver or receiver-manager or agent or other like person shall be appointed of any of the assets of the Tenant; then the Landlord shall have the following rights and remedies all of which are cumulative and not alternative and not to the exclusion of any other or additional rights and remedies in law or equity available to the Landlord by statute or otherwise; (A) to remedy or attempt to remedy any default of the Tenant, and in so doing to make any payments due or alleged to be due by the Tenant to third parties and to enter upon the Leased Premises to do any work or other things therein, and in such event all reasonable expenses of the Landlord in remedying or attempting to remedy such default shall be payable by the Tenant to the Landlord on demand; (B) with respect to =paid overdue Rent, to the payment by the Tenant of the Rent and of interest (which said interest shall be deemed included herein in the term "Rent") thereon at a rate equal to the lesser of three percent (3%) above the prime commercial loan rate charged to 9 borrowers having the highest credit rating from time to time by the Landlord's principal bank from the date upon which the same was due until actual payment thereof and the maximum amount allowed under the laws of the jurisdiction in which the Building is located; (C) to terminate this Lease forthwith by leaving upon the Leased Premises or by affixing to an entrance door to the Leased Premises notice terminating the Lease and to immediately thereafter cease to furnish any services hereunder and enter into and upon the Leased Premises or any part thereof in the name of the whole and the same to have again, re-possess and enjoy as of its former estate, anything in this Lease contained to the contrary notwithstanding. The Tenant hereby expressly waives any and all notices (other than those notices specifically outlined in this Lease) to cure or vacate or to quit the Leased Premises provided by current or future law; (D) to enter the Leased Premises as agent of the Tenant and as such agent to re-let them and to receive the rent therefor and as the agent of the Tenant to take possession of any furniture of other property thereon and upon giving ten (10) days' written notice to the Tenant to store the same at the expense and risk of the Tenant or to sell or otherwise dispose of the same at public or private sale without further notice and to apply the proceeds thereof and any rent derived from re-letting the Leased Premises upon account of the Rent due and to become due under this Lease and the Tenant shall be liable to the Landlord for the deficiency if any; and (E) in the event of any breach by the Tenant of any of the covenants or provisions of this Lease, the Landlord shall have the right of injunction and the right to invoke any remedy allowed at law or in equity, and mention in this Lease of any particular remedy shall not preclude the Landlord from any other remedy at law or in equity. Tenant hereby expressly waives any and all rights of redemption or to any notice to quit granted by or under any present or future laws in the event of this Lease being terminated and/or Landlord obtaining possession of the Leased Premises pursuant to the provisions of this section. Payment of Rent, etc. on Termination (b) Upon the giving by the Landlord of a notice in writing terminating this Lease under paragraph 10 (a)(C), above, this Lease and the Tem shall terminate, the Tenant shall remain liable for and shall pay on demand by the Landlord (I) the full amount of all Rent which would have accrued until the date on which this Laws would have expired had such termination not occurred, and any and all damages and expenses incurred by the Landlord in re-entering and repossessing the Leased Premises in making good any default of the Tenant, in making any alterations to the Leased Premises, and any and all expenses which the Landlord may incur during the occupancy of any new ten ant, less (if) the net proceeds of any re-letting of the Leased Premises which has occurred at the time of the aforesaid demand by the Landlord to the Tenant. The Tenant agrees to pay to the Landlord the difference between items (i) and (ii) above for the period through and including the date on which this Lease would have expired if it had not been terminated. The Landlord shall be entitled to any excess with no credit to the Tenant. The Landlord may, in its sole discretion, make demand on the Tenant as aforesaid on any one or more occasion, and any suit brought by the Landlord to enforce collection of such difference for any one month shall not prejudice the Landlord's right to enforce the collection of any difference for any subsequent month or months. In addition to the foregoing, and without regard to whether this Lease has been terminated, Tenant shall pay to the Landlord all costs incurred by the Landlord, including reasonable attorneys' fees, with respect to any successful lawsuit or action instituted or taken by the Landlord to enforce the provisions of this Lease. The Tenant's liability shall survive the institution of summary proceedings and the issuance of any warrant hereunder. If the Landlord determines that it is impracticable or extremely difficult to fix the actual damages, then, as an alternative to the remedy set forth in the preceding paragraph, the Tenant will pay to the Landlord on demand, liquidated and agreed final damages for the Tenant's default calculated in accordance with this paragraph. Liquidated damages hereunder shall be an amount equal to the present value at a rate of six percent (6%) per annum of the excess, if any, of (i) all Rent payable under this Lease from the date of such demand for what would be the then unexpired Term of this Lease in the absence of such termination over (ii) the then fair market rental value of the Leased Premises (as determined by the Landlord). if any law shall limit the amount agreed upon, the Landlord shall be entitled to the maximum amount allowable under such law. Nothing herein shall be construed to affect or prejudice the Landlord's right to prove, and claim in full, unpaid rent seemed prior to termination of this Lease. Upon termination of this Lease and the Term, the Tenant shall immediately deliver up possession of the Leased Premises to the Landlord, and the Landlord may forthwith re-enter and take possession of them. (c) The Tenant shall pay to the Landlord on demand all costs and expenses, including lawyers' 10 fees, incurred by the Landlord in successfully enforcing any of the obligations of the Tenant under this Lease. ADDITIONAL PROVISIONS Common Areas 11. The Tenant acknowledges and agrees that the common areas of the Property shall at all times be subject to the exclusive management and control of the Landlord. Without limiting the generality of the foregoing, the Tenant specifically acknowledges and agrees that the Landlord may temporarily close or restrict the use of all or any part of the common areas of the Property in an emergency, or for security or crowd control purposes, to facilitate tenants moving in or out of the building, or for the purpose of making repairs, alterations or renovations. The Landlord agrees not to permanently alter such common areas in any manner which would deny reasonable access to the Leased Premises. In the event of any such temporary closure or restriction of use or if changes are made to such common areas by the Landlord, the Landlord shall not be subject to any liability nor shall the Tenant be entitled to any compensation or any diminution or abatement of Rent and such closures, restriction and changes shall not be deemed to be a constructive or actual "iction or a breach of the Landlord's covenant for quiet enjoyment. Relocation of Leased Premises 12. The Landlord shall have the right at any time upon sixty (60) days' written notice (the "Notice of Relocation") to relocate the Tenant to other premises in the Property (the "Relocated Premises") and the following terms and conditions shall be applicable: (a) the Relocated Premises shall contain approximately the same as, or greater Rentable Area than, the Leased Premises; (b) the Landlord shall provide at its expense leasehold improvements in the Relocated Premises equal to the standards of the Leasehold Improvements in the Leased Premises which have been completed or which the Landlord is obliged herein to provide in the Leased Premises; (c ) the Landlord shall pay for the reasonable moving costs (if any) from the Leased Premises to the Relocated Premises of the Tenant's trade fixtures and furnishings; (d) as compensation for all other costs, expenses and damages which the Tenant may suffer or incur in connection with the relocation including disruption and l@ of business, Basic Rent and Additional Rent for the Relocated Premises for the period of the first one (1) month of occupancy shall abate; (e) during the remaining Term of the Lease but not including any renewals of the Lease, the Basic Rent and Tenant's Proportionate Share of Additional Rent for the Relocated Premises shall be no greater than the Basic Rent and Tenant's Proportionate Share of Additional Rent for the Leased Premises, notwithstanding the Relocated Premises may contain a greater Rentable Area; (f) all other terms and conditions of the Lease shall apply to the Relocated Premises except as are inconsistent with the terms and conditions of this sub-paragraph; (g) the Tenant agrees to execute the Landlord's standard form of lease amendment then being used by the Landlord for the Building to give effect to the relocation. Subordination and Attornment 13. This Lease and all rights of the Tenant hereunder are subject and subordinate to all underlying leases and charges, or mortgages now or hereafter existing (including charges, and mortgages by way of debenture, note, bond, deeds of trust and mortgage and all instruments supplemental thereto) which may now or hereafter affect the Property or any part thereof and to all renewals, modifications, consolidations, replacements and extensions thereof provided the lessor, charges, mortgagee or trustee agrees to accept this Lease if not in default; and in recognition of the foregoing the Tenant agrees that it will, whenever requested, attorn to such lessor, charges, mortgagee as a tenant upon all the terms of this Lease. The Tenant agrees to execute promptly whenever requested by the Landlord or by the holder of any such lease, charge, or mortgage an instrument of subordination or attornment as may be required of it. Certificates 14. The Tenant agrees that it shall promptly whenever requested by the Landlord from time to time execute and deliver to the Landlord, and if required by the Landlord, to any lessor, charges, or mortgagee (including any trustee) or other person designated by the Landlord, an acknowledgment in writing as to the then status of this Lease, including as to whether it is in fell force and effect, is modified or unmodified, confirming the Rent payable hereunder and the state of the accounts between Landlord and the Tenant, the existence or nonexistence of defaults, and any other matters pertaining to this Lease as to which the Landlord shall request an acknowledgment. 11 Inspection of and Access to the Leased Premises 15. The Landlord shall be permitted at any time and from time to time upon twenty-four (24) hours notice, except in case of emergency, to enter and to have its authorized agents, employees and contractors enter the Leased Premises for the purposes of inspection, window cleaning, maintenance, providing janitor service, making repairs, alterations or improvements to the Leased Premises or the Property, or to have access to utilities and services (including all ducts and access panels (if any), which the Tenant agrees not to obstruct) and the Tenant shall provide free and unhampered access for the purpose, and shall not be entitled to compensation or any diminution or abatement of Rent for any inconvenience, nuisance or discomfort mused thereby. During the last six (6) months, the Landlord and its authorized agents and employees shall be permitted entry to the Leased Premises for the purpose of exhibiting them to prospective tenants. The Landlord in exercising its rights under this paragraph shall do so to the extent reasonably necessary so as to minimize interference with the Tenant's use and enjoyment of the Leased Premises provided that in an emergency the Landlord or persons authorized by it may enter the Leased Premises without regard to minimizing interference. Delay 16. Except as herein otherwise expressly provided, if and whenever and to the extent that either the Landlord or the Tenant shall be prevented, delayed or restricted in the fulfillment of any obligation hereunder in respect of the supply or provision of any service or utility, the making of any repair, the doing of any work or any other thing (other than the payment of moneys required to be paid by the Tenant to the Landlord hereunder) by reason - -or- (a) strikes or work stoppages; (b) being unable to obtain any material, service, utility or labor required to fulfill such obligation; (c ) any statute, law or regulation of, or inability to obtain any permission from any government authority having lawful jurisdiction preventing, delaying or restricting such fulfillment; -or- (d) other unavoidable occurrence, the time for fulfillment of such obligation shall be "tended during the period in which such circumstance operates to prevent, delay or restrict the fulfillment thereof, and the other party to this Lease shall not be entitled to compensation for any inconvenience, nuisance or discomfort thereby occasioned; provided that nevertheless the Landlord will use its best efforts to maintain services essential to the use and enjoyment-of the Leased Premises and provided further that if the Landlord shall be prevented, delayed or restricted in the fulfillment of any such obligation hereunder by reason of say of the circumstances act out in sub-paragraph (c) of this paragraph '15 and to fulfill such obligation could not, in the reasonable opinion of the Landlord, be completed without substantial additions to or renovations of the Property, the Landlord may an sixty (60) days' written notice to the Tenant terminate this Lease. Waiver 17. If either the Landlord or the Tenant shall overlook, excuse, condone or suffer any default, breach, non-observance, improper compliance or noncompliance by the other of any obligation hereunder, this shall not operate as a waiver of such obligation in respect of any continuing or subsequent default, breach, or non-observance, and no such waiver shall be implied but shall only be effective if expressed in writing. Sale, Demoi1ition and Renovation 18. (a) The term "Landlord" as used in this Lease, means only the owner for the time being of the Property, so that in the event of any sale or sales or transfer or transfers of the Property, or the making of any lease or lease thereof, or the sale or sales or the transfer or transform or the assignment or assignments of any such lease or lease, previous landlords shall be and hereby are relieved of all covenants and obligations of Landlord hereunder. It shall be deemed and construed without further agreement between the parties, or their successors in interest, or between the parties and the transferee or acquirer, at any such sale, transfer or assignment, or lessee on the making of any such lease, that the transferee, acquirer or lessee has assumed and agreed to carry out any and all of the covenants and obligations of Landlord hereunder to Landlord's exoneration, end Tenant shall thereafter be bound to and shall attorn to such transferee, acquirer or lessee, as the case may be, as Landlord under this Lease; (b) Notwithstanding anything contained in this Lease to the contrary, in the event the Landlord intends to demolish or to renovate substantially all the Building, then the Landlord, upon giving the Tenant one hundred and eighty (180) days' written notice, shall have the right to terminate this Lease and this Lease shall thereupon expire on the expiration of one hundred and eighty (180) days from the date of the giving of such 12 notice without compensation of any kind to the Tenant. Public Taking 19. The Landlord and Tenant shall co-operate, each with the other, in respect of any Public Taking of the Leased Premises or any part thereof so that the Tenant may receive the maximum award to which it is entitled in law for relation costs and business interception and so that the Landlord my receive the maximum award for all other compensation arising from or relating to such Public Taking (including all compensation for the value of the Tenant's leasehold interest subject to the Public Taking) which shall be the property of the Landlord, and the Tenant's rights to such compensation are hereby assigned to the Landlord. If the whole or any part of the Leased Premises is Publicly Taken, as between the parties hereto, their respective rights and obligations under this Lease shall continue until the day on which the Public Taking authority takes possession thereof. If the whole or any part of the Leased Premises is Publicly Taken, the Landlord shall have the option, to be exercised by written notice to the Tenant, to terminate this Lease and such termination shall be effective on the day the Public Taking authority takes possession of the whole or the portion of the Property Publicly Taken. Rent and all other payments shall be adjusted as of the date of such termination and the Tenant shall, an the date of such Public Taking, vacate the Leased Premises and surrender the same to the Landlord, with the Landlord having the right to re-enter and re-possess the Leased Premises discharged of this Lease and to remove all persons therefrom. In this paragraph, the words "Public Taking" shall include expropriation and condemnation and shall include a sale by the Landlord to an authority with powers of expropriation, condemnation or taking, in lieu of or under threat of expropriation or taking and "Publicly Taken" shall have a corresponding meaning. Registration of Lease 20. The Tenant agrees with the Landlord not to register this Lease in any recording office and not to register notice of this Lease in any form without the prior written consent of the Landlord. If such consent is provided such notice of Lease or caveat shall be in such form as the Landlord shall have approved and upon payment of the Landlord's reasonable fee for same and all applicable transfer or recording taxes or charges. The Tenant shall remove and discharge at Tenant's expense registration of such a notice or caveat at the expiry or earlier termination of the Term, and in the event of Tenant's failure to so remove or discharge such notice or caveat after ten (10) days' written notice by Landlord to Tenant, the Landlord may in the name and on behalf of the Tenant execute a discharge of such a notice or caveat in order to remove and discharge such notice of caveat and for the purpose thereof the Tenant hereby irrevocably constitutes and appoints any officer of the Landlord the true and lawful attorney of the Tenant. Lease Entire Agreement 21. The Tenant acknowledges that there are no covenants, representations, warranties, agreements or conditions express or implied, collateral or otherwise forming part of or in say way affecting or relating to this Lease save as expressly set out I, this Lease and Schedules attached hereto and that this Lease and such Schedules constitute the entire agreement between the Landlord and the Tenant and may not be modified except as herein explicitly provided or except by agreement in writing executed by the Landlord and the Tenant. Notices 22. Any notice, advice, document or writing required or contemplated by any provision hereof shall be given in writing and if to the Landlord, either delivered personally to an officer of the Landlord or mailed by prepaid mail addressed to the Landlord at the said local office address of the Landlord shown above, and if to the Tenant, either delivered Personally to the Tenant lot to an officer of the Tenant, if a corporation) or mailed by prepaid mail addressed to the Tenant at the Leased Premises, or if an address of the Tenant is shown in the description of the Tenant above, to such address. Every such notice, advice, document or writing shall be deemed to have been given when delivered personally, or if mailed as aforesaid, upon the fifth day after being mailed. The Landlord may from time to time by notice in writing to the Tenant designate another address as the address to which notices are to be mailed to it, or specify with greater particularity the address and persons to which such notices are to be mailed and may require that copies of notices be sent to an agent designated by it- The Tenant easy, if an address of the Tenant is shown in the description of the Tenant above, from time to time by notice in writing to the landlord, designate another address a, the address to which notices are to be mailed to it, r specify with greater particularity the address to which such notices are to be mailed. Interpretation 23. In this Agreement "herein, "hereof", "hereby", "hereunder", "hereto", "hereinafter" and similar expressions refer to ibis Lease and not to any particular paragraph, clause or other portion thereof, unless there is something in the subject matter or context inconsistent therewith; and the parties agree that all of the provisions f this Lease are to be construes as covenants and agreements as though words importing such covenants and agreements were used in each separate paragraph hereof, and that should any provision or provisions of this Lease be illegal or not enforceable it Or they shall be considered separate and severable from the Lease and its remaining provisions shall remain in fares and be binding upon the parties hereto as though the said provision or provisions 13 had never been included, and further that the captions appearing for the provisions of this Lease have been inserted as a matter of convenience and for reference only and in no way define, limit or enlarge the scope or meaning of this Lease or of any provisions hereof. Interpretation 24. This Agreement and everything herein contained shall ensure to the benefit of and be binding upon the respective heirs, executors, administrators, successors, assigns and other legal representatives, as the case may be, of each and every of the parties hereto, subject to the granting of consent by the Landlord to any assignment or sublease, and every reference herein to any party hereto shall include the heirs, executors, administrators, successors, assigns and other legal representatives of such party, and where there is more than one tenant or there is a male or female party the provisions hereof shall be read with all grammatical changes thereby rendered necessary and all covenants shall be deemed joint and several. Use and Occupancy Prior to Term 25. If the Tenant shall for any reason use or occupy the Leased Premises in any way prior to the commencement of the Term without there being an existing lease between the Landlord and Tenant under which the Tenant has occupied the Leased Premises, then during such prior use or occupancy the Tenant shall be a Tenant of the Landlord and shall be subject to the same covenants and agreements in this Lease mutatis mutandis. Limitation of Landlord Liability 26. Notwithstanding any other provision of this Lease, it is expressly understood and agreed that the total liability of the Landlord arising out of or in connection with this Lease, the relationship of the Landlord and the Tenant hereunder and/or the Tenant's use of the Leased Premises, shall be limited to the estate of the Landlord in the Property. No other property or asset of the Landlord or any partner or owner of the Landlord shall be subject to levy, execution, or other enforcement, proceedings or other judicial process for the satisfaction of any judgment or any other right or remedy of the Tenant arising out of or in connection with this Lease, the relationship of the Landlord and the Tenant hereunder and /or the Tenant's use of the Leased Premises. 14 Waiver of Jury Trial 27. The Tenant hereby waives trial by jury in any claim, action, proceeding or counterclaim brought by either party against the other on any matters arising out of or in any way connected with this Lease, the relationship of the Landlord and the Tenant, or the Tenant's use and occupancy of the Leased Premises. Choice of Law 28. This Lease shall be governed by the laws of the State in which the Leased Premises are located. Any litigation between the Landlord and the Tenant concerning this Lease shall be initiated in the county in which the Premises are located. Schedules 29. The provisions of the following Schedules attached hereto shall form part of this Lease as if the same were embodied herein: Schedule 'A' Legal Description of Property Schedule 'B' Measurement of Rentable Area Schedule "B-1" Location of Leased Premises Schedule "C' Taxes Payable by Landlord and Tenant Schedule 'D' Services and Costs Schedule "E' Rules and Regulations Schedule 'F' Leasehold Improvements IN WITNESS WHEREOF the parties hereto have executed this Agreement. I/We have authority to bind the corporation. Landlord: THE MANUFACTURERS LIFE INSURANCE COMPANY (USA) Witness as to Signing by Landlord by Signature ___________ Title: Tenant: Alta Vista Technology, Inc., A California Corporation Witness/Attest By Signature: s. Jack Marshall Title: President Name: Jack Marshall Witness as to signing by Tenant or officer(s) of Tenant By Signature:________ Title: Name: 15 SCHEDULE 'A' Legal Description - 300 Orchard City Drive All that real property situated in the City of Campbell, County of Santa Clara, State of California, described as follows: Parcel One: Beginning at the point of intersection of the Southwesterly line of a parcel of land described in Deed and recorded in 1975 under series number 5194638 in the Santa Clara County's Recorders Office, Santa Clara County, California, and the Northwesterly right-of-way line of the Southern Pacific Transportation Company, said points being the True Point of Beginning, thence North 58 06' 21" West, 292.40 feet to an iron pipe as shown on that certain Parcel Map recorded March 12, 1974 in Book 337 of Maps at Page 19, Santa Clara County Records; thence North 31 44' 30"East, 228.57 feet to an iron pipe as shown on said map thence, North 0 09' 35" West, 31.26 feet to an iron pipe as shown on said map; thence North 89 55' 46" East, 10.45 feet to an iron pipe as shown on said map; thence North 02 27' East, 32.98 feet to an iron pipe as shown on said map thence North 89 56' 17" West, 126.22 feet, more or less to the Easterly right-of-way of South First Street; thence Northerly along said Easterly right-of-way line North 0 09' 35" West, 50.39 feet, more or less to the Southerly right-of-way line of Orchard City Drive, thence, Easterly along said Southerly right-of-way line 236.34 feet, to a tangent curve concave to the Southwest having a radius of 275.00 feet; thence, along said tangent curve concave to the Southwest, 72.99 feet, more or less through a central angle of 15 12'28" to the Westerly right-of-way line of central avenue; then Southerly along said Westerly right of way line 115.00 feet, more or less to an iron pipe, as shown on said map marking an angel point to said Westerly right-of-way line, 122.84 feet to an iron pipe as shown on said map marking the intersection of said Southerly right-of-way line with the Northwesterly right-of-way line of the Southern Pacific Transportation Company; thence, Southwesterly, along said right-of-way line, South 31 34'10" West, 544.54 feet to the True Point of Beginning. Excepting from above, the following described parcels: Parcel A: Beginning at an iron pipe marking the intersection of the Northwesterly right-of-way line of the South Pacific Railroad Company and the Southerly line of Central Avenue; thence, South 31 34'10" West along said Northwesterly right-of-way line 18.00 feet; thence, North 58 27' 19" West, parallel to the Southerly right-of-way line of Central Avenue and at right angles, 18.00 feet distant, 52.00 feet; thence, North 31 34' 10" East, 3.00 feet to a tangent curve concave to the Southwest, having a radius of 1.5 feet thence along said tangent curve concave to the Southwest 2.36 feet, through a central angle of 90 ; thence, North 58 27' 19" West, 19.00 feet; thence, North 31 32' 41" east, 14.00 feet, more or less, to the Southerly right-of-way line of Central Avenue; thence, Easterly along said Southerly right-of-way line, South 58 27' 19" East, 73.00 feet, more or less, tot he point of beginning. Parcel B: All that certain parcel of land situated in the City of Campbell, County of Santa Clara, State of California described as follows: Beginning at the point of intersection of the Southwesterly line of a parcel of land described in Deed and recorded in 1975 under series number 5194638 in the Santa Clara County's Recorders Office, Santa Clara County, California, and the Northwesterly right-of-way line of the Southern Pacific Transportation Company, said point of being the True Point of Beginning thence North 58 06' 21" west, 292.40 feet to an iron pipe; thence North 31 44' 30" East, 200.00 feet; thence South 58 06' 19" East 291.50 feet, thence South 31 34' 10" West, 200.00 feet to the True Point of Beginning. Page 2 (300 Orchard City Drive) Parcel C Bounded on the West by the East right-of-way line of the South First Street; bounded on the North by the Southerly right-of-way line of Orchard City Drive bounded on the East by the Westerly right of way line of Central Avenue; bounded on the South by the following described line: Beginning at an iron pipe on the Easterly right-of-way line of South First Street, 50.39 feet Southerly on said Easterly right-of-way line from the Southerly right-of-way line of Orchard City Drive; thence, South 89 56' 17" East 126.21 feet to an iron pipe; thence, South 0 02' 27" West, 8.00 feet; thence, North 73 33' 43", East 36.50 feet to a tangent curve concave to the South, having a radius of 39.00 feet; thence along said tangent curve concave to the South, 18.04 feet, through a central angle of26 30' 00"; thence, South 79 53' 41" East, 25.00 feet to a tangent curve concave to the Southwest having a radius of 2.00 feet thence along said tangent curve concave to the Southwest 2.79 feet, through a central angle of 79 52' 41"; thence, South 00 01' East 19.00 feet, thence North 89 59' East, 19.00 feet to a tangent curve to the Southwest having a radius of 159.00 feet; thence, along said tangent curve concave to the Southwest, 87.56 feet, more or less, to the intersection of said curve with the Westerly right-of-way line of Central Avenue. Parcel Two: An easement for Building Encroachment upon the following described parcel: Beginning at the most Southwesterly corner of that certain parcel of land described by that certain Grant Deed recorded September 25, 1978 and filed in Book D 971 at Official Records at Page 453 in the office of the County Recorder, County of Santa Clara, State of California; thence along the Southerly boundary of said parcel of land the following courses and distances: South 89 56' 17" East, 126.21 feet to an iron pipe; South 0 02' 27" West, 8.00 feet; North 73 33' 43" East, 17.00 feet to the True Point of Beginning, said True Point of Beginning being a point on a non-tangent curve concave Southerly having a radius of 25.00 feet; thence from a tangent bearing North 18 39' 19" East Northeasterly and Southeasterly along the arc of said curve through a central angle of 130 02' 40" a distance of 56.74 feet, to its intersection with aforesaid Southerly boundary of said parcel of land; thence along aforesaid boundary the following courses and distances; North 79 53' 41" West 8063 feet to a point of a non-tangent curve that is concave Southerly and has a radius of 39.00 feet; Westerly along the arc of last mentioned curve through a central angle of 26 30' 00" a distance of 18.04 feet; South 73 33' 43" West 19.50 feet to the True Point of Beginning. Parcel Three: Beginning at an iron pipe marking the intersection of the Northwesterly right of way line of the South Pacific Railroad Company and the Southerly line of Central Avenue, thence South 31 34' 10" West along said northwesterly right-of-way line 18.00 feet; thence, North 58 27' 29" West parcel to the Southerly right-of-way line of Central Avenue and at right angles 18.00 feet distant 32.00 feet; thence North 31 32' 41" East 3.00 feet to a tangent curve concave to the Southwest having a radius of 1.5 feet, thence along said tangent curve to the Southwest 2.36 feet through a central angle of 90 thence North 58 27' 19" West 19.00 feet, thence North 31 32' 41" East 14.00 feet more or less to the right-of-way line South 58 27' 19" East 73.00 feet, more or less, to the point of beginning. Excepting therefrom a strip of land 3.00 feet wide the Northerly line of which is coincident with the Southerly right-of-way line of Central Avenue. SCHEDULE 'B' SINGLE TENANT FLOOR The 'Rentable Area' of a single tenant floor shall be computed by measuring from the inside finish of the permanent outer Building walls or from the glass line in accordance with the standards of the Building established by the Landlord. Rentable Area shall include all areas within outside walls or glass line less stairs (but including stair landings where they provide access to washrooms, storage rooms, etc.), elevator shafts, flues, pipe shafts, vertical ducts, and their enclosing walls. Washrooms, janitor rooms, on-floor storage rooms, telephone rooms, electrical closets shall be included in the Rentable Area. Where the space on both sides of a wall is Rentable Area, the wall is to be included in the Rentable Area. No deductions shall be made for columns and projections necessary to the Building. MULTI-TENANT FLOOR The Rentable Area of a multi-tenant floor tenant shall be computed by multiplying such portion of the Usable Area (AS set out below) allocated to the multi-tenant floor tenant by the ratio of the total Rentable Areas of the Building to the total Usable Areas of the Building. The "Usable Area" of a multi-tenant floor is the Rentable Area of a single tenant floor less the area of the Normal Corridor (as act out below), washrooms, janitor closets, telephone rooms, electrical closets, air conditioning rooms and their enclosing walls. The Usable Area of the multi-tenant floor tenant shall be computed by measuring from the inside finish of the permanent outer Building Wall or from the glass line to the Usable Area side of the Normal Corridor and /or other permanent partitions and to the center line of partitions which demise tenant areas. The 'Normal Corridor" is the minimum corridor permitted by the applicable code, yet practical for leasing purposes. For example, although the code may permit a 42 inch wide corridor, for aesthetic reasons or because of grid restrictions, the corridor might well be 4'6' or 5'0' wide. Once the corridor dimensions have been established they shall remain unchanged and marked on the master plan showing all dimensions used to calculate Rentable Area and Usable Area. The ground floor is measured as Usable Area. If the Normal Corridor is extended to provide a multi-tenant floor tenant access to its space, the area of the corridor extension is included in that tenant's Usable Area or allocated proportionately to the multi-tenant floor tenants benefiting from the extension of the Normal Corridor. PROPERTY NAME: 300 Orchard City Drive Campbell, California PROPERTY NUMBER. 566 SCHEDULE "C' TAXES PAYABLE BY LANDLORD AND TENANT Tenant Taxes (a) The Tenant covenants to pay all Tenant's Taxes, as and when the same become due and payable. Where any Tenant's Taxes are payable by the Landlord to the relevant taxing authorities, the Tenant covenants to pay the amount thereof to the Landlord. (b) The Tenant covenants to pay the Landlord the Tenant's Proportionate Share of the excess of the amount of the Landlord's Taxes in each Fiscal Period over the Landlord's Taxes in the "Base Year' (as hereinafter defined). (c) The Tenant covenants to pay to the Landlord the Tenant's Proportionate Share of the costs and expenses (including legal and other professional fees and interest and penalties on deferred payments) incurred in good faith by the Landlord in contesting, resisting or appealing any of the Taxes- Landlord's Taxes(d) The Landlord covenants to Pay all Landlord's Taxes subject to the payments on account of Landlord's Taxes required to be made by the Tenant elsewhere in this Lease. The Landlord may appeal any official assessment or the mount of any Taxes or other taxes based n such assessment and relating to the Property, In connection with any such appeal, the Landlord may defer payment f any Taxes or other taxes, as the case may be, payable by it to the extent permitted by law, and the Tenant shall co-operate with the Landlord and provide the Landlord with all relevant information reasonably required by the Landlord in connection with any such appeal. (e) In the event that the Landlord is unable to obtain from the taxing authorities any Separate Allocation separate allocation of Landlord's Taxes, Tenant's Taxes or assessment as required by the Landlord to make calculations of Additional Rent under this Lease, such allocation shall be made by the Landlord acting reasonably and shall be conclusive. (f) Whenever requested by the Landlord, the Tenant shall deliver to it receipts for payment of all the Tenant's Taxes and furnish such other information in connection therewith as the Landlord may reasonably require. Tax Adjustment (g) If the Building has not been taxed as a completed and fully occupied building for any Fiscal Period, the Landlord's Taxes will be determined by the Landlord as if the Building had been taxed as a completed building fully occupied by commercial tenants for any such Fiscal Period. Definition 2. In this lease: (a) "Landlord's Taxes' shall mean the aggregate of all Taxes attributable to the Property, the Rent or the Landlord in respect thereof and including, any amounts imposed, assessed, levied or charged in substitution for or in lieu of any such Taxes, but excluding such taxes as capital gains taxes, corporate income, profit or excess profit taxes to the extent such taxes are not levied in lieu of any of the foregoing against the Property or the Landlord in respect thereof, (b) "Taxes" shall mean all taxes, rates, duties, levies, fees, charges, local improvement rates, capital taxes, rental taxes and assessments whatsoever including fees, rents, and levies for air rights and encroachments on or over municipal property imposed, assessed, levied or charged by any school, municipal, regional, state, provincial, federal, parliamentary or other body, corporation, authority, agency or commission provided that "Taxes' shall not include any special utility, levies, fees or charges imposed, assessed, levied or charged which are directly associated with initial construction of the Property; (c) "Tenant's Taxes" shall mean the aggregate of: (i) all Taxes (whether imposed upon the Landlord or the Tenant) attributable to the personal property, trade fixtures, business, income, occupancy or sales of the Tenant or any other occupant of the Leased Premises, and to any Leasehold Improvements or fixtures installed by or on behalf of the Tenant within the Leased Premises, and to the use by the Tenant of my of the Property; and (ii) the amount by which Taxes (whether imposed upon the Landlord or the Tenant) are increased above the Taxes which would have otherwise been payable as a result of the Leased Premises or the Tenant or by their occupant of the Leased Premises being taxed or assessed in support of separate schools; and SCHEDULE"C" TAXES PAYABLE BY LANDLORD AND TENANT (d) "Tenant's Proportionate Share" shall mean two decimal ninety-two percent (2.92%) subject to adjustment as determined solely by the Landlord and notified to the Tenant in writing for physical increases or decreases in the total Rentable Area of the Property provided that total Rentable Area of the Property and the Rentable Area of the Leased Premises shall exclude areas designated (whether or not rented) for parking and for storage. (e) "Base Year" as used in this Schedule shall mean calendar year 1998. C- 2 SCHEDULE"D" SERVICES AND COSTS 1 The Landlord covenants with the Tenant: Interior Climate Control (a) To maintain in the Leased Premises conditions of reasonable temperature and comfort in accordance with good standards applicable to normal occupancy of premises for office purposes subject to government regulations during hours to be determined by the Landlord (but to be at least the hours from 8:00 a.m. to 6:00 p.m. from Monday to Friday inclusive with the exception of holidays, Saturdays and Sundays), such conditions to be maintained by means of a system for heating and cooling filtering and circulating air; the Landlord shall have no responsibility for any inadequacy of performance of the said system if the occupancy of the Leased Premises or the electrical power or other energy consumed on the Leased Premises for all purposes exceeds reasonable amounts as determined by the Landlord or the Tenant installs partitions or other installations in locations which interfere with the proper operation of the system of interior climate control or if the window covering on exterior windows is not kept fully closed; Janitor Service (b) To provide janitor and cleaning services to the Leased Premises and to common areas of the Building consisting of reasonable services in accordance with the standards of similar office buildings; Elevators, Lobbies, etc. (c ) To keep available the following facilities for use by the Tenant and its employees and invitees in common with other persons entitled thereto: (i) passenger and freight elevator service to each floor upon which the Leased Premises are located provided such service is installed in the Building and provided that the Landlord may prescribe the hours during which and the procedures under which freight elevator service shall be available and may limit the number of elevators providing service outside normal business boom; (ii) common entrances, lobbies, stairways and corridors giving access to the Building and the Leased Premises, including such other areas from time to time which may be provided by the Landlord for common use and enjoyment written the Property; (iii) the washrooms as the Landlord may assign from time to time which are standard to the Building, provided that the Landlord and the Tenant acknowledge that where an entire floor is leased to the Tenant or some other tenant the Tenant or such other tenant, as the case may be, easy exclude others from the washrooms thereon. 2. (a) The Landlord covenants with the Tenant and the Landlord shall have the sole right to furnish electricity to the Leased Premises (except Leased Premises which have separate meters) for normal office use for lighting and for office equipment capable of operating from the circuits available to the Leased Premises and standard to the Building during hours to be determined by the Landlord (but to be at least the home from 8:00 a.m. to 6:00 p.m. from Monday to Friday inclusive with the exception of holidays, Saturdays and Sundays) and during such other hours that the Tenant elects at its sole cost and expense subject to governmental regulations, (b) The amount of electricity consumed on the Leased Premises in excess of electricity required by the Tenant for normal office use shall be @ determined by the Landlord acting reasonably or by a metering device installed by the Tenant at the Tenant's expense. The Tenant shall pay the Landlord for any such excess electricity on demand. (c)Intentionally deleted. (d) In calculating electricity costs for any Fiscal Period, if less than one hundred percent (100%) of Building is occupied by tenants, then the amount of such electricity costs shall be deemed for the purposes of this Schedule to be increased to an amount equal to the like electricity costs which normally would be expected by the Landlord to have been incurred had such occupancy been one hundred percent (100%) during such entire period, 3. The Landlord shall maintain and keep in repair the facilities required for the provision of the interior climate control, elevator (if installed in the Building) and other services referred to in sub-paragraph (a) and (c ) of paragraph 1 and sub-paragraph (a) of paragraph 2 of this Schedule in accordance with the standards of office buildings similar to the Building but reserves the right to stop the use of any of these facilities and the supply of the corresponding services when necessary by reason of accident or breakdown or during the making of repairs, alterations or improvements, in the reasonable judgment of the Landlord necessary or desirable SCHEDULE"D" SERVICES AND COSTS to be made, until the repairs, alterations or improvements shall have been completed to the satisfaction of the Landlord. Additional Services 4.(a) The Landlord may (but shall not be obliged) on request of the Tenant supply services or materials to the Leased Premises and the Property which are not provided for under this Lease and which are used by the Tenant (the "Additional Services") including, without limitation, (i) replacement of non-building standard tubes and ballasts; (ii) carpet shampooing; (ii) window covering cleaning; (iv) locksmithing; (v) removal of bulk garbage; (vi) picture hanging; and (vii) special "curtly arrangement. (b) When Additional Services are supplied or furnished by the Landlord, accounts therefor shall be rendered by the Landlord and shall be payable by the Tenant to the Landlord on demand. In the event the Landlord shall elect not to supply or furnish Additional Services, only persons with prior written approval by the Landlord (which approval shall not be =reasonably withheld) shall be permitted by the Landlord or the Tenant to supply or furnish Additional Services to the Tenant and the supplying and furnishing shall be subject to the reasonable rules fixed by the Landlord with which the Tenant undertakes to cause compliance and to comply. 5. (a) The Tenant covenants to pay to the Landlord the Tenant's Proportionate Share of the excess of the amount of the Operating Costs in each Fiscal Period over the Operating Costs in the 'Base Year' (as hereinafter defined). (b) Subject to the other terms and conditions of this Lease, the Landlord shall not be responsible during the Term for any costs, charges, expenses and outlays of any nature whatsoever arising from or relating to the Leased Premises and the Tenant shall pay all charges, impositions, costs and expenses of every nature and kind relating to the Leased Premises and the amounts included as Additional Rent whether or not specifically provided for herein and the Tenant covenants with the Landlord accordingly; (c) In this Lease "Operating Costs" shall include all costs incurred or which will be incurred by the Landlord in discharging its obligations under this Lease and in the maintenance, operation, administration and management of the Property including without limitation: (i) cast of heating, ventilating and air-conditioning (ii) cost of water and power charges; (iii)cost of electricity, fuel or other form of energy which are not separately metered and recovered or paid by tenants; (iv) costs of insurance carried by the Landlord pursuant to paragraph 9(a) of this Lease and cost of any deductible amount paid by the Landlord in connection with each claim made by the Landlord under such Insurance; (v) cost of building office expanses, including telephone, rent, stationery and supplies; (vi) costs of all elevator and escalator (if installed in the Building) maintenance and operation; (vii)costs of operating staff, management staff and other administrative personnel, including salaries, wages, and fringe benefits; (viii) owl of providing security and costs of repair, maintenance and replacement of communications, fire and life safety system serving the Property; (ix) owl of providing janitorial services, window cleaning, garbage and snow removal and pest control; (x) cost of supplies and materials; (xi) cost of decoration of common areas; D- 2 SCHEDULE"D" SERVICES AND COSTS (xii) cost of landscaping; (xiii) cost of maintenance and operation of the parking area and costs of operating, maintaining, repairing, and replacing all pedestrian and vehicular entrances and exits, passageways, driveways, tunnels, subway connections and delivery and holding areas used in connection with the Property; (xiv)cost of consulting, and professional fees including expenses; (xv) cost of replacements, additions and modifications unless otherwise included under Operating Costs under subparagraph (xvi), and cost of repair and; (xvi)cost a in respect of each Major Expenditure (as hereinafter defined) as amortized over the period of the Landlord's reasonable estimate of the economic life of the Major Expenditure, but not to exceed fifteen (15) years, using equal monthly installments of principal and interest at ten percent (10%) per annum compounded semi-annually. For the purpose hereof "Major Expenditure" shall mean any expenditure incurred after the date of substantial completion of the Building for replacement of machinery, equipment, building elements, systems or facilities forming a part of or used in connection with the Property or for modifications, upgrades or additions to the Property or facilities used in connection therewith, provided that, in each case, such expenditure was more than ten percent (10%) of the total Operating Costs for the immediately preceding Fiscal Period. (d) In this Lease there shall be excluded from Operating Costs the following: (i) interest on debt and capital retirement of debt; (ii)such of the Operating Costs as are recovered from insurance proceeds; and (iii)costs as determined by the Landlord of acquiring tenants for the Property. 6. The Tenant covenants to pay to the Landlord the Tenant's Proportionate Share of the costs in respect of each Major Expenditure (as hereinafter defined) as amortized over the period of the Landlord's reasonable estimate of the economic life of the Major Expenditure, but not to exceed fifteen (15) years, using equal monthly Installments of principal and interest at ten percent (10%) per annum compounded semi-annually. For the purposes hereof, 'Major Expenditure' shall mean any expenditure incurred after the date of substantial completion of the Building for replacement of machinery, equipment, building elements, systems or facilities forming a part of or used in connection with the Property or for modification, upgrades or additions to the Property or facilities used in connection therewith, provided that, in each case, such expenditure is more than ten percent (10%) of the total Operating Costs of the Immediately preceding Fiscal Period. 7. In calculating Operating Costs for any Fiscal Period, if less than one hundred percent (100%) of Building is occupied by tenants, then the amount of such Operating Costs shall be deemed for the purposes of this Schedule to be increased to an amount equal to the like Operating Costs which normally would be expected by the Landlord to have been incurred had such occupancy been one hundred percent (100-/.) during such entire period. 8. In this Lease: (i) "Tenant's Proportionate Share' shall mean two decimal ninety-two percent (2.92%) subject to adjustment as determined solely by the Landlord and notified to the Tenant in writing for physical increases or decreases in the total Rentable Area of the Property provided that total rentable area of the Property and the Rentable Area of the Leased Premises shall exclude areas designated (whether or not rented) for parking and for storage. (ii) 'Base Year' shall mean calendar year 1998. D-3 SCHEDULE'E' RULES AND REGULATIONS 1. The sidewalks, entry passages, elevators (if installed in the Building) and common stairways shall not be obstructed by the Tenant or used for any other purpose than for ingress and egress to and from the Leased Premises. The Tenant will not place or allow to be placed in the Building corridors or public stairways any waste paper, dust, garbage, refuse or anything whatever. 2. The washroom plumbing fixtures and other water apparatus shall not be wed for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, ashes or other substances shall be thrown therein. The expense of any damage resulting by misuse by the Tenant shall be home by the Tenant. 3. The Tenant shall permit window cleaners to clean the windows of the Leased Premises during normal business hours. 4. No birds or animals shall be kept in or about the Property nor shall the Tenant operate or permit to be operated any musical or sound-producing instruments or device or make or permit any improper noise inside or outside the Leased Premises which may be heard outside such Leased Premises. 5. No one shall use the Leased Premises for residential purposes, or for the storage of personal effects or articles other then those required for business purposes. 6. All persons entering and leaving the Building at any time other than during normal business hours shall register in the books which may be kept by the Landlord at or near the night entrance and the Landlord will have the right to prevent any person from entering or leaving the Building or the Property unless provided with a key to the Premises to which such person seeks entrance and a pass in a form to be approved by the Landlord. Any persons found in the Building at such times without such keys and passes will be subject to the surveillance of the employees and agents of the Landlord. 7. No dangerous or explosive materials shall be kept or permitted to be kept in the Leased Premises. 8. The Tenant shall not permit any cooking in the Leased Premises except for food warned up in microwaves for consumption by employees or guests of the Tenant. The Tenant shall not install or permit the installation or use of any machine dispensing goods for sale in the Leased Premises without the prior written approval of the Landlord. Only persons authorized by the Landlord shall be permitted to deliver or to use the elevators (if installed in the Building) for the purpose of delivering food or beverages to the Leased Premises. 9. The Tenant shall not bring in or take out, position, construct, install or move any safe, business machine or other heavy office equipment without first obtaining the prior written cement of the Landlord. In giving such consent, the Landlord shall have the right in its sole discretion, to prescribe the weight permitted and the position thereof, and the use and design of planks, skids or platform to distribute the weight thereof. All damage done to the Building by moving or using any such heavy equipment or other office equipment or furniture shall be repaired at the expense of the Tenant. The moving of all heavy equipment or other office equipment or furniture shall occur only at times consented to by the Landlord and the persons employed to move the same in and out of the Building must be acceptable to the Landlord. Safes and other heavy office equipment will be moved through the halls and corridors only upon steel bearing plates. No freight or bulky matter of any description will be received into the Building or carried in the elevators (if installed in the Building) except during hours approved by the Landlord. 10. The Tenant shall give the Landlord prompt notice of any accident to or any defect in the plumbing, heating, air-conditioning, ventilating, mechanical or electrical apparatus or any other part of the Building 11. The parking of automobiles shall be subject to the charges and the reasonable regulations of the Landlord. The Landlord shall not be responsible for damage to or theft of any car, its accessories or contents whether the same be the result of negligence or otherwise. 12. The Tenant shall not mark, drill into or in any way deface the walls, ceilings, partitions, floors or other parts of the Leased Premises and the Building. 13. Except with the prior written consent of the Landlord, no tenant shall we or engage any person or persons other than the janitor or janitorial contractor of the Landlord for the purpose of any cleaning of the Leased Premises. 14. If the Tenant desires any electrical or communications wiring, the Landlord reserves the right to direct qualified persons as to where and how the wires are to be introduced, and without such directions no borings or cutting for wires shall take place. No other wires or pipes of any kind shall be introduced without the prior written consent of the Landlord. 15. The Tenant shall not place or cause to be placed any additional locks upon any doors of the Leased Premises without the approval of the Landlord and subject to any conditions imposed by the Landlord. Additional keys may be obtained from the Landlord at the cost of the Tenant. SCHEDULE "E" RULES AND REGULATIONS 16. The Tenant shall be entitled to have its name shown upon the directory board of the Building and at one of the entrance doors to the Leased Premises all at the Tenant's expense, but the Landlord shall in its sole discretion design the style of such identification and allocate the space on the directory board for the Tenant. 17. The Tenant shall keep the window coverings (if any) in a closed position during period of direct son load. The Tenant shall not interfere with or obstruct any perimeter heating, air-conditioning or ventilating units. 18. The Tenant shall not conduct, and shall not permit any, canvassing in the Building. 19. The Tenant shall take care of the rugs and drapes (if any) in the Leased Premises and shall arrange for the carrying-out of regular spot cleaning and shampooing of carpets and dry cleaning of drapes in a manner acceptable to the Landlord. 20. The Tenant shall permit the periodic closing of lanes, driveways and passages for the purpose of preserving the Landlord's rights over such land, driveways and passages. 21. The Tenant shall not place or permit to be placed any sign, advertisement, notice or other display on any part of the exterior of the Leased Premises or elsewhere if such sign, advertisement, notice or other display is visible from outside the Leased Premises without the prior written consent of the Landlord which may be arbitrarily withheld. The Tenant, upon request of the Landlord, shall immediately remove any sign, advertisement, notice or other display which the Tenant has placed or permitted to be placed which, in the opinion of the Landlord, Is objectionable, and if the Tenant shall fail to do so, the Landlord may remove the same at the expense of the Tenant. 22. The Landlord shall have the right to make such other and further reasonable rules and regulations and to alter the same as In its judgment may from time to time be needful for the safety, care, cleanliness and appearance of the Leased Premises and the Building and for the presentation of good order therein, and the same shall be kept and observed by the tenants, their employees and servants. The Landlord also has the right to suspend or cancel any or all of these rules and regulations herein set out. SCHEDULE "F" LEASEHOLD IMPROVEMENTS Definition of Leasehold Improvements 1. For purposes of this Lease, the term. "Leasehold Improvements" includes, without limitation, all fixtures, improvements, installations, alterations and additions from time to time made, erected or installed by or on behalf of the Tenant, or any previous occupant of the Leased Premises, in the Leased Premises and by or on behalf of other tenants in other premises in the Building (including the Landlord if an occupant of the Building), including all partitions, doors and hardware however affixed, and whether or not movable, all mechanical, electrical and utility installations and all carpeting and drapes with the exception only of furniture and equipment not of the nature of fixtures. Installation of Improvements and Fixtures 2. The Landlord shall include in the Leased Premises the "Landlord's Work' (as hereinafter defined). The Tenant shall not make, erect, install or alter any Leasehold Improvements in the Leased Premises without having requested and obtained the Landlord's prior written approval. The Landlord's approval shall not, if given, under any circumstances be construed as a consent to the Landlord having its estate charged with the cost of work. The Landlord shall not unreasonably withhold its approval to any such request, but failure to comply with the Landlord's reasonable requirements from time to time for the Building shall be considered sufficient reason for refusal. In making, erecting, installing or altering any Leasehold Improvements the Tenant shall not, without the prior written approval of the Landlord, after or interfere with any installations which have been made by the Landlord or others and in no event shall alter or interfere with window coverings (if any) or other light control devices (if any) installed in the Building. The Tenant's request for any approval hereunder shall be in writing and accompanied by an adequate description of the contemplated work and, where considered appropriate by the Landlord, working drawings and specifications thereof. If the Tenant requires from the Landlord drawings or specifications of the Building in connection with the Leasehold Improvements, the Tenant shall pay the cost thereof to the Landlord on demand. Any reasonable costs and expenses incurred by the Landlord in connection with the Tenant's Leasehold Improvements shall be paid by the Tenant to the Landlord on demand. All work to be performed in the Leased Premises shall be performed by competent and adequately insured contractors and subcontractors of whom the Landlord shall have approved in writing prior to commencement of any work, such approval not to be unreasonably withheld (except that the Landlord may require that the Landlord's contractors and subcontractors be engaged for any mechanical or electrical work) and by workmen who have labor union affiliations that are compatible with those affiliations (if any) of workmen employed by the Landlord and its contractors and sub-contractors. All such work including the delivery, storage and removal of materials shall be subject to the reasonable supervision of the Landlord, shall be performed in accordance with any reasonable conditions or regulations imposed by the Landlord including, without limitation, payment on demand of a reasonable fee of the Landlord for such supervision, and shall be completed In good and workmanlike manner in accordance with the description of the work approved by the Landlord and in accordance with all laws, regulations and by-laws of all regulatory authorities. Copies of required building permits or authorization shall be obtained by the Tenant at its expense and copies thereof shall be provided to the Landlord. If the Tenant undertakes Leasehold Improvements, upon completion of such Leasehold Improvements the Tenant shall supply to the Landlord complete 'As-Built" drawings representing Leasehold Improvements installed and, if applicable, an engineer approved air balance report. No locks shall be installed on the entrance doors or in any doors in the Leased Premises that are not keyed to the Building master key system. Liens and Encumbrances on Improvements and Fixtures 3. In connection with the making, erection, installation or alteration of Leasehold Improvements and all other work or installations made by or for the Tenant in the Leased Premises the Tenant shall comply with all the provisions of the construction lien and other similar statutes from time to time applicable thereto (including any proviso requiring or enabling the retention by way of holdback of portions of any sums payable) and, except as to any such holdback, shall promptly pay all accounts relating thereto. The Tenant will not create any mortgage, conditional sale agreement or other encumbrance in respect of its Leasehold Improvements or, without the written consent of the Landlord, with respect to its trade fixtures nor shall the Tenant take any action as a consequence of which any such mortgage, conditional sale agreement or other encumbrance would attach to the Property or any part thereof. If and whenever any construction or other lien for work, labor, services or materials supplied to or for the Tenant or for the cost of which the Tenant may be in any way liable or claims therefor shall arise or be filed or any such mortgage, conditional sale agreement or other encumbrance shall attach, the Tenant shall within twenty (20) days after submission by the Landlord of notice thereof procure the discharge thereof, including any certificate of action registered in respect of any lien, by payment or giving security or in such other manner as may be required or permitted by law, and failing which the Landlord may avail itself of any of its remedies hereunder for default of the Tenant and may make any payments or take any steps or SCHEDULE 'F" LEASEHOLD IMPROVEMENTS proceedings required to procure the discharge of any such liens or encumbrances, and shall be entitled to be repaid by the Tenant on demand for any such payments and to be paid on demand by the Tenant for all costs and expenses in connection with steps or proceedings taken by the Landlord and the Landlord's right to reimbursement and to payment shall not be affected or impaired if the Tenant shall then or subsequently establish or claim that any lien or encumbrances so discharged was without merit or excessive or subject to any abatement, set-off or defense. The Tenant agrees to indemnify the Landlord from all claims, costs and expenses which may be incurred by the Landlord In any proceedings brought by any person against the Landlord alone or with another or others for or in respect of work, labor, services or materials supplied to or for the Tenant. Removal of Improvements and Fixtures 4. All Leasehold Improvements in or upon the Leased Premises shall immediately upon their placement be and become the Landlord's property without compensation therefor to the Tenant. Except to the extent otherwise expressly agreed by the Landlord in writing, no Leasehold Improvements, furniture or equipment shall be removed by the Tenant from the Leased Premises either during or at the expiration or sooner termination of the Term except that-. (a) the Tenant shall, prior to the end of the Term, remove such of the Leasehold Improvements and trade fixtures In the Leased Premises as the Landlord shall require to be removed; and (b) the Tenant may, at the times appointed by the Landlord and subject to availability of elevators (if installed in the Building), remove its furniture and equipment at the end of the Term, and also during the Term in the usual and normal course of Its business where such furniture or equipment has become excess for the Tenant's purposes or the Tenant is substituting therefor new furniture and equipment. The Tenant shall, in the case of every removal, make good at the expense of the Tenant any damage caused to the Property by the Installation and removal. In the event of the Non-removal by the end of the Term, or sooner termination of this Lease, of such trade fixtures or Leasehold Improvements required by the Landlord of the Tenant to be removed, the Landlord shall have the option, in addition to its other remedies under this Lease to declare to the Tenant that such trade fixtures are the property of the Landlord and the Landlord upon such a declaration may dispose of such trade fixtures and retain any proceeds of disposition as security for the obligations of the Tenant to the Landlord and the Tenant shall be liable to the Landlord for any expenses incurred by the Landlord. 5. For the purpose of this Lease, (a) the term "Tenant's Work' shall mean all work required to be done to complete the Leased Premises for occupancy by the Tenant excluding the 'Landlord's Work" (as hereinafter defined). (b) the term 'Landlord's Work" shall mean: 1. Install new carpet (building standard) throughout entire space (except lunchroom). 2. Repaint white walls. 3. Touch up exterior paint on window sills. 4. Remove the janitorial closet (including sink). 5. Replace broken or stained ceiling tiles. 6. Remove existing 220V power cords and outlets. 7. Build insulating wall along back of space that shall considerably reduce the noise from the adjacent mechanical room. EX-10.13 19 AGREEMENT --------- This Agreement (the "Agreement') is made and entered into by and between Digital Equipment Corporation ("Digital"), a Massachusetts corporation, and AltaVista Technology, Inc. ("ATI"), a California corporation (collectively, the "Parties"). WHEREAS, ATI registered the domain name "altavista.com" with InterNIC on or about February 1, 1995; WHEREAS, on or about March 14, 1996, the Parties entered into an Agreement pursuant to which ATI agreed to assign to Digital all of its right, title and interest in and to the ALTAVISTA trademark and Digital agreed to grant ATI a nonexclusive license to use the ALTAVISTA mark as part of the corporate name "AltaVista Technology, Inc." and as part of the Internet domain name "altavista.com"; WHEREAS, on or about March 14, 1996, the Parties entered into a trademark Assignment Agreement pursuant to which ATI assigned to Digital all of its right, title and interest in and to the ALTAVISTA trademark; WHEREAS, on or about March 19, 1996, the parties entered into a Trademark License Agreement ("License Agreement") pursuant to which Digital granted ATI a nonexclusive license to use the ALTAVISTA mark as part of the corporate name "AltaVista Technology, Inc." and as part of the Internet domain name "altavista.com"; REDACTED WHEREAS, the Parties have agreed to terminate the License Agreement and enter into a License Termination and Installment Sale Agreement whereby ATI has agreed to sell, transfer and assign to Digital all of ATI's rights in and to the ALTAVISTA mark granted to ATI under the License Agreement, including but not limited to ATI's right to use the ALTAVISTA mark as part of the corporate name "AltaVista Technology, Inc." and as part of the Internet domain name "altavista.com" REDACTED; NOW, THEREFORE, for and in consideration of the mutual promises, releases and agreements herein contained, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: 1. Installment Sale Agreement. ----------------------------- Immediately upon execution of this Agreement, the Parties shall execute a License Termination and Installment Sale Agreement, in the form attached hereto as Exhibit A. 2. Linking and Content Agreement. -------------------------------- Immediately upon execution of this Agreement, the Parties shall execute a Linking and Content Agreement in the form attached hereto as Exhibit B. REDACTED -------- 4. Press Release by Digital. ---------------------------- Within ten (IO) days after the execution of this Agreement, Digital will issue a press release regarding the Parties' agreements, substantially in the form attached hereto as Exhibit C. Except as permitted in paragraph 7.1 hereof, ATI shall not make any statements regarding the terms of this Agreement or any other agreement of the Parties entered into contemporaneously herewith except those terms disclosed in the press release, nor shall ATI respond to inquiries from the press or from any other person regarding said terms, except to refer such inquiries to Digital's press release. 2 REDACTED 6. Return of Confidential Information. -------------------------------------- Within ten (IO) days after the execution of this Agreement, each party shall return all (including all copies) of the other Party's confidential information produced in connection with the Action. 7. Confidentiality. ---------------- 7.1 Confidentiality and non disparagement- Except to the extent that -------- disclosure of the terms of this Agreement (i) may be required by law or (ii) is required for purposes of obtaining tax or accounting advice or communicating with insurance carriers, the Parties agree that the terms of this Agreement, the settlement negotiations prior thereto, and the facts and circumstances underlying this Agreement shall be considered confidential. Any and all statements made by the Parties in connection with this Agreement and the settlement negotiations prior thereto, whether a statement of fact, opinion, supposition or otherwise, may not and will not be used, quoted or alluded to in any manner. The Parties agree to use commercially reasonable efforts to prevent disclosure of the terms of this Agreement and the settlement negotiations prior thereto any third party. The Parties agree not to publicly disparage each other (including, but not limited to, through their counsel) concerning the litigation or the subject matter thereof. 7.2 Material Breach of Confidentiality- The Parties agree that any ------------------------------------- violation of the provisions of paragraph 7.1 shall be a material breach of this Agreement, 3 REDACTED 9. Material Breach. ----------------- The Parties agree that upon any material breach by ATI of the terms of this Agreement or the terms of the License Termination and Installment Sale Agreement, all of Digital's obligations under the Linking and Content Agreement shall terminate. 10. Miscellaneous. -------------- 10.1 cc - All notices, requests, waivers, consents, or other communications required or permitted by this Agreement ("Notices") shall be in writing. Notices shall be deemed delivered for all purposes when delivered in person or when dispatched by electronic facsimile transmission or upon confirmation of receipt when dispatched by a nationally recognized overnight courier service to the appropriate party with a copy to counsel (which shall not constitute notice) as follows: If to Digital: Cliff Simpson, Esq. Group Counsel, Consumer Products Group Office of the General Counsel Compaq Computer Corporation 20555 SH249 MS I 10701 Houston, Texas 77070 Telephone: (281) 518-2552 Facsimile: (281) 514-8332 4 with a copy to: Shepard M. Remis, P.C. Goodwin, Procter & Hoar LLP Exchange Place Boston, Massachusetts 02109-2881 Telephone: (617) 570-1350 Facsimile: (617) 523-1231 If to ATI: - ------------ Jack Marshall President AltaVista Technology, Inc- 1671 Dell Avenue, Suite 209 Campbell, California 95008 Telephone: (408) 364-8777 Facsimile: (408) 364-8778 with a copy to: Lee Carl Bromberg, Esq. Bromberg & Sunstein LLP 125 Summer Street Boston, Massachusetts 02110-1618 Telephone: (617) 443-9292 Facsimile: (617) 443-0004 10.2 Amendment and Waiver, This Agreement may be amended, modified, -------------------- waived, discharged or terminated only by an instrument in writing of subsequent or even date signed by both Parties. 10.3 Successors and Assigns. This Agreement will be binding upon ------------------------- and inure to the benefit of the Parties and their respective successors and assigns. 10.4 Rights of the Parties. Nothing expressed or implied in this ------------------------ Agreement is intended or will be construed to confer upon or give any person or entity other than the Parties or their respective successors and assigns any rights or remedies under or by reason of this Agreement or any transaction contemplated hereby. 10.5 Titles and Headings. Titles and headings to Articles and ---------------------- Sections herein are inserted for convenience of reference only, and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 5 10.6 Entire Agreement. This Agreement, together with its Exhibits, ------------------ constitutes the entire agreement between the Parties with respect to the subject matter hereof, and there are no agreements between the Parties with respect hereto except as expressly set forth herein. 10.7 Delay or Omission. No delay or omission by either of the -------------------- Parties in exercising any right under this Agreement will operate as a waiver of any right. A waiver of consent given by either of the Parties on any occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion. 10.8 Severability. In case any provision contained in this ------------- Agreement is determined by a court to be invalid or unenforceable, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 10.9 Additional Documents. Each of the Parties shall, upon the ---------------------- request of the other party, provide such other party with such additional instruments, certificates and documents as the requesting party shall reasonably require, whether or not such request is made after the date of this Agreement, in order to provide the requesting party with the rights and benefits to which such party is entitled under the Agreement. 10.10 Counterparts. This Agreement may be executed in any number of ------------- counterparts, each of which when executed and delivered shall be deemed an original; such counterparts shall together constitute but one agreement. 10.11 Corporation. Each party hereto is a corporation, and each ------------ person executing this Agreement on behalf of a corporation represents and warrants that: (a) such corporation is duly organized, validly authorized and in good standing, and possesses full power and authority to enter into and comply with the terms of this Agreement; (b) the execution and delivery, and compliance with the terms, of this Agreement have been duly and validly authorized by all requisite corporate acts and consents and do not contravene the terms of any other obligation to which the corporation is subject; (c) this Agreement, when effective, shall constitute a legal, binding and valid obligation of such entity, enforceable in accordance with its terms; and (d) each of the Parties hereto shall furnish to the other party such evidence of such actions and consent, and such legal opinions with respect thereto, as either of the Parties may reasonably request. 6 10.12 Governing Law. This Agreement and the terms, covenants and -------------- conditions hereof shall be construed in accordance with, and governed by, the laws of the Commonwealth of Massachusetts (without giving effects to any conflicts of law provisions contained therein). IN WITNESS HEREOF, the Parties hereto have duly executed this Agreement on this 31st. day of July, 1998. DIGITAL EQUIPMENT CORPORATION ALTAVISTA TECHNOLOGY, INC. By: s._Robert E. Hult By: _____________ ------------------- Robert E. Hult Jack Marshall 7 10.12 Governing Law. This Agreement and the terms, covenants and --------------- conditions hereof shall be construed in accordance with, and governed by, the laws of the Commonwealth of Massachusetts (without giving effect to any conflicts of law provisions contained therein). IN WITNESS HEREOF, the Parties hereto have duly executed this Agreement on this 31-st. day of July, 1998. DIGITAL EQUIPMENT CORPORATION ALTAVISTA TECHNOLOGY,INC. By: __________________ By: s. Jack Marshall ------------------ Robert E. Hult Jack Marshall 7 EXHIBIT A LICENSE TERMINATION AND INSTALLMENT SALE AGREEMENT This License Termination and Installment Sale Agreement ("Installment Sale Agreement") is made and entered into by and between Digital Equipment Corporation ("Digital"), a Massachusetts corporation, and AltaVista Technology, Inc. ("ATI"), a California corporation (collectively, the "Parties"). WHEREAS, ATI registered the domain name "altavista.com" with InterNIC on or about February1,1995; and WHEREAS, on or about March 19, 1986, the Parties entered into a trademark license agreement (the "License Agreement") pursuant to which Digital granted to ATI a nonexclusive license to use the ALTAVISTA mark as part of the corporate name "AltaVista Technology, Inc." and as part of the Internet domain name "altavista.com"; WHEREAS, the Parties have agreed to terminate the License Agreement; and WHEREAS, ATI has agreed to sell, transfer and assign to Digital all of ATI's rights in and to the ALTAVISTA mark granted to ATI under the License Agreement, including but not limited to ATI's right to use the ALTAVISTA mark as part of the corporate name "AltaVista Technology, Inc." and as part of the Internet domain name "altavista.com"; NOW, THEREFORE, for and in consideration of the mutual promises and agreements contained herein and in the Agreement of the Parties entered into contemporaneously with this Installment Sale Agreement, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: 1. Termination of License Agreement. Thirty (30) days after the execution of this Installment Sale Agreement, the License Agreement shall terminate, and ATI shall have no further rights under the License Agreement, provided however, that ATI may continue to use the ALTAVISTA mark in the limited manner set forth in paragraph 6 below. 2. Sale, Transfer and Assignment of Rights. ATI hereby sells, --------------------------------------------- transfers and assigns to Digital, effective thirty (30) days after the execution of this Installment Sale Agreement, all of its rights in and to the ALTAVISTA mark granted to ATI under the License Agreement, including but not limited to ATI's right to use the ALTAVISTA mark as part of the corporate name "Alta Vista Technology, Inc."and as part of the Internet domain name "altavista.com" and ATI's rights to use any other names containing the term "altavista" or a confusingly similar term. ATI further sells, transfers and assigns to Digital all rights associated with the domain name "altavista.com" effective thirty (30) days after the execution of this Installment Sale Agreement. Within thirty (30) days after the execution of this Installment Sale Agreement, A1 ATI shall provide Digital with the documentation necessary to transfer the domain name .1altavista.com" to Digital in accordance with the published procedures for transfer domain names in effect at that time. Digital shall file such documentation with InterNIC no earlier than the thirty-first day after execution of this installment Sale Agreement. ATI agrees to execute and deliver to Digital such other documents and take such other reasonable actions as are required to transfer the domain name "altavista.com" to Digital and to confirm, evidence, or establish Digital's rights to the domain name "altavista.com." 3. No Use of Similar Domain Name, ATI agrees to not use or register any ------------------------------ domain name containing the term "altavista" or any confusingly similar term. 4. No Objection to Registration of Domain Name. ATI agrees to not object -------------------------------------------- to or otherwise challenge Digital's use and registration worldwide of any domain name containing the term "altavista" or any confusingly similar term. 5. Representation and Warranties. -------------------------------- 5.1 Seller. ATI represents and warrants to the best of its actual ------ knowledge, as of the date of its execution of this Installment Sale Agreement, that: (a) There are no existing or threatened claims or proceedings by any third party relating to ATI's use, registration, or ownership of the domain name l,altavista.com"; (b) The domain name "altavista.com" is not subject to any outstanding order, decree, judgment, stipulation, written restriction, undertaking, or agreement that would prevent ATI from complying with any of its obligations under this Installment Sale Agreement; (c) The domain name "altavista.com" is not subject to any lien, security interest, mortgage, or other encumbrance; (d) ATI has not granted any licenses to or authorized any third parties to use the domain name "altavista.com" or any confusingly similar domain name; and (e) ATI does not own any domain name registrations or applications containing the term "altavista" or any confusingly similar term other than the domain name "altavista.com." A2 6. Transition Period. ------------------- 6.1 Domain Name. After the termination of the License Agreement, ATI ------------ shall not use the domain name altavista.com", provided however, that ATI may refer to the domain name "altavista.com" in order to inform third parties that it has changed its Web site address from the domain name "altavista.com" to another domain name for a period of three (3) months following the transfer of the domain name "altavista.com." 6.2 E-Mail Routing. Upon transfer to Digital of the domain name ---------------- "altavista.com" and for a period of six (6) months following the transfer, Digital shall route e-mail directed to "altavista.com" and intended to be received by ATI to magicbit.com" or to any other Internet address designated by ATI. ATI shall have the right to change the Internet address to which e-mail is routed upon five (5) days written notice to Digital. Digital shall be responsible for maintaining consistent operation of the e-mail routing software so as to minimize any delay between Digital's receipt of e-mail and the transmission of e-mail to ATI and so as to ensure the integrity of e-mail messages and attachments. In no case shall e-mail be routed to the address designated by ATI later than twelve (12) hours after receipt by Digital. For the period of six (6) months following the transfer of the domain name altavista.com", Digital shall not use any of the e-mail addresses currently used by ATI, as listed in Exhibit I hereto. ATI may refer to the domain name "altavista.com" during this six (6) month period in order to inform third parties that it has changed its e-mail addresses. 6.3 Change of Corporate Name. Within ten (1O) business days after --------------------------- the execution of this Installment Sale Agreement, ATI shall file papers with the appropriate legal agency to legally change its corporate name. For a period of thirty (30) days following the execution of this Installment Sale Agreement, ATI may use the ALTAVISTA mark as part of its corporate name. ATI shall not use the ALTAVISTA mark as part of its corporate name after the thirty (30) day period following the execution of this Installment Sale Agreement has expired. 7. Termination of Agreements. Immediately upon the execution of this Installment Sale Agreement, ATI shall give notice of the termination of all agreements that could impair its right to sell, transfer and assign to Digital all of its rights in and to the ALTAVISTA mark granted to ATI under the License Agreement. Such notice shall be given to all parties to all such agreements. 8. Payment. Immediately upon the execution of this Installment Sale ------- Agreement, Digital shall deliver or cause to be delivered to ATI the sum of three hundred and fifty thousand dollars ($350,000.00) and shall execute a seven percent (7%) promissory note in the principal amount of two million seven hundred and fifty thousand dollars ($2,750,000.00) in the form of Exhibit 2. A3 9. Miscellaneous. -------------- 9.1 Amendment and Wavier. This Installment Sale Agreement may be ----------------------- amended, modified, waived, discharged or terminated only by an instrument in writing of subsequent or even date signed by both Parties. 9.2 Successors and Assigns. This Installment Sale Agreement will be ----------------------- binding upon and inure to the benefit of the Parties and their respective successors and assigns. 9.3 Delay or Omission. No delay or omission by either of the -------------------- Parties in exercising any right under this Installment Sale Agreement will operate as a waiver of any right. A waiver of consent given by either of the Parties on any occasion is effective only in that instance and will not be construed as a bar to or waiver of any right on any other occasion. 9.4 Severability. In case any provision contained in this Installment Sale Agreement is determined by a court to be invalid or unenforceable, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 9.5 Additional Documents. Each of the Parties shall, upon the ---------------------- request of the other party, provide such other party with such additional instruments, certificates and documents as the requesting party shall reasonably require, whether or not such request is made after the date of this Installment Sale Agreement, in order to provide the requesting party with the rights and benefits to which such party is entitled under this Installment Sale Agreement. 9.6 Counterparts. This Installment Sale Agreement may be executed ------------- in any number of counterparts, each of which when executed and delivered shall be deemed an original; such counterparts shall together constitute but one agreement. 9.7 Corporations. Each party hereto is a corporation, and each person executing this Installment Sale Agreement on behalf of a corporation represents and warrants that: (a) such corporation is duly organized, validly authorized and in good standing, and possesses full power and authority to enter into and comply with the terms of this Installment Sale Agreement; (b) the execution and delivery, and compliance with the terms, of this Installment Sale Agreement have been duly and validly authorized by all requisite corporate acts and consents and do not contravene the terms of any other obligation to which the corporation is subject; (c) this Installment Sale Agreement, when effective, shall constitute a legal, binding and valid obligation of such entity, enforceable in accordance with its terms; and (d) each of the Parties hereto shall furnish to the other party such evidence of such actions and consent, and such legal opinions with respect thereto, as either of the Parties may reasonably request. A4 9.8 Governing Law. This Installment Sale Agreement and the terms, --------------- covenants and conditions hereof shall be construed in accordance with, and governed by, the laws of the Commonwealth of Massachusetts (without giving effect to any conflicts of law provisions contained therein). IN WITNESS HEREOF, the Parties hereto have duly executed this Installment Sale Agreement on this 31st day of July, 1998. DIGITAL EQUIPMENT CORPORATION ALTAVISTA TECHNOLOGY, INC. By: _________ By: s.Jack Marshall ---------------- Robert E. Hutt A5 EXHIBIT 2 (INSTALLMENT SALE AGREEMENT) PROMISSORY NOTE DIGITAL EQUIPMENT CORPORATION REDACTED BOSTON, MA DATE: JULY 31,1998 FOR VALUE RECEIVED, Digital Equipment Corporation, a Massachusetts corporation (the "Company"), hereby promises to pay to the order of AltaVista Technology, Inc., a California corporation (the "Seller"), and its successors and assigns, the principal amount of REDACTED ), with interest on the principal amount outstanding hereunder from time to time from the date hereof through and including the date on which such principal amounts are paid, at the rate of REDACTED annually. Interest shall be computed on the basis of the actual number of days elapsed and a year of 360 days. Ibis Note, together with all accrued and unpaid interest, shall be payable REDACTED All payments shall be in lawful money of the United States of America. Neither principal of nor interest on this Note may be prepaid by the Company without the prior consent of the Seller, which consent the Seller may withhold in its sole discretion. ARTICLE I EVENTS OF DEFAULT At the option of the holder of this Note and without prejudice to any other rights the holder hereof may have at law or in equity, all sums of principal and interest then remaining unpaid hereunder shall immediately become due and payable, without demand, presentment or notice, all of which are hereby expressly waived, if any of the following occur ("Events of Default"): 1.1. The Company breaches any covenant or other term or provision of this Note and such breach continues for five days after written notice thereof to Company from the holder hereof. 1.2. The Company becomes insolvent or admits in writing its inability to pay its debts as they mature; makes an assignment for the benefit of creditors; applies for or consents to the appointment of a receiver or trustee for it or for a substantial part of its property or business; or such a receiver or trustee otherwise is appointed. A7 1.3. Bankruptcy, insolvency, dissolution, winding up, reorganization or liquidation proceedings or relief under any bankruptcy law or any law for the relief of debtors is instituted by or against the Company and is not dismissed within thirty days. 1.4. The Company fails to pay this Note when due in accordance with its terms. ARTICLE 11 MISCELLANEOUS 2.1. No amendment, modification or waiver of any provision of this Note nor consent TO any departure by the Company therefrom shall be effective unless the same shall be in writing and signed by the holder hereof and such waiver or consent shall be effective only in the SPECIFIC instance and for the specific Purpose for which given. 2.2. The Company hereby waives any requirements of notice of dishonor, notice of protest and protest. 2.3. This Note shall be governed in all respects by the laws of the Commonwealth of Massachusetts without giving effect to the conflict of law provisions thereof. 2.4. This Note shall be binding upon the Company and its successors and assigns and the terms hereof shall inure to the benefit of the Seller and its successors and assigns, including subsequent holders hereof. 2.5. The holding of any provision of this Note to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provisions, and the other provisions of this Note shall remain in full force and effect. 2.6. If this Note becomes worn, defaced, or mutilated but is still substantially intact and recognizable, the Company or its agent may issue a new Note in lieu hereof upon the surrender of such worn, defaced, or mutilated Note. If the holder of this Note claims that it has been lost, destroyed, or wrongfully taken, the Company will issue a new Note in place of the original Note if the holder so requests by written notice to the Company actually received by the Company before it is notified that the Note has been acquired by a bona fide purchaser. 2.7. If the holder or payee of this note changes its name or mergers with or into another corporation or other entity, the Company shall upon request issue a new Note of like tenor payable to the payee under its new corporate name, or to the successor entity, in lieu hereof upon the surrender of this Note. A8 2.8. Unless otherwise specified by the holder hereof on the date when payment is due, payment under this Note shall be made at and all notices to holders shall be delivered to, the following address: AltaVista Technology, Inc. 1671 Dell Ave. Suite 209 Campbell, CA 95009 Attention: Jack Marshall DIGITAL EQUIPMENT CORPORATION By: ____________________ Its: By: ___________________ Its: A9 EXHIBIT B LINKING AND CONTENT AGREEMENT REDACTED EXHIBIT C PRESS RELEASE COMPAQ ACQUIRES RIGHTS TO ALTAVISTA DOMAIN HOUSTON, July 31, 1998 -- Compaq Computer Corporation (NYSE: CPQ) announced today an agreement with AltaVista Technology, Inc. (AVT) of Campbell, California to transfer to Compaq full rights to the AltaVista trademark and domain name, www.altavista.com. The financial terms were not disclosed. - ----------------- Under the deal, AVT sells, transfers and assigns all of its rights to the trademark and domain name to Compaq. AVT will transfer to Compaq the www.altavista.com URL within 30 days and notify all third parties of the change to its Internet address. AVT's new Internet address will be www.PhotoLoft.com. ----------------- This agreement supersedes all previous agreements between ATI and Digital Equipment Corporation, which was purchased by Compaq in June. ABOUT ALTAVISTA Compaq's fast and powerful AltaVista Search Service is the premier resource for locating information on the Internet. A forerunner in Web search technology, AltaVista has set new standards, from indexing the entire Internet to providing the Web's first instant language translation capabilities. With an extensive line-up of innovative content and services, AltaVista is now regarded as one of the top destination sites on the Web. For more information, visit AltaVista's flagship site located at www.altavista.digital.com. -------------------------- COMPANY BACKGROUND Compaq Computer Corporation, the world's largest computer manufacturer, is a Fortune Global 200 company and the largest global supplier of personal computers. Founded in 1982, Compaq develops and markets hardware, software, solutions and services, including industry-leading enterprise computing solutions, fault-tolerant business-critical solutions, networking and communications products, commercial desktop and portable products and consumer PCS. The company is a leader in environmentally friendly programs and business practices. Compaq products are sold and supported in more than 100 countries through a network of authorized Compaq marketing partners. Customer support and information about Compaq and its products are available at http://www.compaq.com --------------------- or by calling 1-800-OK-COMPAQ. Product information and reseller locations are available by calling 1-800-345-1518. 2 EX-10.14 20 SUBLEASE AGREEMENT 1. Parties: This Sublease is entered into this first day of September 1998, by and between Surefire Verification, Inc., a California Corporation, (Subleasee), and Photoloft.com., a California Corporation, (Subleasor) as a Sublease under the Master Lease, dated August 19, 1997, entered into by Sublessor and NPL Associates, a California general partnership (Lessor); a copy of the Master Lease is attached hereto as Exhibit "A". 2. Provisions constituting sublease: A. Sublease is subject to all of the terms and conditions of the Master Lease in Exhibit "A" and Subleasee shall assume and perform the obligations of the Subleasee/Lessee in said Master Lease, to the extent said terms and conditions are applicable to the Premises subleased pursuant to this Sublease. Sublessee shall not commit or permit to be committed on the Premises any act or omission that shall violate any term or conditions of the Master Lease. B. All of the terms and conditions contained in the Master Lease are incorporated herein except as modified below. 3. Premises: Sublessor leases to Sublessee and Sublessee hires from Sublessor the following described premises, situated in the City of Campbell, County of Santa Clara, State of California, commonly known and described as 1671 Dell Avenue, Suite #209 and consisting of approximately one thousand four hundred thirty (1,430) square feet of office space, as shown in Exhibit "B" to this Sublease. 4. Rental: Sublessee shall pay directly to Lessor as rent for the Premises in advance of the first day of each month of the term of this Sublease commencing September `1, 1998, without deduction, offset, prior notice or demand, in lawful money of the United States the sum of One thousand nine hundred sixty three and 85/100 dollars ($1,963.85). Receipt of One thousand nine hu8ndred sixty three and 85/100 dollars ($1,963.85) is hereby acknowledged by Sublessor as rental for the first month. The additional amount of One thousand nine hundred sixty three and 85/100 dollars ($1,963.85) shall be paid prior to occupancy as non-interest bearing security for performance under this Sublease. In the event Sublessee vacating the Premises, the amount paid as a security deposit shall be returned to Sublessee after first deducting any sum owing to Sublessor. 5. Term: The term of this Sublease shall be for a period of twenty four months commencing on October 1, 1998, and ending on September 30, 2000. 6. Use: Sublessee shall use the premises for general offices and for no other purpose without the written consent of Sublessor. 7. Improvements: Sublessor shall clean the carpets, replace the ceiling tiles as necessary, paint walls. No additional improvements shall be made by Sublessor or Lessor. 8. Early Occupancy: Sublessee shall have access to the Premises as of September 15, 1998 for the installation of computer and phone equipment. 9. Broker: Upon execution of this Sublease, Sublessor shall pay to KG Real Estate, Inc., licensed real estate broker, fees based upon broker's fee schedule. 10. Notices: All notices or demands of any kind required or desired to be given by Sublessor or Sublessee hereunder shall be in writing and SHALL BE DEPOSITED IN THE United States mail, certified or registered, postage prepaid, addressed to the Sublessor or Sublessee, respectively,, at the address set forth after their signatures at the end of this Sublease. All rend and other payments due under this Sublease or the Master Lease shall be made directly to Lessor at the Sublessor's address. Sublessor: Sublessee: Photoloft.com Surefire Verification, Inc., a California Corporation a California Corporation By: s. Jack Marshall By: s. Michael ------------------ ----------- Date: 9-3-98 Date: September 1st, 1998 Consent and Attournment Agreement The undersigned, Lessor under the Master Lease attached as Exhibit "A", hereby consents to the subletting of the Premises described herein on the terms and conditions contained in this Sublease. This Consent shall apply only to this Sublease and shall not be deemed to be a consent to any other Sublease. If, after expiration of the applicable period that Sublessor has in which to cure its default, Sublessor defaults under the Master Lease, Lessor shall notify Sublessee of the default and in the event of the termination of the Master Lease, this Sublease shall terminate coincidentally therewith without any liability of Lessor to Sublessee. Lessor: Sublessee: NPL Associates Surefire Verification, Inc., A California Corporation a California Corporation By: _________________ By: s. Michael ----------- Dated:_______________ Dated: September 1st, 1998 EX-10.15 21 HEWLETT PACKARD Exhibit TM02 CONSULTING SERVICES AGREEMENT (Deliverables) CONSULTING SERVICES AGREEMENT BETWEEN HEWLETT-PACKARD COMPANY AND PHOTOLOFT.COM HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02 TABLE OF CONTENTS SECTIONS OF THE AGREEMENT 1. Definitions 2. HP Obligations 3. Customer obligations 4. Price and Payment 5. Change Orders 6. Acceptance 7. Warranties 8. Licenses 9. Intellectual Property Rights 10. Intellectual Property Indemnity 11. Confidential Information 12. Remedies and Liabilities 13. Term and Termination 14. General EXHIBITS TO THE AGREEMENT A. Statement of Work B. Chan a Order Procedures HEWLETT(TM) PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02 This Consulting Services Agreement ("Agreement") is made between HEWLETT-PACKARD COMPANY, a California Corporation ("HP") and Photoloft.Com, a California corporation ("Customer"), as of October 22, 1998 ("Effective Date"). The purpose of this Agreement is to set forth the mutually agreeable terms and conditions under which HP will perform Consulting Services and provide Deliverables to Customer according to one or more Statements of Work. 1. DEFINITIONS a) "CONSULTING SERVICES" (sometimes referred to as "Work") refers to such activities as analysis, design, planning, development, consulting, implementation, education, training and project management as described in a Statement f Work. Consulting Services may also include other types of services describe more specifically in a Statement of Work. b) "DELIVERABLES" means the tangible results of the Consulting Services provided by HP to Customer as described in a on Statement of Work. Unless otherwise agreed, the term Deliverable. does not include custom hardware. c) "SOFTWARE" means one or more programs (including any associated documentation) capable of operating on a controller, processor or other hardware device . a) "STATEMENT OF WORK" means a document attached to this Agreement which describes a specific project, engagement or assignment ("Project") for which HP will provide Consulting Services to Customer. More than one Statement of Work may be attached to this Agreement from time to time. 2. HP OBLIGATIONS a) HP will use reasonable commercial efforts to perform the Consulting Services and provide the Deliverables specifically described in ore or more Statements of Work in accordance with the terms and conditions of this Agreement. Customer and HP will sign a separate Statement of Work for each Project that exceeds $10,000, which will be incorporated by reference into this Agreement upon execution by the parties. Each Statement of Work will: (i) be made in writing in the form attached an Exhibit A, (ii) reference this Agreement, (iii) be numbered consecutively n a chronological basis, and (iv) be executed by authorized representatives of Custom r no HP. Individual Statements of Work should address at least the following areas: 1. Project description 2. Price, payment and delivery schedules 3. Scope of Consulting Services 4. Acceptance criteria S. Nature of Deliverables 6. Project cost coordination b) For all Projects under a value f $10,000, Customer's purchase order referencing this Agreement will constitute the applicable Statement of Work upon acceptance by HP. c) Unless otherwise agreed, Consulting Service will be performed during HP's normal business hour. d) HP will use reasonable commercial efforts to provide the Deliverable and perform the Consulting Service. in accordance with the delivery schedule specified in each Statement of Work. e) HE' may select qualified and reputable subcontractors to perform Consulting Services and/or provide Deliverable. f) HP will appoint a representative to supervise and coordinate HP's performance of Consulting Services. HP may change its representative at any time upon written notice. a) Unless otherwise agreed in a Statement of Work, HP in not responsible for providing support for any Deliverables. 3. CUSTOMEROBLIGATIONS Customer will comply with the general obligations specified below together with any specific Customer obligations described in a Statement of Work, in a timely manner. HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02 b) Customer acknowledges that HP's ability to deliver the Consulting Services is dependent upon Customer's full and timely cooperation with HP, as well as the accuracy and completeness of any information and data Customer provides to HP. Therefore, Customer will: 1. Provide HP with access to, and use of, all information, data, documentation, computer time, facilities, working space and office services deemed necessary by HP. 2. Appoint a representative who will provide professional and prompt liaison with HP, have the necessary expertise and authority to commit Customer, be available at all times when HP's personnel are at the Customer's site (or designate an alternate with the same level of authority in the event of unavailability caused by illness or other valid reasons), and meet with the HP representative at regular intervals to be agreed upon t review progress and resolve any issues relating to the Consultinq Services or Deliverables. c) Customer will be responsible for maintaining an external procedure for reconstruction of lost or altered files, data or programs to the extent deemed necessary by Customer, and for actually reconstructing any such materials. d) Customer will be liable for any delays to the delivery schedule specified in each Statement of Work caused by Customer or resulting from Customer's failure to fulfill any of its obligations. HP may charge Customer for any additional charges or losses incurred by HP as a result of such delays, and may adjust the affected delivery schedule accordingly. a) Customer will be responsible at all times for the supervision, management and control of the Deliverables and any results obtained from the Deliverables, including without limitation all responsibility for maintenance of proper machine configuration, audit controls, operating methods, error detection and recovery procedures, back-up plans, security, insurance, maintenance and all that activities necessary to enable Customer to use the Deliverables. f) Except as expressly provided in this Agreement, Customer has sale responsibility to ensure that its information technology environment is Year 2000 compliant. HP is not providing Year 2000 services (for example, Year 2000 assessment, conversion or testing) under this Agreement. Customer acknowledges that HP will not be responsible for failure to perform Consulting Services or supply Deliverable. under this Agreement, if such failure is the result, directly or indirectly, of the inability of any products to correctly process, provide or receive date data (i.e., representations for month, day and year), and to properly exchange data with the Deliverables by HP ,under this Agreement. 4. PRICE AND PAYMENT a) Prices for Consulting Services and Deliverables a will be specified in each Statement of work. Prices quoted in each Statement of Work are valid for 30 days. Prices include all materials and labor expenses, but do net include sales, use, service, value added or like taxes, or customs duties. Such taxes and duties, when applicable, will be added to HP's invoices. b) HP will issue invoices in accordance with the payment schedule specified in each Statement of Work. Charges for travel expenses may be invoiced separately. Customer will pay all invoices within 30 days from the date of invoice. HP may change credit terms upon reasonable notice at any time when, in HP's opinion, Customer's financial condition, previous payment record, or the nature of Customer's relationship with HP so warrants. c) Should any sum due to HP remain unpaid after 60 days from the date of invoice, HP may terminate this Agreement pursuant t Section 13.b.2 and discontinue performance under any other agreement with Customer. 5. CHANGE ORDERS a) "Change Order" means an agreed upon change or modification to the Deliverables, Consulting Services or that material aspect of a Statement of Work that complies with the requirements of Exhibit B. Requests by Customer and recommendations by HP for Change Orders are subject to the procedures set forth in Exhibit B, and will be made in writing in the form attached to Exhibit B as Attachment B-1. b) All Change Orders must be mutually agreed by the parties. Pending such agreement, HP will continue to perform and be paid as if such Change Order had not been requested or recommended, provided that if either party process a Change Older which, in HP's judgment, represents a material change in the Consulting Services or Deliverables ad such Change Order remains outstanding for 30 days or is rejected by Customer, HP will have the right to terminate the affected Statement of Work pursuant to Section 13.b.2 below. HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) exhibit TM02 6. ACCEPTANCE a) HP will provide notice to Customer when the Deliverables are ready for acceptance. Acceptance of Deliverables will occur upon the earlier of: a) the date HP demonstrates to Customer, by the successful completion of acceptance tests or otherwise, that the Deliverables substantially conform to the acceptance criteria specified in the applicable Statement of Work; or b) the date that Customer uses any substantial part of the Deliverables for any purpose other than performing acceptance tests. Acceptance of Consulting Services will occur upon HP's performance of such Consulting Services, b) In the event that any Deliverable fails to conform substantially to the acceptance criteria specified in the applicable Statement of Work, HP will have a reasonable time to remedy such substantial non-conformance, following HP's receipt of written notice from Customer specifying in reasonable detail the nature of Such non-conformance. In the event that HP is unable to remedy the non-conformance: a) Customer may accept the Deliverable without warranty, on an "AS IS" basis, subject to a reasonable price adjustment; or b) Customer may return the Deliverable to HP and receive a refund of amounts paid to HP for the Deliverable. c) Acceptance will not be delayed for any minor non-conformance with the requirements specified in any Statement of Work. Following acceptance, HP will use reasonable commercial efforts to correct any minor non-conformance that appears during acceptance testing. d) If acceptance testing is delayed for reasons attributable to Customer, acceptance will be deemed to occur on the 10th day after notice by HP that the Deliverable in ready for acceptance testing. 7. WARRANTIES a) HP will perform Consulting Services in accordance with generally recognized commercial practices and standards. HP will re-perform any Consulting Services not performed in accordance with the foregoing warranty, provided that HP receives notice from Customer within 30 days after such Consulting Services were performed. b) HP warrants that Deliverables will substantially conform to the acceptance criteria specified in the applicable Statement of Work for a period of 90 days from the date of acceptance. c) HP does not warrant that the operation of Deliverables will be uninterrupted or error conform to any reliability or performance standards beyond those specified in the applicable acceptance criteria. HP also does not warrant that Deliverables will be compatible with future HP products those of other vendors. d) If HP receives notice during the warranty period of any substantial non-conformance with the acceptance criteria that materially impairs the functioning of a Deliverable, HP will, at its option, either correct such non-conformance or provide a work-around which substantially remedies the non-conformance. e) If HP is unable within a reasonable time to comply with the foregoing -- obligations, HP will refund a reasonable portion of the price stated in the Statement of Work upon or prompt return of the affected Deliverable to HP, and/or delivery to HP of proof of the destruction of the affected Deliverable. f) The warranties provided in this Section 7 will not apply in the event of deemed acceptance under Section 6.a(b) or 6.d above, or to defects or non-conformance resulting from: 1. Unauthorized, improper or inadequate maintenance or calibration by Customer or any third party. 2. Software, hardware, interfacing, or supplies not supplied by HP. 3. Unauthorized modification of Deliverables or any portion thereof. 4. Improper use or operation of Deliverable or any portion thereof or Customer's failure to comply with the applicable environmental specification. 5. Improper site preparation or maintenance by Customer or a third party. g) THE ABOVE WARRANTIES ARE EXCLUSIVE AND NO OTHER WARRANTY, WHETHER WRITTEN OR ORAL, IS EXPRESSED OR IMPLIED. HP SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02 8. LICENSES a) Unless otherwise agreed in writing, when HP supplies Customer with a Deliverable that in whole or in part consists of Software (sometimes referral to in Sections 8 and 9 as a "Software Deliverable"), such Software Deliverable will be supplied in object code form only. b) Upon Customer acceptance of a Deliverable and receipt by HP of the associated payment in full, HP grants Customer a non-exclusive, perpetual, non-transferable license to use such Deliverable for its own internal purposes. Customer's license confers no title or ownership in the Deliverable and no rights in any associated Software Deliverable source code, and will not be construed as a sale of any rights in the Deliverable or the media on which it is recorded or printed. c) Unless otherwise authorized by HP, Customer may only make copies of Deliverables for archival purposes, or when copying is an essential step in the authorized use of a Software Deliverable on a backup controller, processor or other hardware device. d) Customer will label each copy of Deliverables made under Section 8.c above with the copyright notice that appears on the original. e) Customer will not market, sublicense or otherwise provide the original, any copy or partial copy, or any derivative of a Deliverable to any third party. f) Customer's license does not include the right to updates, upgrades or other enhancements to a Deliverable. g) Customer will not disassemble or decompile any Software Deliverable without HP's prior written consent. Where Customer has other rights under statute, Customer will provide HP with reasonably detailed information regarding any intended disassembly or decompilation. Customer will not decrypt any Software Deliverable unless necessary for legitimate use of the Deliverable. h) HP may terminate Customer's license in any Deliverables upon notice for failure to comply with the terms of this Agreement. TR the event of termination of Customer's license, Customer will immediately destroy or return to HP the affected Deliverable and all partial or complete copies, or provide satisfactory evidence of in their destruction to HP. i) Customer grants HP a non-exclusive, worldwide, royalty-free license to use, copy, make derivative works of, distribute, display, perform, and transmit Customer's pre-existing copyrighted works or other intellectual property rights to the extent necessary for HP to perform its obligations under this Agreement. 9. INTELLECTUAL PROPERTY RIGHTS a) All copyrights aid other intellectual property rights existing prior to the Effective Date will belong to the party that owned such rights immediately prior to the Effective Date. b) Neither party will gain by virtue of this Agreement any rights of ownership of copyrights, patents, trade secrets, trademarks or any other intellectual property rights owned by the other. c) HP will own all copyrights, patents, trade secrets, trademarks and other intellectual property rights, title and interest in or pertaining to all Works (including computer programs, Deliverables and Software Deliverables) developed by HP for purposes of this Agreement. 10. INTELLECTUALPROPERTYINDEMNITY HP will defend or settle any claim against Customer regarding the Consulting Services and Deliverables, to the effect that HP knowingly infringed a patent, utility model, industrial design, copyright, trade secret, mask work or trademark in the country where, such Deliverables are used or such Consulting Services are provided. b) The indemnities provided in Section 10.1 above will apply provided Customer promptly notifies HP in writing of the claim, and Customer cooperates with HP in and grants HP sole control of the defense or settlement c) For infringement claims covered by this Section 10, HP will pay infringement claim defense costs, settlement amounts and court-awarded damages. If such a claim regarding a Deliverable appears likely, HP my modify the Deliverable, procure any necessary license or replace it. If HP determines that none of these alternatives is reasonably available, HP will refund Customer's purchase price upon return of the Deliverable if within one year of delivery, or Customer's net book value thereafter. d) HP has no obligation for any claim of infringement arising from: HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02 1. HP-s compliance with or use of Customer's information, technology, designs, specifications or instructions, including those incorporated into dry Statement of Work. 2. Modification of a Deliverable by Customer or a third party. 3. Use of a Deliverable in a way not indicated in a Statement of Work. 4. Use of a Deliverable with products not supplied by HP. a) This Section 10 states HP's entire liability for claims of intellectual property infringement. 11. CONFIDENTIAL INFORMATION HP and Customer agree that all information exchanged between them is not confidential unless they have entered into a separate confidential disclosure agreement 12. REMEDIES AND LIABILITIES a) The remedies in this Agreement are Customer's sole and exclusive remedies. b) To the extent HP IS held legally liable to Customer, HP's liability is limited to: 1. Payments described in Sections 6, 7, and 10 above, this Section 12, and Section 13.d below. 2. Damages for bodily injury. 3. Direct damages to tangible property up to a limit of U.S. $1,000,000. c) Notwithstanding Section 12.b above, in no event will HP or its affiliates, subcontractors and suppliers be liable for any of the following: 1. Actual loss or direct damage that is not listed in Section 12.b above. 2. Damages for loss of data, or Software restoration. 3. Damages relating to Customer's procurement of substitute products or services (i.e., "cost of cover"). 4. Incidental, special or consequential damages, including downtime costs or lost profits but excluding damages for bodily injury and payments described in Section 10.c above. d) The Deliverables are not specifically designed, manufactured or intended for sale as parts, components or assemblies for the planning, construction, maintenance, or direct operation of a nuclear facility. Customer will be solely liable if any Deliverables purchased or licensed by Customer are used for these applications. Customer will indemnify and hold HP harmless from all loss, damage, expense or liability in connection with such use. 13. TERM AND TERMINATION a) This Agreement will commence on the Effective Date and will continue in force until termination according to the terms of this Agreement. Individual Statements of Work will be effective upon execution by both parties and will continue in force until both parties have fulfilled all of their, Project obligations, or until the earlier termination of such Statement of Work according to the terms of this Agreement. b) This Agreement or an individual Statement of Work may be terminated immediately upon notice in writing: 1. By either party if the other party is in material breach of any of its obligations hereunder and fails to remedy such breach within 30 days of receipt of a written notice by the other party which specifies the material breach. 2. By HP, in the absence of mutual agreement regarding a Change Order which represents a material change under Section 5,b, or if Customer fails to pay any sum due under this Agreement within the 60 day time period specified in Section 4.c. 3. By either party if the other party has a receiver appointed, or an assignee for the benefit of creditors, or in the event of any insolvency or inability to pay debts as they become due by the other party, except as may be prohibited by applicable bankruptcy law c) Either party may terminate this Agreement for convenience upon 30 days prior written notice to the other party. Any termination of this Agreement will not relieve either party of its obligations HEWLETT PACKARD CONSULTING SERVICES AGREEMFNT (Deliverables) E3NbitTM02 under any Statement of Work in effect on the date of termination of this Agreement, unless otherwise mutually agreed to in writing. d) Upon termination of any Statement of Work, Customer will pay HP for all Work performed and charges and expenses incurred by HP up to the date of termination, and Customer will receive all work in progress for which Customer has paid. Should the sum of such amounts be less than any advance payment received by HP, HP will refund the difference within 30 days of receipt of an invoice from Customer. a) Sections 4, 7, 8, 9, 10 and 12 above, and Section 14 below, will survive termination of this Agreement. 14. GENERAL a) STANDARD PRODUCTS. This Agreement does not cover standard HP hardware and software products sold or licensed to Customer. Any such transactions will be governed by the terms of Customer's HP purchase agreement or, in the absence of a signed purchase agreement, HP's Terms add Conditions of Sale and Service (Exhibit E16). b) HEALTH AND SAFETY. HP and any of its subcontractors will, when at the Customer's site, conduct their activities so that their equipment, working Conditions and methods are safe and without risk to health for their own and Customer's employees as well as for any that user. other Customer's site. c) NON-RESTRICTIIVE RELATIONSHIP. HP may provide the same or similar Consulting Services and Deliverables to other customer d) NO PUBLICITY. Neither party will publicize or disclose to any third party without the consent of the other party, either the price or other terms f this Agreement or the fact of its existence. a aid execution, except as may be necessary to comply with other obligations stated in this Agreement. e) NO JOINT VENTURE. N thing contained in this Agreement will be construed as creating a joint venture, partnership or employment relationship between the parties hereto, nor will either party have the right, power or authority to create any obligation or only, express or implied on behalf of the other. f) NO ASSIGNMENT. Except will respect to HP's rights regarding the use of subcontractors, neither party may assign any rights or obligations under this Agreement to any Statement of Work without the prior written consent of the that party. g) EXPORT ADMINISTRATION REGULATIONS. If Customer exports any Deliverable outside the country in which the Deliverable is delivered to Customer, Customer assumes responsibility for complying with applicable laws and regulations and for obtaining required export and import authorizations. Customer will not export or re-export any technical data in violation of U.S. Export Administration regulations or other applicable export regulations. h) FORCE MAJEURE. Neither party will be liable for performance delays or for non-performance due to causes beyond its reasonable control. i) NOTICES. All notices required under or regarding this Agreement or any individual Statement of Work will be in writing and will be considered given upon personal delivery of a written notice to the HP representative or Customer representative designated in the Statement of Work, or within five days of mailing, postage prepaid and appropriately addressed. j) WAIER. Neither party's failure to exercise any of its rights under this Agreement will constitute or be deemed a waiver or forfeiture of those rights. k) SERABILITY. If any term or provision of this Agreement is held to be illegal or unenforceable, the validity or enforceability of the remainder of this Agreement will not be affected. 1) EXHIBITS. The fo1lowing documents are attached hereto as exhibits, the terms of which are incorporated by reference in their entirety: A Statement of Work (and all subsequently executed Statements of Work) B change Order Procedures m) PRECEDENCE. In the event of conflict between the provision. of this Agreement and any attached exhibit or Statement of Work, the provisions of this Agreement will to the extent of such conflict take precedence. n) ENTIRE AGREEMENT. This Agreement and its exhibits and Statements of Work constitute the entire agreement between HP and Customer and supersede any prior or contemporaneous communications, HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02 representations or agreements between the parties, whether oral or written, regarding the subject matter of this Agreement. Customer's additional or different terms and conditions will not apply. The terms and conditions of this Agreement may not be changed except by an amendment signed by an authorized representative of each party. o) APPLICABLE LAW. This Agreement is made under and will be construed in accordance with the law of California without giving effect to that state's choice of law rules. HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02
AGREED TO: AGREED TO: HP /S/ Shrinivas Sukamar Customer /s/ Jack Marshall --------------------- --------------------- Authorized Representative Signature Authorized Representative Signature Name: Srinivas Sukumar Name: Jack Marshall Title Hewlett Packard ITIO Genera Manager Title: CEO- PhotoLoft.com Address: 1100 Wolf Road Address: 300 Orchard City Dr. Suite 142 Cupertino, CA 95014, USA Campbell, CA 95008
HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02 EXHIBIT A STATEMENT OF WORK FORM REDACTED HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02 EXHIBIT B CHANGE ORDER PROCEDURES The following procedures will be observed for all Change Orders: 1. Either party may request a Change Order but all Change Orders must be in writing and prepared by HP. HP may charge a reasonable fee for investigating, preparing or initiating a Change Order at Customer's request. 2. Change Order requests will be processed as a on as is reasonably possible. 3. All Change Orders will be in the form attached hereto as Attachment B-1 to Exhibit B, and will be signed by the appointed representative for each party (or individuals specified in writing as substitute during periods of illness or absence). 4. Change Orders will include the following: a) A description of any additional work to be performed and/or any changes to the performance required of either party. b) A statement of the impact of the work or changes on the Consulting Services, the Deliverables, the acceptance tests or criteria, or other requirements of the Agreement. c) The estimated timetable to complete the work specified in the Change Order and the impact, if any, on the delivery schedule, pricing and payments. d) Specific individuals with management or coordination responsibilities. a) The documentation to be modified or supplied as part or the work. f) Any additional acceptance test procedures for such work. HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02 EXHIBIT B TO CONSULTING SERVICES ADDENDUM ATTACHMENT B-1 CHANGE ORDER FORM 1. Describe services or changes requested (attach additional pages if necessary). REQUESTED BY CUSTOMER: REQUESTED BY: Customer: ________________ HP: ______________ ----------------------------------- ----------------------------------- Authorized Representative Signature Representative Signature Name: ________________ Name: ____________________ Title: _______________ Title: ___________________ Date: ________________ Date: _____________________ 2. Modifications, clarifications or supplements to description of services or changes requested in paragraph 1 above, if any (attach additional pages if necessary): 3. Assignment of necessary HP personnel and resources (attach additional pages if necessary): HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Exhibit TM02 4. Impact on price, delivery schedule, payment schedule, Deliverables, Consulting Services and ancceptance test procedures and criteria (attach additional pages if nece5sary): a. Price b. Delivery Schedule and Payment Schedule c. Deliverables d. Consulting Services a. Acceptance Test Procedures and Criteria HEWLETT PACKARD CONSULTING SERVICES AGREEMENT (Deliverables) Fxhibit TM02 Change Order Approved and Accepted Customer: ______________________ HP: ______________________________ - ----------------------------------- ---------------------------------- Authorized Representative Signature Authorized Representative Signature Name: __________________________ Name: ____________________________ Title: __________________________ Title: ____________________________ Date: __________________________ Date: ____________________________ Change Order Rejected Customer: ______________________ HP: ______________________________ - ----------------------------------- ---------------------------------- Authorized Representative Signature Authorized Representative Signature Name: __________________________ Name: ____________________________ Title: __________________________ Title: ____________________________ Date: __________________________ Date: ____________________________ EX-10.16 22 AMENDMENT TO THE DISTRIBUTION AND REPUBLISHING AGREEMENT COVERING THE PRODUCT "HOWDY" DATED THE 17.10.97 Between infoMedia Software Publishing GmbH, Heltorfer Str. 12; 40472 Dusseldorf hereafter referred to as the "licensee" and PhotoLoft.com Inc., of 300 Orchard City Drive, Suite 142, Campbell, CA 95008, USA, hereafter referred to as the "Licensor" 1.0 EXTENSION OF TERM The duration of the term has been extended for a further 24 month. 2.0 FINANCIAL CONSIDERATION For bundling and sub-licensing purposes infoMedia shall deliver to licensor 40% of the net profits gained from such a deal. All other matters arising out of this agreement are covered in the main contract and those are applicable at all times. NAME: ------------- Date: 12 FEB. 99 ------------- infoMedia Software Pub ishing GmbH. NAME: NAME: ------------- Date: 2/25/99 ------------- PhotoLoft.com Inc EX-10.17 23 SUBLEASE -------- THIS SUBLEASE (this "Sublease") is dated for reference purposes as of February -------- 1, 1999, and is made by and between Summit Microelectronics, a California - -------- corporation ("Sublandlord"), and Photoloft, Inc., a _____________ corporation ("Subtenant"). Sublandlord and Subtenant hereby agree as follows: 1. RECITALS: This Sublease is made with reference to the fact that The -------- Manufacturers Life Insurance Company, as Landlord ("Master Landlord"), and Sublandlord, as tenant, are parties to that certain Lease dated _____, (the "Lease"), with respect to those certain premises described therein (the "Master Premises"), in that certain building (the "Building") located at 300 Orchard City Drive, Campbell, California. A copy of the Master Lease is attached hereto as Exhibit A. Capitalized terms used and not defined herein shall have the meaning ascribed to them in the Master Lease. 2. SUBLEASED PREMISES: Subject to the terms and conditions of this ------------------- Sublease, Sublandlord hereby subleases to Subtenant, and Subtenant, and Subtenant hereby subleases from Sublandlord, a portion of the Master Premises deemed to be approximately 1288 rentable square feet as more particularly ---- described on Exhibit B attached hereto and incorporated herein by reference ---------- (hereinafter, the "Subleased Premises"). 3. TERM: ---- A. TERM. The term (The "Term") of this Sublease shall be for the ---- period commencing on the later of 1 Feb, 99 or the date by which Master --------- Landlord consents to this Sublease (the "Commencement Date") and ending 1 Sept, ------- 99, unless this Sublease is sooner terminated pursuant to its terms or the - -- Master Lease is sooner terminated pursuant to its terms (the "Expiration Date"). B. OPTION TO EXTEND. Subtenant shall have no options or rights to ---------------- extend the Term of this Sublease or expand the Subleased Premises. 4. RENT: ---- A. BASE RENT. Commencing on the Commencement Date and continuing ---------- each month throughout the Term of this Sublease, Subtenant shall pay to Sublandlord as base rent for the Subleased Premises equal monthly installments of $2,770.20 ("Base Rent"). Base Rent and Additional Rent, as defined in --------- Paragraph 4.B below, (collectively, hereinafter "Rent") shall be paid in advance - on or before the first (1st) day of each month. Rent for any period during the Term hereof which is for less than one (1) month of the Term shall be a pro rata portion of the monthly installment based on a thirty (30) day month. Rent shall be payable without notice or demand and without any deduction, offset, or abatement, in lawful money of the United States of America. Rent shall be paid directly to Sublandlord at ___________, Attention: _______________, or such other address as may be designated in writing by Sublandlord. B. ADDITIONAL RENT. All monies other than Base Rent required to ---------------- be paid by Subtenant under this Sublease, including, without limitation, __________ payable by Subtenant under the Master Lease, and all amounts payable by Sublandlord to the master Landlord with respect to or reasonably allocable to the Subleased Premises shall be deemed additional rent ("Additional Rent"). C. PREPAYMENT OF RENT. Upon execution hereof by Subtenant, -------------------- Subtenant shall pay to Sublandlord the sum of _________ ($________), which shall constitute Base Rent for the first (1st) month of the Term. 5. SECURITY DEPOSIT: Upon execution hereof by Subtenant, Subtenant ----------------- shall deposit with Sublandlord the sum of five thousand Dollars and no/100ths ------------- --------- ($5,000.00) (the "Security Deposit"), in cash, as security for the performance by Subtenant of the terms and conditions of this Sublease. If Subtenant fails to pay Rent or other charges due under this Sublease or otherwise defaults with respect to any provision of this Sublease, then Sublandlord may draw upon, use, apply or retain all or any portion of the Security Deposit for the payment of any Rent or other charge in default, for the payment of any other sum which Sublandlord has become obligated to pay by reason of Subtenant's default, or to compensate Sublandlord for any loss or damage which Sublandlord has suffered thereby. If Sublandlord so uses or applies all or any portion of the Security Deposit, then Subtenant, within ten (10) days after demand by Sublandlord therefor, shall deposit cash with Sublandlord in the amount required to restore the Security Deposit to the full amount stated above. Sublandlord may commingle the Security Deposit with its own funds and Subtenant shall not be entitled to interest on the Security Deposit. Upon the expiration of this Sublease and Subtenant's vacation of the Subleased Premises, provided Subtenant is not in default under the terms of this Sublease, Sublandlord shall return to Subtenant so much of the Security Deposit as has not been applied to Sublandlord pursuant to this Paragraph, or which is not otherswise required to cure Subtenant's defaults. 6. HOLDOVER: Subtenant acknowledges that the Termination Date of the -------- Master Lease is __________ and that it is critical that Subtenant surrender the Subleased Premises on or before the Expiration Date in accordance with the terms of this Sublease. Accordingly, Subtenant shall indemnify, defend and hold harmless Sublandlord from and against all losses, costs, claims, liabilities and damages resulting from Subtenant's failure to surrender the Subleased Premises on the Expiration Date in the condition required under the terms of this Sublease (including, without limitation, any liability or damages sustained by Sublandlord as a result of a holdover of the Master Premises by Sublandlord occasioned by the holdover of the Subleased Premises by Subtenant). In addition, Subtenant shall pay Sublandlord holdover rent equal to two hundred percent (200%) of Base Rent plus any Additional Rent payable hereunder for any period from the Expiration Date through the date Subtenant surrenders the Premises in the condition required hereunder. 7. REPAIRS: The parties acknowledge and agree that Subtenant is ------- subleasing the Subleased Premises on an "AS IS" basis, and that Sublandlord has made no representations or warranties, express or implied, whatsoever, with respect to the Subleased Premises, including, without limitation, any representation or warranty as to the suitability of the Subleased Premises for Subtenant's intended use. Sublandlord shall have no obligation whatsoever to make or pay the cost of any alterations, improvements or repairs to the Subleased Premises, including, without limitation, any improvement or repair required to comply with any law, regulation, building code or ordinance (including the Americans with Disabilities Act of 1990, as may be amended). In addition, Sublandlord shall have no obligation to perform any repairs or any other obligation of Master Landlord required to be performed by Master Landlord and Subtenant shall look solely to Master Landlord for performance of said obligations. Sublandlord shall, however, request performance of the same in writing from Master Landlord promptly after being requested to do so by Subtenant, and shall use Sublandlord'' reasonable efforts (not including the payment of money, the incurring of any liabilities, or the institution of legal proceedings) to obtain Master Landlord's performance. 8. RIGHT TO CURE DEFAULTS: If Subtenant fails to pay any sum of money ----------------------- to Sublandlord, or fails to perform any other act on its part to be performed hereunder, then Sublandlord may, but shall not be obligated to, make such payment or perform such act. All such sums paid, and all reasonable costs and expenses of performing any such act, shall be deemed Additional Rent payable by Subtenant to Sublandlord upon demand, together with interest thereon at the lesser of (i) ten percent (10%) per annum or (ii) the maximum rate allowable under law (the "Interest Rate") from the date of the expenditure until repaid. 9. INDEMNITY: Except to the extent caused by the gross negligence or --------- willful misconduct of Sublandlord, its agents, employees or contractors, Subtenant shall indemnify, defend with counsel reasonably acceptable to Sublandlord, protect and hold harmless Sublandlord and its agents, employees, directors, shareholders, contractors and representatives from and against any and all losses, claims, liabilities, judgements, causes of actions, damages, costs and expenses (including, without limitation, reasonable attorneys' and experts' fees), caused by or arising in connection with: (i) the use, occupancy, operation or condition of the Subleased Premises; (ii) the negligence or willful misconduct of Subtenant or its agents, employees, contractors or invitees; and (iii) a breach of subtenant's obligations under this Sublease or the provisions of the Master lease assumed by Subtenant hereunder. Subtenant's covenants under this Paragraph shall survive termination of this Sublease. 10. ASSIGNMENT AND SUBLETTING: Subject to the terms of the Master --------------------------- Lease, incorporated herein, as modified by this Sublease, Subtenant may not assign any interest in this Sublease, sublet any of the Subleased Premises, transfer any interest of Subtenant therein or permit any use of the Subleased Premises by another party (collectively, "Transfer"), without prior written consent of Sublandlord and Master Landlord. Subtenant shall pay within five (5) days of demand therefor a sum equal to all of Sublandlord's costs, including, without limitation, reasonable attorneys' fees, incurred in connection with any Transfer (including, without limitation, any costs payable by Sublandlord to Master Landlord). A consent to one Transfer shall not be deemed to be a consent to any subsequent Transfer. Any Transfer without such consent shall be void and, at the option of Sublandlord, shall terminate this Sublease. Sublandlord's waiver or consent shall be void and, at the option of Sublandlord, shall terminate this Sublease. Sublandlord's waiver or consent to any assignment or subletting shall be ineffective unless set forth in writing, and Subtenant shall not be relieved from any of its obligations under this Sublease unless the consent expressly so provides. 11. USE: --- A. Subtenant may use the Subleased Premises for those purposes permitted in the Master Lease only and for no other purpose whatsoever. -2- B. Subtenant shall not use, store, keep, handle, manufacture, transport, release, discharge, emit or dispose of any Hazardous Materials in, on, under, about, to or from the Subleased Premises. Subtenant shall indemnify, defend with counsel reasonably acceptable to Sublandlord and hold harmless Sublandlord and its agents, employees, directors, shareholders, contractors and representatives from and against all claims, actions, suits, proceedings, judgments, losses, costs, personal injuries, damages, liabilities, deficiencies, fines, penalties, damages, attorneys' fees, consultants' fees, investigations, detoxifications, remediations, removals, and expenses of every type and nature, arising from or relating in any manner to the use, storage, handling, manufacture, transportation, release, discharge, emission or disposal of Hazardous materials on or about the Subleased Premises or Building during the Term of this Sublease by Subtenant or its agents, employees, contractors or invitees. C. Subtenant shall not do or permit anything to be done in or about the Subleased Premises which would (i) injure the Subleased Premises; or (ii) vibrate, shake, overload, or impair the efficient operation of the Subleased Premises or the sprinkler systems, heating, ventilating or air conditioning equipment, or utilities systems located therein. Subtenant shall not store any materials, supplies, finished or unfinished products or Sections of any nature outside of the Subleased Premises. Subtenant shall comply with all reasonable rules and regulations promulgated from time to time by Sublandlord and master Landlord. 12. EFFECT OF CONVEVANCE: As used in this Sublease, the term ---------------------- "Sublandlord" means the holder of the Tenant's interest under the Master Lease. In the event of any assignment or transfer of the Tenant's interest under the Master Lease, which assignment or transfer may occur at any time during the Term hereof obligations of Sublandlord hereunder, and it shall be deemed and construed, without further agreement between the parties hereto, that any transferee has assumed and shall carry out all covenants and obligations thereafter to be performed by Sublandlord hereunder. Sublandlord may transfer and deliver any security of Subtenant to the transferee of the Tenant's interest under the Master Lease, and thereupon Sublandlord shall be discharged from any further liability with respect thereto. 13. DELIVERY AND ACCEPTANCE: Sublandlord shall deliver the Subleased ------------------------- Premises in broom-clean condition. This Sublease shall not be void or voidable, nor shall Sublandlord be liable to Subtenant for any loss or damage, by reason of delays in the Commencement Date or delays in Sublandlord delivering the Subleased Premises to Subtenant for any reason whatsoever; provided, however, that Rent shall abate until Sublandlord delivers possession of the Subleased Premises to Subtenant. Subtenant has fully inspected the Subleased Premises and is satisfied with the condition thereof. By taking possession of the Subleased Premises, Subtenant conclusively shall be deemed to have accepted the Subleased Premises in its then-existing, "AS IS" condition, without any representation or warranty whatsoever from Sublandlord with respect thereto. 14. IMPROVEMENTS: Subtenant shall not make any alterations or ------------ improvements to the Subleased Premises, except in accordance with the master Lease, and with the prior written consent of both master Landlord and Sublandlord. 15. RELEASE AND WAIVER OF SUBROGATION: Notwithstanding anything to the --------------------------------- contrary in this Sublease, Sublandlord and Subtenant hereby release each other from any damage to property or loss of any kind which is caused by or results from any risk that normally would be insured against under any property insurance policy contains a clause to the effect that this release shall not affect the right of the insured to recover under the policy. Each party shall use its reasonable efforts to cause each property insurance policy obtained by it to provide that the insurer waives all right of recovery against the other party and its agents and employees in connection with any damage or injury covered by the policy, and each party shall notify the other party if it is unable to obtain a waiver of subrogation. Sublandlord shall not be liable to Subtenant, nor shall Subtenant be entitled to terminate this Sublease or to abate Rent for any reason, including, without limitation, (i) failure or interruption of any utility system or service or (ii) failure of Master Landlord to maintain the Subleased Premises as may be required under the Master Lease. The obligations of Sublandlord shall not constitute the personal obligations of the officers, directors, trustees, partners, joint ventures, members, owners, stockholders or other principals or representatives of the business entity. 16. INSURANCE: Subtenant shall obtain and keep in full force and --------- effect, at Subtenant's sole cost and expense, during the Term the insurance required to be carried by the "Tenant" under the master Lease. Subtenant shall include Sublandlord and Master Landlord as an additional insured in any policy of insurance carried by Subtenant in connection with this Sublease and shall provide Sublandlord with certificates of insurance upon Sublandlord's request. -3- 17. DEFAULT: Subtenant shall be in material default of its obligations ------- under this Sublease if any of the following events occur: A. Subtenant fails to pay any Rent when due, when such failure continues for three (3) days after such sum becomes due; or B. Subtenant fails to perform any term, covenant or condition of this Sublease (except those requiring payment of Rent) and fails to cure such breach within ten (10) days after delivery of a written notice specifying the nature of the breach; provided, however, that if more than ten (10) days are reasonably required to remedy the failure, then Subtenant shall not be in default if Subtenant commences the cure within the ten (10) day period and thereafter completes the cure within thirty (30) days after the date of the notice; or C. Subtenant makes a general assignment of its assets for the benefit of its creditors, including attachment of, execution on, or the appointment of a custodian or receiver with respect to a substantial part of Subtenant'' property or any property essential to the conduct of its business; or D. Subtenant abandons the Subleased Premises; or E. Subtenant commits any other act or omission which constitutes a default under the master Lease, which has not been cured after delivery of any written notice required and passage of one-half (1/2) of any applicable grace period provided in the master Lease as modified, if at all, by the provisions of this Sublease. 18. REMEDIES: In the event of any default by Subtenant, Sublandlord -------- shall have all remedies provided to the "Landlord" in the Master Lease as if an event of default had occurred thereunder and all other rights and remedies otherwise available at law and in equity. Sublandlord may resort to its remedies cumulatively or in the alternative. 19. SURRENDER: On or before the Expiration Date or any sooner --------- termination of this Sublease, Subtenant shall remove all of its trade fixtures, personal property and all alterations constructed by Subtenant in the Subleased Premises which are required to be removed under the terms of this Sublease and shall surrender the Subleased Premises to Sublandlord in (a) good condition, order and repair, reasonable wear and tear excepted and (b) free of Hazardous Materials used, stored, handled, manufactured, transported, released, discharged, emitted or disposed of by Subtenant or its agents, employees, contractors or invitees. Subtenant shall repair any damage to the Subleased Premises caused by Subtenant's removal of its personal property, furnishings and equipment. If the Subleased Premises are not so surrendered, then Subtenant shall be liable to Sublandlord for all costs incurred by Sublandlord in returning the Subleased Premises to the required conditions, plus interest thereon at the Interest Rate. 20. BROKER: Sublandlord and Subtenant each represent to the other that ------ they have dealt with no real estate brokers, finders, agents or salesmen in connection with this transaction. Subtenant agrees to indemnify and hold Sublandlord harmless from and against all claims for brokerage commissions, finder's fees or other compensation made by any other agent, broker, salesman or finder as a consequence of Subtenant's actions or dealings with such other agent, broker, salesman, or finder. 21. NOTICES: Unless at least five (5) days' prior written notice is ------- given in the manner set forth in this paragraph, the address of each party for all purposes connected with this Sublease shall be that address set forth below their signatures at the end of this Sublease. All notices, demands or communications in connection with this Sublease shall be properly addressed and delivered as follows: (a) personally delivered; or (b) submitted to an overnight courier service, charges prepaid; or (c) deposited in the mail (certified, return-receipt requested, and postage prepaid). Notices shall be deemed delivered upon receipt, if personally delivered, one (1) business day after being so submitted to an overnight courier service and three (3) business days after deposit in the United States mail, if mailed as set forth above. All notices given to Master Landlord under the Master Lease shall be considered received only when delivered in accordance with the Master Lease. 22. OTHER SUBLEASE TERMS: ---------------------- A. INCORPORATION BY REFERENCE. Except as set forth below and ---------------------------- except as the otherwise provided in this Sublease, the terms and conditions of this Sublease shall include all of the terms of the Master Lease and such terms are incorporated into this Sublease as if fully set forth herein, except that: (i) each reference in such incorporated sections to "Lease" shall be deemed a reference to this "Sublease"' (ii) each reference to the "Premises" shall be deemed a reference to the "Subleased Premises"; (iii) each reference to "Landlord" and "Tenant" shall be deemed a reference to the "Subleased Premises"' (iii) each reference to "Landlord" and "Tenant" shall be deemed a reference to "Sublandlord" and "Subtenant", respectively, except as otherwise expressly set forth herein; (iv) with respect to work, services, utilities, -4- electricity, repairs (or damage caused by Master Landlord), restoration, insurance, indemnities, reimbursements, representations, warranties or the performance of any other obligation of master Landlord under the master Lease, whether or not incorporated herein, the sole obligation of Sublandlord shall be to request the same in writing from master Landlord as and when requested to do so by Subtenant, and to use Sublandlord's reasonable efforts (not including the payment of money, the incurring of any liabilities, or the institution of legal proceedings) to obtain master Landlord's performance; (v) with respect to any obligation of Subtenant to be performed under this Sublease, wherever the Master Lease grants to "Tenant" a specified number of days to perform its obligations under the master Lease, except as otherwise provided herein, Subtenant shall have five (5) fewer days to perform the obligation, including without limitation, curing any defaults; (vi) with respect to any approval required to be obtained from the "Landlord" under the Master Lease, such approval must be obtained from both Master Landlord and Sublandlord, and Sublandlord's withholding of approval shall in all events be deemed reasonable if for any reason master Landlord's approval is not obtained; (vii) in any case where the "Landlord" reserves or is granted the right to manage, supervise, control, repair, alter, regulate the use of, enter or use the Premises or any areas beneath, above or adjacent thereto, such reservation or grant of right of entry shall be deemed to be for the benefit of both Master Landlord and Sublandlord; (viii) in any case where "Tenant" is to indemnify, release or waive claims against "Landlord", such indemnity, release or waiver shall be deemed to run from Subtenant to both Master Landlord and Sublanlord; (ix) in any case where "Tenant" is to execute and deliver certain documents or notices to "Landlord", such obligation shall be deemed to run from Subtenant to both Master Landlord and Sublandlord; and (x) the following modifications shall be made to the master Lease as incorporated herein: (a) the following provisions of the Master Lease are not incorporated herein: the Recitals, Paragraphs 2(b), 3(a), Schedules F, H, N, O, and K; and (b) references to "Landlord" in the following provisions shall mean "Master Landlord" only (subject, however, to clauses (iv) through (ix) of the introductory language to this Paragraph 22.A): Paragraphs 8, 11, 18. B. ASSUMPTION OF OBLIGATIONS. This Sublease is and at all times --------------------------- shall be subject and subordinate to the master Lease and the rights of master Landlord thereunder. Subtenant hereby expressly assumes and agrees: (i) to comply with all provisions of the master lease which are assumed by Subtenant hereunder; and (ii) to perform all the obligations on the part of the "Tenant" to be performed under the terms of the Master Lease with respect to the Subleased Premises during the term of this Sublease. In the event the Master Lease is terminated for any reason whatsoever, this Sublease shall terminate simultaneously with such termination without any liability of Sublandlord to Subtenant. In the event of a conflict between the provisions of this Sublease and the Master Lease, as between Sublandlord and Subtenant, the provisions of this sublease shall control. 23. RIGHT TO CONTEST: If Sublandlord does not have the right to ------------------ contest any matter in the Master Lease due to expiration of any time limit that may be set forth therein or for any other reason, then notwithstanding any incorporation of any such provision from the Master Lease in this Sublease, Subtenant shall also not have the right to contest any such matter. 24. COVENANT OF QUIET ENJOYMENT: Subtenant peacefully shall have, hold --------------------------- and enjoy te Subleased Premises, subject to the terms and conditions of this Sublease, provided that Subtenant pays all Rent imposed hereunder and otherwise performs all of Subtenant's covenants and agreements contained herein. 25. CONDITIONS PRECEDENT: Notwithstanding anything to the contrary in --------------------- this Sublease, this Sublease and Sublandlord's and Subtenant's obligations hereunder are conditioned upon Sublandlord's receipt of the written consent of master Landlord to this Sublease in form and substance satisfactory to Sublandlord. If Sublandlord does not receive such consent within thirty (30) days after execution of this Sublease by Sublandlord, then Sublandlord may terminate this Sublease by giving Subtenant written notice thereof, and upon such termination, Sublandlord shall return to Subtenant its payment of the first month's Base Rent paid by Subtenant pursuant to Paragraph 4 hereof and the Security Deposit. 26. CHOICE OF LAW: SEVERABILITY: This Sublease shall in all respects ----------------------------- be governed by and construed in accordance with the laws of the State of California. If any term of this Sublease is held to be invalid or unenforceable by any court of competent jurisdiction, then the remainder of this Sublease shall remain in full force and effect to the fullest extent possible under the law, and shall not be affected or impaired. 27. AMENDMENT: This Sublease may not be amended except by the written --------- agreement of all parties hereto. -5- 28. ATTORNEYS' FEES: If either party brings any action or legal ---------------- proceeding with respect to this Sublease, the prevailing party shall be entitled to recover from the other party reasonable attorneys' fees, experts' fees, and court costs. If either party becomes the subject of any bankruptcy or insolvency proceeding, then the other party shall be entitled to recover all reasonable attorneys' fees, experts' fees, and other costs incurred by that party in protecting its rights hereunder and in obtaining any other relief as a consequence of such proceeding. 29. WAIVER: If either Sublandlord or Subtenant waives the performance ------ of any term, covenant or condition contained in this Sublease, such waiver shall not be deemed to be a waiver of any subsequent breach of the same or any other term, covenant or condition contained herein, or constitute a course of dealing contrary to the expressed terms of this Sublease. The acceptance of Rent by Sublandlord shall not constitute a waiver of any preceding breach of Subtenant of any term, covenant or condition of this Sublease regardless of Sublandlord's knowledge of such preceding breach oat the time Sublandlord accepted such Rent. Failure by Sublandlord to enforce any of the terms, covenants or conditions of the Sublease for any length of time shall not be deemed to waive or decrease the right of Sublandlord to insist thereafter upon strict performance by Subtenant. Waiver by Sublandlord of any term, covenant or condition contained in this Sublease may only be made by a written document signed by Sublandlord, based upon full knowledge of the circumstances. 30. NO DRAFTING PRESUMPTION: The parties acknowledge that this ------------------------- Sublease has been agreed to by both the parties, that both Sublandlord and Subtenant have had the opportunity to consult with attorneys with respect to the terms of this Sublease and that no presumption shall be created against Sublandlord because Sublandlord drafted this Sublease. Except as otherwise specifically set forth in this Sublease, with respect to any consent, determination or estimation of Sublandlord required or allowed in this Sublease or requested of Sublandlord, Sublandlord's consent, determination or estimation shall be given or made solely by Sublandlord in Sublandlord's good faith opinion, whether or not objectively reasonable. If Sublandlord fails to respond to any request for its consent within the time period, if any, specified in this Sublease, Sublandlord shall be deemed to have disapproved such request. 31. AUTHORITY TO EXECUTE: Subtenant and Sublandlord each represent and -------------------- warrant to the other that each person executing this Sublease on behalf of each party is duly authorized to execute and deliver this Sublease on behalf of that party. 32. COUNTERPARTS: This Sublease may be executed in one (1) or more ------------ counterparts each of which shall be deemed an original but all of which together shall constitute one (1) and the same instrument. Signature copies may be detached from the counterparts and attached to a single copy of this Sublease physically to form one (1) document. -6- IN WITNESS WHEREOF, the parties have executed this Sublease as of the day and year first above written. SUBLANDLORD: SUBTENANT: Summit Microelectronics, Inc. Photoloft, Inc., A California corporation a __________ corporation By: _______________________________ By: _____________________________ Print Name: _______________________ Print Name: _____________________ Title: ____________________________ Title: __________________________ By: _______________________________ By: _____________________________ Print Name: _______________________ Print Name: _____________________ Title: ____________________________ Title: __________________________ -7- CONSENT TO SUBLEASE ------------------- Master Landlord hereby acknowledges receipt of a copy of this Sublease and consents to the terms and conditions of this Sublease. By this consent, master Landlord shall not be deemed in any way to have entered into the Sublease or to have consented to any further assignment or sublease. Master Landlord, however, agrees that the Subrogation Waiver set forth in the master Lease shall also apply to Subtenant as well as to Sublandlord. MASTER LANDLORD: The Manufacturers Life Insurance Company By: _______________________________ Its: _______________________________ Dated: ____________________________ -8- EX-10.18 24 AMENDMENT# I TO CONSULTING SERVICES AGREEMENT DATED OCTOBER 22,1998 BETWEEN HEWLETT-PACKARD COMPANY AND PHOTOLOFT.COM This Amendment #1 ("Amendment #1") to that certain Consulting Services Agreement dated October 22, 1998 by and between Hewlett-Packard Company ("HP") and PhotoLoft.Com ("PhotoLoft") is entered into by and between HP and Licensor effective as of February 9, 1999. A. WHEREAS, HP and PhotoLoft entered into an agreement entitled Consulting Services Agreement as of October 22, 1998 (the "Agreement") under which, among other things, HP assisted PhotoLoft with the installation and integration of the PhotoLoft OpenPix Image Print Solution into PhotoLoft-com, upon the terms and conditions set forth in the Agreement; and B. WHEREAS, HP and PhotoLoft would now like to amend the Agreement upon the terms and conditions set forth herein below; NOW, THEREFORE, the parties agree to amend the Agreement as follows: 1. The following new Section 8.J is hereby added immediately following the present end of Section 8 (LICENSES) of the Agreement: 8.J Notwithstanding the restrictions on sublicensing, copying or transfer of the Software hereunder, upon Customer acceptance of a Deliverable and receipt by HP of the associated payment in full, HP grants to Customer a non-exclusive, non-transferable license to make and distribute copies of that piece of Software known as "OpenPix Print Integrator," in object code form only, to end-user customers for use in accessing images from a computer server, provided that: (i) Customer provide it's end-user customers with copies of the OpenPix Print Integrator Software License Terms and Warranty Disclaimer (attached hereto as Exhibit A); (ii) Customer reproduce all copyright and other ------- proprietary notices in the original copy of the OpenPix Print Integrator on any copies made under this Section, and (iii) any distribution of OpenPix Print Integrator is made free of charge to end-user customers. 2. Entire Agreement. This Amendment #l, together with the Agreement, sets ----------------- forth the entire agreement between the parties with respect to the matters set forth herein and supersedes all prior and contemporaneous discussions or understandings between them relating thereto. Capitalized terms used in this Amendment #1 and not defined herein shall have the meanings set forth in the Agreement. Except as otherwise expressly set forth herein, the Agreement and each and every provision thereof shall remain in full force and effect. 3. Counterparts. This Amendment # 1 may be executed in counterparts, each of ------------ which shall be deemed an original. IN WITNESS WHEREOF, HP and PhotoLoft have executed this Amendment #1 as of the date first written above. HEWLETT-PACKARD COMPANY PhotoLoft.com By: By: /S/Jack Marshall ---------------- Print Name: Print: Jack Marshall ------------- Title: Title: President ------------- 2 EX-10.19 25 BAYTREE CAPITAL ASSOCIATES, LLC INVESTMENT BANKERS THE TRUMP BUILDING AT 40 WALL STREET NEW YORK, NEW YORK 10005 212/509-1700 - FACSIMILE 2121363-4231 February 10, 1999 PhotoLoft.Com 300 Orchard City Drive Suite 142 Campbell, CA 95009 Attn: Mr. Jack Marshall President Dear Mr. Marshall: This letter agreement (the "Agreement")confirms the terms and conditions of --------- the exclusive engagement of Baytree Capital Associates, LLC ("Baytree")by ------- PhotoLoft.Com, Inc., ("PhotoLoft") and its affiliates to render certain financial advisory and investment banking services to PhotoLoft and any person, corporation or other entity formed by or affiliated with such person (the "Company") which participates in, or which was formed for the purpose of effecting a Transaction (as hereinafter defined) and effecting a certain Financing as hereinafter described. In the context of this Agreement, "Transaction" shall mean, whether effected in one transaction or -a series of transactions, (i) any merger, consolidation, reorganization, recapitalization or other business combination pursuant to which the business of PhotoLoft is combined with that of another entity (the "Merger Candidate"),whether or not ----------------- PhotoLoft is the surviving entity in such business combination. 1. SERVICES. Pursuant to the terms and conditions set forth in this Agreement, Baytree will assist PhotoLoft in negotiating and effecting: (i) a Loan (as hereinafter described in subparagraph (a) if such is requested by PhotoLoft; and (ii) a Transaction; and will act as the placement agent with regard to obtaining the Financing (as hereinafter described in Paragraph 2) for the Company. In this regard, Baytree proposes to undertake certain activities on behalf of PhotoLoft, including, the following: 1 (a) structuring and negotiating a loan (the "Loan") in the principal amount of Two Hundred Fifty Thousand ($250,000) Dollars should said loan be requested in writing by PhotoLoft prior to the consummation of the Transaction, provided, however, that said Loan shall be subject to Baytree's satisfactory completion of its due diligence review of PhotoLoft (as herein further described in paragraph 2 (a) ). In the event that PhotoLoft shall request the Loan, it shall simultaneously execute and deliver the Agreement and Plan of Reorganization with regard to the Transaction arid execute and deliver the Note (as hereinafter defined). Said Loan will be provided to PhotoLoft within five (5) days of such a request on terms and conditions substantially in the form of the Note (the "Note) as set forth in Annex B attached hereto; (b) identifying a Merger Candidate which is a public company within the meaning of Rule 15(c)-2 of the Securities Act of 1934; (c) advising PhotoLoft as to the structure and form of the Transaction; (d) assisting PhotoLoft in obtaining appropriate information and performing due diligence regarding the Merger Candidate; (e) counseling PhotoLoft with respect to, and conducting, negotiations with, the Merger Candidate regarding the Transaction; (f) arranging for consummation of the Transaction; (g) arranging for financing on behalf of the Company as otherwise discussed in this Agreement; (h) rendering such other financial advisory and investment banking services as may from time to time be agreed upon by Baytree and PhotoLoft or the Company. Any obligations pursuant to this Paragraph I shall survive the termination or expiration of this Agreement. 2. FINANCING. ---------- (a) Baytree shall arrange (i) the Loan (if one has been so requested pursuant to Paragraph(a) and(ii) a financing (the "Financing") on behalf of the Company. The Financing shall be arranged either by the conversion of the Loan into equity of PhotoLoft or other funding or a combination of conversion and other funding, and will be completed through a limited offering. The Financing will be for a maximum of One Million ($1,000,000.00 US) Dollars and 2 will be completed contemporaneously with consummation of the Transaction. The limited offering comprising the Financing will be of Common Stock of the Company. The Loan and the Financing will be subject to Baytree's successful and satisfactory completion in Baytree's sole and absolute discretion of its due diligence prior to the funding of the Loan or the Financing, such shall include, but not be limited to, a review and analysis of PhotoLoft's financial status, business plans and any pending or potential litigation. The placement of the Common Stock will rely on Rule 504 of Regulation D ("Regulation D")promulgated ------------ under the U.S. Securities Act of 1933, as amended (the "Act"),and shall thereby ----- be exempt from the registration requirements of the Act, provided, however, that should Rule 504 of Regulation D be changed so that the exemption from registration for stock so issued is altered then no further Financing as contemplated in this Agreement will occur unless and until the parties to this Agreement enter into a separate and distinct Agreement to continue with a financing wherein the terms of said financing shall be specifically described. In connection with their purchase of the Common stock in the Financing, the purchasers will receive Two Hundred Thousand (200,000) shares of the Common Stock of the Company for every One Hundred Thousand ($ 100,000 US) Dollars so invested and a prorata number of shares for any portion thereof so invested. Baytree shall not be deemed an agent of the Company nor an agent of PhotoLoft for any other purpose. Any proceeds shall be paid, less the Expense Allowance and legal fees reimbursement (each as defined in Paragraph 4 below), to the Company at a closing held with respect to the sale of the Common Stock in the Financing (the "Closing" against delivery of certificates representing the securities sold. The Company agrees that until the later of the termination of the Offering Period, or twelve (12) months from the Closing, it will not, directly or indirectly, seek to arrange or place any equity or convertible security financing, without Baytree's prior written consent except if such financing is a sale of securities of nonconvertible debt. Additionally, the Company agrees that upon Closing, the Company shall grant Baytree a right of first refusal for a period of twenty-four (24) months from the Closing with respect to any sale of securities by the Company except if the sale is either pursuant to an underwritten public offering or is of securities of non-convertible debt and except for the issuance of securities upon the exercise of currently outstanding options and warrants. Baytree shall have ten (10) business days following receipt of written notice from the Company setting forth the terms of any proposed financing to be conducted by it (a "Notice"), to exercise the right of first refusal by presenting a letter of intent for a proposed financing on the same or better economic terms as presented to the Company. In the event Baytree fails to exercise this right to present a letter of intent for a proposed financing, the Company shall be free to sell such securities in the manner, amount and for the prices and terms set forth in the Notice without liability to Baytree, subject to Baytree's right of consent for a period of twelve (12) months as set forth above. (b) In the event that the Loan shall have been converted to stock pursuant to the terms of the Note, then and in that event Baytree shall be deemed to have provided the Company that portion of the Financing contemplated in subparagraph (a) hereof 3 and shall therefore be entitled to all Fees and Expenses provided for in Paragraph 4 of this Agreement. This Agreement does not constitute an understanding or a commitment, express or implied, by Baytree to provide any of the Financing from its own account. Any obligations pursuant to this Paragraph 2 shall survive the termination or expiration of this Agreement. 3. REGISTRATION RIGHTS Baytree shall receive one "Piggyback" -------------------- registration right for the shares of Common Stock representing fees or other compensation to Baytree. 4. FEES AND EXPENSES PhotoLoft agrees to cause the Company to pay ------------------- Baytree for its services as follows: (a) Baytree shall receive a placement fee in cash and shares of the Common Stock of the Company(the "Placement Fee") herein equal to Ten Thousand ($10,000.) Dollars and Twenty Five Thousand (25,000) shares of the Company's Common Stock for each gross One Million ($ 1,000,000.00 US) Dollars raised in the Financing and a pro rata amount of cash and number of shares for any part of One Million ($1,000,000.00 US) Dollars so raised. The Placement Fee and Baytree's Expense Allowance (as hereinafter defined) with respect to the Financing shall be payable concurrently with Closing (or each Closing if more than one). (b) In addition to any other fees payable to Baytree hereunder, if at any time commencing with the date hereof and ending twenty-four (24) months after termination of this Agreement or the closing of the Transaction (whichever is later) a party introduced to PhotoLoft or the Company by Baytree or by any broker-dealers selected by Baytree to participate in the Financing shall purchase or commit to purchase any securities (other than those offered in the Financing) of PhotoLoft, the Company or any person or entity controlled by or under common control with PhotoLoft, the Company, or such other person (which commitment the Company shall have accepted or shall subsequently accept), Baytree shall receive as compensation the Placement Fee that would have been payable and issuable had such purchases occurred in connection with the Financing, regardless of the type of securities so purchased or the form of payment therefor. (c) It shall be the Company's obligation to bear all of its expenses in connection with the Transaction and the Financing, which expenses shall include, but are not limited to the following: printing and duplication costs, postage and mailing expenses with respect to the transmission of offering materials, registrar and transfer agent fees, accounting fees and issue and transfer taxes, if any. In addition, PhotoLoft will cause the Company to pay to Baytree a non-accountable expense allowance of Thirty Thousand ($30,000.00 US) Dollars with respect to the Transaction and Financing, which shall include the fees and reasonable 4 disbursements of Baytree's and the Merger Candidate's legal counsel incurred in connection with the Transaction and Financing (collectively, the Any obligation pursuant to this Paragraph 4 shall survive the termination or expiration of this Agreement. (d) Following the provision of a Merger Candidate into which there shall have been any merger, consolidation, reorganization, recapitalization or other business combination pursuant to Paragraph I of this Agreement, the Company agrees that six hundred twenty five thousand (625,000) shares of the Common Stock of the Merger Candidate shall remain with the original shareholders of the Merger Candidate. Any obligation pursuant to this Paragraph 4 shall survive the termination or expiration of this Agreement. 5. REPRESENTATIONS, WARRANTIES, AND COVENANTS. ---------------------------------------------- (a) PhotoLoft represents and warrants and shall cause the Company to so represent and warrant that this Agreement has been duty authorized, executed and delivered by the Company and constitutes a valid and binding agreement of the Company enforceable against the Company in accordance with its terms- The Company further represents and warrants that consummation of the transactions contemplated herein will not conflict with or result in a breach of any of the terms, provisions or conditions of any written agreement to which it is a party. (b) PhotoLoft has not done, and shall cause the Company not to do anything that may be considered a direct selling effort in the United States or which could reasonably be expected to result in general preconditioning of the United States Market for the Securities of the Company. Subject to the requirements of law, the Company shall not make any public announcement of the Financing without the prior written consent of Baytree and in any event, shall make no such disclosure which could be deemed to be a general solicitation or directed selling effort within the meaning of Regulation D under the Act, (c) Baytree covenants that it will comply with all Rules and Regulations applicable to Regulation D with regard to this Offering. Further, Baytree represents and warrants that this Agreement has been duly authorized, executed and delivered by it and constitutes its valid and binding agreement enforceable against it in accordance with its terms. Baytree further represents and warrants that consummation of the transactions contemplated herein will not conflict with or result in a breach of any of the terms, provisions or conditions of any written agreement to which it is a party. 5 (d) PhotoLoft represents, warrants, and covenants that at the time of any Loan and /or Financing contemplated herein there shall be no liens, encumbrances or security interest in any assets of PhotoLoft (or any subsidiaries or affiliates), said unencumbered assets shall include but not be limited to the intellectual or proprietary property of PhotoLoft which property shall include but not be limited to, any and all copyrights issued to, titled to, or claimed by PhotoLoft. (e) The PhotoLoft represents and PhotoLoft shall cause the Company to so represent that upon the completion of the Transaction it shall cause a nominee identified by Baytree to be added to the Company's Board of Directors for the maximum term provided for in the Company's By Laws. (f) PhotoLoft represents and shall cause the Company to so represent that they have One Million Dollars ($1,000,000) of eligibility pursuant to Rule 504 of Regulation D. In the event that it is deter-mined that the Company has less than One Million Dollars of eligibility, then the amount undertaken in connection with any Financing shall be reduced to the amount of the Company's remaining Rule 504 eligibility. (g) The Company acknowledges that Baytree's undertaking to perform the Financing described in Paragraph 2 is on a best efforts basis. (h) PhotoLoft represents and warrants and shall cause the Company to so represent and warrant that the post Transaction capitalization of the Company shall be as set forth on Annex C attached hereto. 6. TERM. The term of this Agreement with regard to the completion ----- of the Transaction shall be ninety (90) days from the date of the execution of this Agreement. This Agreement may be renewed upon mutual written agreement of Baytree and PhotoLoft and/or the Company. PhotoLoft agrees to cause the Company to pay Baytree any fees specified in Paragraph 4 if the events specified therein shall occur during the term of this Agreement or within two years after the termination or expiration of this Agreement. Any obligation pursuant to this Paragraph 6 shall survive the termination or expiration of this Agreement. Notwithstanding anything in this Agreement to the contrary, in the event that Baytree shall have failed to arrange for and fund the Loan within thirty (30) days of the date of a request for such Loan then and in that event this Agreement shall be null and void and of no further force or effect. 7. INDEMNIFICATION. In addition to the payment of fees and ---------------- reimbursement of fees and expenses provided for above, and regardless of whether the Transaction or the 6 Financing are consummated, PhotoLoft agrees to indemnify and to cause the Company to indemnify Baytree and any broker-dealers who participate in the Financing, as set forth in Annex A, attached hereto, which is incorporated by reference as if fully set forth herein. This Paragraph 7 shall survive the termination or expiration of this Agreement. 8. INFORMATION. PhotoLoft recognizes and confirms that in ------------ performing its duties pursuant to this Agreement, Baytree and broker-dealers selected by it to participate in the Financing will be using and relying on data, material, and other information (the "Information") or ("Offering ---------- Materials")furnished by PhotoLoft and the Merger Candidate or their respective - --------- employees and representatives. In connection with Baytree's activities on PhotoLoft's behalf, PhotoLoft will cooperate with Baytree and will furnish Baytree with all information concerning PhotoLoft the Transaction and, to the extent available to PhotoLoft the Merger Candidate, which Baytree deems appropriate and will provide Baytree with access to PhotoLoft's officers, directors, employees, independent accountants and legal counsel for the purpose of performing Baytree's obligations pursuant to this agreement. To the extent that PhotoLoft has access to the officers, directors, employees, independent accountants and legal counsel of the Merger Candidate, it will provide such access to Baytree for the purpose of performing Baytree's obligations pursuant to this Agreement. PhotoLoft hereby agrees and represents that all Information (a) furnished to Baytree pursuant to this Agreement, and (b) contained in any filing by PhotoLoft with any court or governmental or regulatory agency, commission or instrumentality (each, an "Agency")shall, at all times during the ------ period of the engagement of Baytree hereunder, be accurate and complete in all material respects and that, if the Information provided by PhotoLoft becomes materially inaccurate, incomplete or misleading during the term of Baytree's engagement hereunder, the Company shall so advise Baytree in writing. Accordingly, Baytree assumes no responsibility for the accuracy and completeness of the Information. In rendering its services hereunder, Baytree will be using and relying upon the Information without independent verification thereof or independent evaluation of any of the assets or liabilities of PhotoLoft or the Merger Candidate. All Information that is not publicly available will be treated in strict confidence, and will not be revealed, or used (except in the performance of Baytree's duties under this Agreement) by Baytree unless legally compelled as determined in good faith by counsel to Baytree. 9. DISCLOSURE. PhotoLoft agrees that, except as compelled by law, ----------- rule or regulation, it will not disclose and will cause the Company not to disclose the services or advice to be provided by Baytree under this Agreement publicly or to any third party without the prior written approval of Baytree. 10. SEVERABILITY. If any provision of this Agreement shall be held ------------- or made invalid by a statute, rule, regulation, decision of a tribunal or otherwise, the remainder of this 7 Agreement shall not be affected thereby and, to this extent, the provisions of this Agreement shall be deemed to be severable. 11. AUTHORIZATION. PhotoLoft and Baytree represent and warrant that -------------- each has all requisite power and authority, and all necessary authorizations, to enter into and carry out the terms and provisions of this Agreement. 12. SUCCESSORS. This Agreement and all rights, liabilities and ----------- obligations hereunder shall be binding upon and inure to the benefit of each party's successors but may not be assigned without the prior written approval of the other party. Any such approval shall not be unreasonably withheld. 13. HEADINGS. The descriptive headings of the Paragraphs of this --------- Agreement are inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meaning or interpretation of this Agreement. 14. NO BROKERS. PhotoLoft represents and warrants to Baytree that ------------ there are no brokers, representatives or other persons which have an interest in or claim for compensation due to Baytree from any transaction contemplated herein. 15. NOTICES. Any notice or other communication to be given to -------- PhotoLoft hereunder may be given by delivering the same in writing to the address set forth above, and any notice or other communication to be given to Baytree may be given by delivering the same to Baytree Capital Associates, LLC, 40 Wall Street, New York, New York 10005, Attention: Michael Gardner, Principal, or in each case, such other address of which a party shall have received notice. Any notice or other communication hereunder shall be deemed given three days after deposit in the mail if mailed by certified mail, return receipt requested, or on the day after deposit with an overnight courier service for next day delivery, or on the date personally delivered. 16. ARBITRATION. In the case of any dispute, question, controversy ------------ or claim arising among the parties hereto which shall arise out of or in connection with this Agreement, the same shall be submitted to arbitration before a panel of three arbitrators in New York, New York, in accordance with the rules of the American Arbitration Association. One arbitrator shall be appointed by the party or parties bringing the claims ("Claimant") and one ---------- arbitrator shall be appointed by the party or parties defending the claim ("Respondent").The arbitrators selected by such parties shall be selected within --------- thirty (30) days after notification by the Claimant to the Respondent that it has determined to submit such dispute, question, controversy or claim to arbitration. The two arbitrators so selected shall select a third arbitrator within thirty (30) days after the selection of the arbitrator selected by such parties. Should a party fail to select an arbitrator within the specified time period, or should the arbitrators selected by the parties fail to select a third arbitrator, the missing arbitrator or arbitrators shall be appointed by the New York, New York office of the American Arbitration Association. The decision of the panel shall be final and binding on the parties and enforceable in any court of competent jurisdiction. The costs of the arbitration will be imposed upon the Claimant and Respondent as determined by the arbitration panel or, failing such determination, will be home equally by the 8 Claimant and the Respondent. The successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees in addition to any other relief to which it may be entitled. In the event of any dispute, question, controversy or claim arising among the parties hereto which shall arise out of or in connection with this Agreement, the parties shall keep the proceeding related to such controversy in strict confidence and shall not disclose the nature of said dispute, the status of the proceeding or any testimony, documents or information obtained or exchanged in the course of said proceeding without the express written consent of all parties to such dispute unless either party is legally compelled to make any such disclosure. Please confirm that the foregoing correctly sets forth our agreement by signing the enclosed letters in the space provided and returning them to us for execution, whereupon we will send you a fully executed original letter which shall constitute a binding agreement as of the date first above written. Very truly yours, BAYTREE CAPITAL ASSOCIATES, LLC By: /s/ Michael Gardner ------------------------------- Michael Gardner, Principal Agreed to and accepted as of the above date PHOTOLOFT.COM, INC. By: /s/ Jack Marshall ---------------------------- Jack Marshall, President 9 ANNEX A: INDEMNIFICATION PhotoLoft agrees to indemnify and to cause the Company to indemnify Baytree, any broker-dealers who participate in the Financing, and their respective employees, directors, officers, agents, affiliates, and each person, if any, who controls them within the meaning of either Section 20 of the Securities Exchange Act of 1934 or Section 15 of the Securities Act of 1933 (each such person, including Baytree and such broker-dealers, is referred to as "Indemnified Party") from and against any losses, claims, damages and liabilities, joint or several including all legal or other expenses reasonably incurred by an Indemnified Party in connection with the preparation for or defense of any threatened or pending claim, action or proceeding, whether or not resulting in any liability ("Damages"), to which such Indemnified Party, in connection with its services or arising out of its engagement hereunder, may become subject under any applicable Federal or state law or otherwise, including but not limited to liability (i) caused by or arising out of an untrue statement or an alleged untrue statement of a material fact or the omission or alleged omission to state a material fact necessary in order to make a statement not misleading in light of the circumstances under which it was made, (ii) caused by or arising out of any act or failure to act or (iii) arising out of Baytree's engagement or the rendering by any Indemnified Party of its services under this Agreement; provided, however, that neither PhotoLoft nor the Company will be liable to the Indemnified Party hereunder to the extent that any Damages are found in a final non-appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence, bad faith or willful misconduct of the Indemnified Party seeking indemnification hereunder. These indemnification provisions shall be in addition to any liability which PhotoLoft and/or the Company may otherwise have to any Indemnified Party. If for any reason, other than a final non-appealable judgment finding an Indemnified Party liable for Damages for its gross negligence, bad faith, or willful misconduct the foregoing indemnity is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless, then PhotoLoft shall and shall cause the Company, to contribute to 10 the amount paid or payable by an Indemnified Party as a result of such Damages in such proportion as is appropriate to reflect not only the relative benefits received by PhotoLoft or the Company, as the case may be and its shareholders on the one hand, and Baytree on the other, but also the relative fault of PhotoLoft or the Company, as the case may be, and the Indemnified Party as well as any relevant equitable considerations, subject to the limitation that in no event shall the total contribution of all Indemnified Parties to all such Damages exceed the amount of fees actually received and retained by Baytree and the broker-dealers selected by Baytree that participate in the placement of the Common Stock. Promptly after receipt by the Indemnified Party of notice of any claim or of the commencement of any action in respect of which indemnity may be sought, the Indemnified Party will notify PhotoLoft or the Company in writing of the receipt or commencement thereof and PhotoLoft or the Company shall have the right to assume the defense of such claim or action (including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of fees and expenses of such counsel), provided that the Indemnified Party shall have the right to control its defense if, in the opinion of its counsel, the Indemnified Party's defense is unique or separate to it as the case may be, as opposed to a defense pertaining to PhotoLoft or the Company In any event, the Indemnified Party shall have the right to retain counsel reasonably satisfactory to PhotoLoft or the Company, at PhotoLoft's or the Company's expense, to represent it in any claim or action in respect of which indemnity may be sought and agrees to cooperate with PhotoLoft or the Company and PhotoLoft's or the Company's counsel in the defense of such claim or action, it being understood, however, that PhotoLoft or the Company shall not, in connection with any one such claim or action or separate, but substantially similar or related claims or actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys, for all the Indemnified Parties unless the defense of one Indemnified Party is unique or separate from that of another Indemnified Party subject to the same claim or action. In the event that PhotoLoft or the Company does not promptly assume the defense of a claim or action, the Indemnified Party shall have the right to employ counsel reasonably satisfactory to PhotoLoft or the Company, at PhotoLoft's or, the Company's expense, to defend such claim or action. The omission by an Indemnified Party to promptly notify PhotoLoft or the Company of the receipt or commencement of any claim or action in respect of which indemnity may be sought will relieve PhotoLoft or the Company from any liability PhotoLoft or the Company may have to such Indemnified Party only to the extent that such a delay in notification materially prejudice PhotoLoft's or the Company's defense of such claim or action. PhotoLoft or the Company shall not be liable for any settlement of any such claim or action effected without its written consent, which shall not be unreasonably withheld or delayed. Any obligation pursuant to this Annex shall survive the termination or expiration of this Agreement. 11 ANNEX B: FORM OF PROMISSORY NOTE $250,000 February -, 1999 - -------- FOR VALUE RECEIVED, PHOTOLOFT.COM, INC. (the "Maker"), a California corporation, with offices at 300 Orchard City Drive, Suite 142, Campbell, California 95008, hereby promises to pay to the order of (the "Payee"), ------------------------ residing at (or with a business office located at) , the principle sum of Two Hundred Fifty ---------------------------------- Thousand ($250,000.00 US) Dollars, together with interest on the principal amount outstanding from the date hereof until payment in full. The principal amount of this Note together with all interest then accrued shall be payable three months from the date hereof (the "Due Date"). However, the term of this Note shall automatically be extended for an additional three months from the original Due Date in the event that the conversion of this Note as hereinafter described has not been completed by the original Due Date. Interest on outstanding principal shall accrue at the rate of nine (9%) percent per annum from the date hereof and shall be paid on the Due Date. All interest shall be calculated on the basis of a 365 day year, counting the actual number of days elapsed from the date of this Note to the Due Date. Interest on any overdue payments of principal and interest due hereunder shall accrue and be payable at the rate of twelve (12%) percent per annum, based on the actual number of days elapsed from the date such principal or interest payment was due to the date of actual payment. The principal of this Note may be prepaid in whole or in part without premium or penalty, at any time. The Maker shall prepay the principal and accrued interest of this Note, as and to the extent that the Maker receives proceeds (net of expenses) (1) from the sale of common stock of the Maker prior to the Due Date, or (2) as a part of being acquired by a public company prior to the Due Date. Maker shall offer the Payee the option to convert this note into shares of common stock of any corporation which acquires at least fifty-one (51%) percent of the Maker at any time prior to the Due Date. The terms of the issuance of such shares shall be part of a structure wherein it is contemplated that such corporation shall have 13,000,000 shares of common stock outstanding after the acquisition of Maker (but before the conversion of a maximum of $250,000 of Notes or further financing). In connection with said acquisition, it is contemplated that the company shall issue 12,375,000 shares to the shareholders of the Maker and shall undertake a financing by selling 2,000,000 shares at $.50 per share (the "Offering Shares"). The shares issuable upon conversion of this Note shall be a part of the Offering Shares and shall be converted at $.50 per share. 12 All principal and interest payments hereunder are payable in lawful money of the United States of America to the Payee at the address first shown above, or at such other address as may be directed by Payee, in immediately available funds. The Maker hereby waives presentment, demand, dishonor, protest, notice of protest, diligence and any other notice or action otherwise required to be given or taken under the law in connection with the delivery, acceptance, performance, default, enforcement or collection of this Note, and expressly agrees that this Note, or any payment hereunder, may be extended, modified or subordinated (by forbearance or otherwise) from time to time, without in any way affecting the liability of the Maker. In the event that (a) the Maker shall fail to pay when due, any payment of principal or interest due hereunder and such failure to pay is not cured within ten (10) days of the date such payment was due, or (b) if the maker shall (i) make a general assignment for the benefit of creditors; (ii) be adjudicated a bankrupt or insolvent; (iii) file a voluntary petition in bankruptcy-, (iv) take advantage of any bankruptcy or insolvency law or statute of the United States of America or any state or jurisdiction thereof now or hereafter in effect; (v) have a petition or proceeding filed against the Maker under any bankruptcy or insolvency law or statute of the United States of America or any state or jurisdiction thereof, which petition or proceeding is not dismissed within forty-five (45) days from the date of commencement thereof; or (vi) have a receiver, trustee, custodian, conservator or other person appointed by any court to take charge of the Maker's affairs, assets or business and such appointment is not vacated or discharged within forty-five (45) days thereafter; then, and upon the happening of any such event, the Payee, at Payee's option, by written notice to the Maker, may declare the entire indebtedness evidenced by this Note immediately due and payable, whereupon the same shall forthwith mature and become immediately due and payable without presentment, demand, protest or further notice. In the event that Maker shall fail to pay when due any principal or interest payment, and the Payee shall exercise or endeavor to exercise any of its remedies hereunder, the Maker shall pay all reasonable costs and expenses incurred in connection therewith including, without limitation, reasonable attorneys' fees, and the Payee may take judgment for all such amounts in addition to all other sums due hereunder. No consent or waiver by the Payee with respect to any action or failure to act by maker which, without such consent or waiver, would constitute a breach of any provision of this Note shall be valid and binding unless in writing and signed by the Payee. All agreements between the Maker and the Payee are expressly limited to provide that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the indebtedness evidenced hereby or otherwise, shall the amount paid or agreed to be paid to the 13 Payee for the use, forbearance or detention of the indebtedness evidenced hereby exceed the maximum amount which the Payee is permitted to receive under applicable law. If, from any circumstances whatsoever, fulfillment of any provision hereof, at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law, then, without the necessity of any action by Payee or Maker, the obligation to be fulfilled shall automatically be reduced to the limit of such validity, and if from any circumstance the Payee should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the principal balance hereof, and not to the payment of interest. As used herein, the term "applicable law" shall mean the law in affect as of the date hereof, provided, however, that in the event there is a change in the law which results in a higher permissible rate of interest, then this Note shall be governed by such new law as of its effective date. This provision shall control every other provision of all agreements between the Maker and the Payee. This Note shall be governed by and construed in accordance with the laws of the State of New York, except to the extent that such laws are superseded by Federal enactments. If any covenant or other provision of the Note is invalid, illegal, or incapable of being enforced by reason of any rule of law or public policy, all other covenants and provisions of the Note shall nevertheless remain in full force and effect, and no covenant or provision shall be deemed dependent upon any other covenant or provision. IN WITNESS WHEREOF, the Maker, by its duly authorized officer, has executed this Note as of the date first above written. PHOTOLOFT.COM, INC. By: /s/ Jack Marshall ------------------------------ Jack Marshall, President 14 ANNEX C ------- PHOTOLOFT.COM CAPITALIZATION TABLE
SHARES PERCENTAGE ---------- ----------- ORIGINAL PHOTOLOFT.COM SHAREHOLDERS. . 12,375,000 82.36% ---------- ----------- INVESTORS. . . . . . . . . . . . . . . 2,000,000 13.31% ---------- ----------- ORIGINAL MERGER CANDIDATE SHAREHOLDERS 625,000 4.16% ---------- ----------- BAYTREE. . . . . . . . . . . . . . . . 25,000 0.17% ---------- ----------- TOTAL. . . . . . . . . . . . . . . . . 15,025,000 100.00% - -------------------------------------- ---------- -----------
15 EX-10.20 26 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT ("Agreement") effective as of the 26th day of February 1999, between photoLoft.com , a Nevada corporation having its principal place of business at 300 Orchard City Drive, Suite 142, Campbell, California 98005 ("Employer") , and Jack Marshall ("Employee"). WITNESSETH: WHEREAS, Employer desires to employ Employee upon the terms and subject to the conditions hereinafter set forth, and Employee desires to accept such employment: NOW, THEREFORE, for and in consideration of the premises, the mutual promises, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows. 1. EMPLOYMENT. Subject to the terms and conditions of this Agreement, Employer shall employ Employee and Employee hereby accepts such employment. 2. TERM. The term of this Agreement shall be for the period from March 1, 1999 through December 31, 2001 (the "Initial Term"), thereafter to continue on a year to year basis, unless or until terminated pursuant to the terms of this agreement. 3. POSITION AND DUTIES. A. POSITION. Employee shall serve as CEO, President and Treasurer and shall perform the duties and exercise the powers in connection with such position and which may from time to time be reasonably assigned to or vested in him or her by the board of Directors or similar governing body of Employer (the "Board") or the duly authorized committee or designee thereof. B. FULL TIME EFFORTS. Employee shall perform and discharge faithfully, diligently and to the best of his or her ability such duties and responsibilities and shall devote his or her full-time efforts to the business and affairs of Employer. C. NO INTERFERENCE WITH DUTIES. Employee shall not devote time ot other activities such as would inhibit or otherwise interfere with the proper performance of his or her duties. 4. WORK STANDARD. Employee hereby agrees that he or she will at all times comply with abide by all terms and conditions set forth in this Agreement, and all applicable work policies, procedures and rules as may be issued by Employer. 5. COMPENSATION. A. BASE SALARY. Subject to the terms and conditions set forth in this Agreement, Employer shall pay Employee, and Employee shall accept, a salary ("Base Salary") at the annual rate of $120,000 for all services rendered during the term of this Agreement. Base Salary shall be reviewed no less frequently than annually. The Base Salary is not to be considered in any way to limit Employee's opportunity to receive appropriate increases in Base Salary during the term of this Agreement. The Base Salary shall be apid in accordance with Employer's normal payroll procedures. B. INCENTIVE BONUS. Subject to the terms and conditions set forth in this Agreement, Employer shall pay Employee, and Employee shall accept, an annual bonus ("Incentive Bonus") to be no less than 50% of Employee's Base Salary as defined by this Agreement if the following criteria are met: 1) the company begins trading on the NASD Bulletin Board during calendar year 1999, 2) the company achieves a minimum of $100,000 via e-commerce in 1999, 3) there are an average of 500,000 hits to the site for a one month period. The Incentive Bonus is not to be considered in any way to limit Employee's opportunity to receive additional cash bonus compensation as deemed appropriate by the Employer. This incentive Bonus shall be paid no later than February 15 of the year following the year the incentive bonus was earned. C. STOCK OPTIONS. Employer will grant to Employee: 250,000 shares of PhotoLoft.com common stock exercisable at current market value on the day of the grant when traffic to the site averages 500,000 hits during a one month period; 500,000 shares of photoLoft.com common stock exercisable at current market value on the day of the grant when traffic to the site averages 750,000 hits during a one month period; and 750,000 shares of PhotoLoft.com common stock exercisable at current market value on the day of the grant when traffic to the PhotoLoft.com web site averages 1,000,000 hits per day for a one month period. D. WITHHOLDING. All compensation payable to Employee pursuant to this Agreement shall be subject to, and Employer will deduct and withhold, all applicable federal, state and local withholding, employment, social security, and other similar taxes. 6. FRINGE BENEFITS. During the term of Employee's employment under this Agreement, Em0ployee shall receive the fringe benefits described below: A. MEDICAL, DENTAL, VISION, LIFE AND DISABILITY INSURANCE. Employer shall provide Employee and eligible dependents ("spouse and children under 21 years of age") with medical, dental and vision insurance coverage. Life and disability insurance coverage will be provided by Employer to Employee. B. VACATION. Employee is eligible for vacation as outlined in the standard corporate vacation plan. C. CAR ALLOWANCE. Employee is eligible for a monthly car allowance of $500. D. OUT OF POCKET EXPENSES. Employer will reimburse Employee for out of pocket expenses ("out of pocket expenses") as incurred by the Employee in the normal course of business, including, but not limited to corporate entertainment, non-capital purchases and corporate travel. 7. LAWS, REGULATIONS, AND PUBLIC ORDINANCES. Employee shall comply with all federal, state, and local statutes, regulations and public ordinances governing the work. 8. CONFIDENTIAL INFORMATION; INVENTIONS; CONFLICTING EMPLOYMENT; RETURNING COMPANY DOCUMENTS; SOLICITATION OF EMPLOYEES; NON-COMPETE. A. COMPANY INFORMATION: I agree at all times during the term of my employment and thereafter, to hold in strictest confidence, and not use, except for the benefit of the Employer, or to disclose to any person, firm or corporation without written authorization of the board of Directors of the Company, any Confidential Information of the Company. I understand that Confidential Information means any company proprietary information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, services, customer lists and customers (including, but not limited to, customers of the company on whom I called or with whom I became acquainted during the term of my employment), markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, hardware configuration information, marketing, finances, or other business information disclosed to me by the company either directly or indirectly in writing, orally or by drawings or inspection of parts or equipment. I further understand that Confidential Information does not include any of the foregoing items which has become publicly known and made generally available through no wrongful act of mine. B. FORMER EMPLOYER INFORMATION. I agree that I will not, during my employment with the company, improperly use or disclose any proprietary information or trade secrets of any former or concurrent employer or other person or entity with which I have an agreement or duty to keep in confidence, information acquired by me in confidence, if any, and that I will not bring onto the premises of the Company any unpublished document or proprietary information belonging to any such employer, person or entity unless consented to in writing by such employer, person or entity. C. THIRD PARTY INFORMATION. I recognize that the company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on certain limited purposes. I agree to hold all such confidential or proprietary information in the strictest confidence and not to disclose it to any person, firm or corporation or to use it except as necessary in carrying out my work for the company consistent with the company's agreement with such third party. D. INVENTIONS RETAINED AND LICENSED: I have attached hereto as Exhibit A, a list describing all inventions, original works of authorship, developments, improvements and trade secrets which were made by me prior to my employment with the company (collectively referred to as Prior inventions), which belong to me, which relate to the company's purposed business, products or hereunder; or, if not such list is attached, I represent that there are no such prior inventions. If in the course of my employment wit the company, I incorporate into a company product, process or machine a prior invention owned by me or in which I have an interest, the Company is hereby granted and shall have a non-exclusive, royalty-free, irrevocable, perpetual, worldwide license to make, have made, modify, use and sell such prior invention as part of or in connection with such product, process or machine. E. ASSIGNMENT OF INVENTIONS; I agree that I will promptly make full written disclosure to the company, will hold in trust for the sole right and benefit of the company and hereby assign to the company, or its designee, all my right, title, and interest in and to any and all inventions, original works of authorship, developments, concepts, improvements or trade secrets, whither or not patentable or registrable under copyright or similar laws, which I may solely or jointly conceive or develop or reduce to practice, during the period of time I am in the employee of the company (collectively referred to as "Inventions"), except as provided in Section i below. I further acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of my employment and which are protectable by copyright are "works made for hire," as that term is defined in the United States Copyright Act. F. MAINTENANCE OF RECORDS: I agree to keep and maintain adequate and current written records of all inventions made by me (solely or jointly with others) during the term of my employment with the company. The records will be in the form of notes, sketches, drawings and any other format that may be specified by the company. The records will be available to and remain the sole property of the company at all times. G. PATENT AND COPYRIGHT REGISTRATION: I agree to assist the company, or its designee, at the company's expense, in every proper way to secure the company's rights in the inventions and any copyrights, patents, mask work rights or other intellectual property rights relating thereto in any and all countries, including the disclosure to the company of all pertinent information and data with respect thereto, the execution of all applications, specifications, oaths, assignments and all other instruments which the company shall deem necessary in order to apply for and obtain such rights and in order to assign and convey to the comp0any, its successors, assigns and nominees the sole and exclusive rights, title and interest in and to such inventions, and any copyrights, patents, mask work rights, or other intellectual property rights relating thereto. I further agree that my obligation to execute or cause to be executed, when it is in my power to do so, any such instrument or papers shall continue after the termination of this Agreement. If the company is unable because of my mental or physical incapacity or for any other reason to secure my signature to apply for or to pursue any application for any United States or foreign patents or copyrights registrations covering inventions or original works of authorship assigned to the company as above, then I hereby irrevocably designate and appoint company and its duly authorized officers and agents as my agent and attorney in fact, to act for and in my behalf and stead to execute and file any such applications and to do all other lawfully permitted acts to further the prosecution and issuance of letters patent or copyright registrations thereon with the same legal force and effect as if executed by me. H. EXCEPTIONS TO ASSIGNMENTS. I understand that the provisions of this Agreement requiring assignment of inventions to company do not apply to any invention which qualifies fully under the provisions of California Labor Code Section 2870. I will advise the company promptly in writing of any inventions that I believe meet the criteria in California Labor Code Section 2870 and not otherwise disclosed on Exhibit A. I. CONFLICTING EMPLOYMENT. I agree that, during the term of my employment with the company, I will not engage in any other employment, occupation, consulting or other business activity directly related to the business in which the company is now involved or become involved during the terms of my employment, nor will I engage in any other activities that conflict with my obligations to company. J. RETURNING COMPANY DOCUMENTS. I agree that, at the time of leaving the employ of the company I will deliver to the company (and will not keep in my possession or deliver to anyone else) any and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, others documents, or property, or reproductions of any aforementioned items developed by me pursuant to my employment with the company or otherwise belonging to the company, its successors or assigns. K. SOLICITATION OF EMPLOYEES. I agree that I shall not, for a period of one year immediately following the termination of my relationship with the company for any reason, whether with or without cause, either directly or indirectly, on my own behalf or in the service or on behalf of other, solicit, recruit or attempt to persuade any person to terminate such person's employment with the company, whether or not such person is a full-time employee or whether or not such employment is pursuant to a written agreement or is at-will. L. NON-COMPETE. I agree that I shall not, for a period of one year immediately following the termination of my relationship with the company for any reason, whether with or without cause, either directly or indirectly engage in any activity that competes with PhotoLoft.com 9. TERMINATION FOR CAUSE. This Agreement may be terminated at any time by Employer without prior notice thereof to Employee and without any liability owning to Employee under this Agreement under the following conditions, each of which shall constitute "Cause"; A. FAILURE TO DISCHARGE DUTIES. Employee willfully neglects or refuses to discharge his duties hereunder or refuses to comply with any lawful and reasonable instructions given to him by Employer without reasonable excuse; B. BREACH. Employee shall have committed any material breack, or repeated or continued after written notice of any breach, whether material or not, of his obligations hereunder; C. GROSS MISCONDUCT. Employee is guilty of gross misconduct. For the purposes of this Agreement the following acts shall constitute gross misconduct: I) Any act involving fraud or dishonesty or breach of applicable regulations of competent authorities in relation to trading or dealing with stocks, securities, investments and the like; II) The carrying out of any activity or the making of any statement which would prejudice or impair the good name or standing of Employer or would bring Employer into contempt, riducule or would reasonable shock or offend any community in which Employer is located; III) Attendance at work in a state of intoxication or otherwise being found in possession at his place of work any prohibited drug or substance, possession of which would amount to a criminal offense; IV) Assault or other act of violence against any employee of Employer or other person during the course of his or her employment; V) Harassment of disparagement of others based on their age, disability, color, national origin, race, religion, sex or veteran status, including acts of sexual harassment or, VI) Conviction of any felony or misdemeanor involving moral turpitude. 10. TERMINATION BY EMPLOYER FOR REASONS OTHER THAN CAUSE. Notwithstanding anything herein to the contrary, and subject to the survival provisions of Paragraph 13.G hereof, Employer may terminate this Agreement at any time with thirty (30) days prior notice thereof to Employee. In such an event, Employer shall pay to Employee in accordance with Employer's normal practices; 1) the Base Salary; 2) Incentive Bonus as applicable, 3) vested Stock Options, 4) Medical, Dental, Vision, Life and Disability Insurance, 5) car Allowance, 6) and any unused Vacation - all through December 31, 2001. 11. TERMINATION BY EMPLOYEE. A. VOLUNTARY TERMINATION. Employee may terminate his employment under this Agreement at any time with thirty (30) days prior written notice thereof to Employer. Upon such termination, Employee shall be entitled to his pro-rata Base Salary and Incentive Bonus through the date of such termination. B. RESIGNATION FOR GOOD CAUSE. The termination of his employment under this Agreement by Employee following a substantial reduction in Employee's position or duties or material breach of this Agreement by Employer shall be deemed a termination by employee for reasons other than cause as set forth in paragraph 10 hereof. C. TERMINATION UPON DEATH. This Agreement shall terminate immediately upon Employee's death. Employee's estate shall be entitled to Employee's Base Salary up to twelve (12) months after the Employee's death, Incentive Bonus based upon the average of the previous two annual Incentive Bonuses received by Employee or the previous Incentive Bonus is only one such bonus was received, and earned Stock Options. Medical, Dental and Vision Insurance payments shall continue for six (6) months from date of Employee's death. GENERAL PROVISIONS. A. AMENDMENT. This Agreement may be amended or modified only by a writing signed by both of the parties hereto. B. BINDING AGREEMENT. This Agreement shall inure to the benefit of and be binding upon Employee, his or her heirs and personal representatives, and Employer, its successors and assigns. C. WAIVER. The waiver by either party of a breach of any provision contained in this Agreement shall not be construed as or operate as a waiver of any subsequent breach. D. NOTICES I) All notices and all other communication provided for herein shall be in writing and delivered personally to the other designated party, or mailed by certified or registered mail, return receipt requested or delivered by a recognized national overnight courier service, or sent by facsimile as follows: If to Employer to: Mr. Patrick Dane Director If to Employee to: Mr. Jack Marshall CEO, President, Treasurer If Employee has provided notice to Employer that he is represented by counsel, Employer shall copy Employee's counsel at the address specified. Employee agrees and understands that any legal fees or expenses incurred by him in connection with this Agreement are his sole responsibility and Employer shall not reimburse Employee for any portion of such fees or expenses. II) All notices sent under this Paragraph 13 shall be deemed given twenty-four (24) hours after sent by facsimile or courier and seventy-two (72) hours after sent by certified or registered mail. III) Either party hereto may change the address to which notice is to be sent hereunder by written notice to the other party in accordance with the provisions of this Paragraph. E. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to principles of conflicts of laws. F. ENTIRE AGREEMENT. This Agreement contains the full and complete understanding of the parties hereto with respect to the subject matter contained herein and this Agreement supersedes and replaces any prior agreement , either oral or written, which Employee may have with Employer that relates generally to the same subject matter. G. SURVIVAL. Notwithstanding any expiration or termination of this Agreement, the provisions of this agreement shall survive and remain in full force and effect, as shall any other provision hereof that, by its terms or reasonable interpretation thereof, sets forth obligations that extend beyond the termination of this Agreement. H. ASSIGNMENT. This Agreement may not be assigned by Employee without the prior written consent of Employer, and any attempted assignment not in accordance herewith shall be null and void and of no force or effect. Employer can assign this Agreement to any Affiliate with Employee's written consent. Thereafter, any such assignee shall be considered to be the Employer for all purposes under this Agreement; provided however, that references to previous incentive bonuses shall be deemed to include incentive bonuses paid by any assignor. I. SEVERABILITY. I any one or more of the terms, provisions, covenants or restrictions of this Agreement shall be determined by a court of competent jurisdiction to be invalid, void or unenforceable, then the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect, and to that end the provisions hereof shall be deemed severable. J. PARAGRAPH HEADING. The section headings set forth herein are for convenience of reference only and shall not affect the meaning or interpretation of this Agreement whatsoever. K. VOLUNTARY AGREEMENT. Employee and Employer represent and agree that each has reviewed all aspects of this Agreement, has carefully read and fully understands all provisions of this Agreement, and is voluntarily entering into this Agreement. Each party represents and agrees that such party has had the opportunity to review any and all aspects of this Agreement with legal, tax or other advisers(s) of such party's choice before executing this Agreement. 10. REMEDIES. ARBITRATION OF DISAGREEMENTS. Any dispute, controversy or claim arising out of or relating to the obligations under this Agreement shall be settled by final and binding arbitration in accordance with the American Arbitration Association Employment Dispute Resolution Rules. The arbitrator shall be selected by mutual agreement of the parties, if possible. If the parties fail to reach agreement upon appointment of an arbitrator within 30 days following receipt by one party of the other party's notice of desire to arbitrate, the arbitrator shall be selected from a panel or panels of persons submitted by the American Arbitration Association (the "AAA"). The selection process shall be that which is set forth in the AAA Employment Dispute Resolution Rules, except that, if the parties fail to select an arbitrator from one or more panels, AAA shall not have the power to make an appointment but shall continue to submit additional panels until an arbitrator has been selected. All fees and expenses of the arbitration, including a transcript if requested, will be borne by the Employer. Any action to enforce or vacate the arbitrator's award shall be governed by the Federal Arbitration Act, if applicable, and otherwise by California state law. IN WTINESS WHEREOF, the parties hereto have executed, or caused their duly authorized representative to execute, this Agreement as of the date first above written. EMPLOYER Patrick Dane Jack Marshall BY: EX-10.21 27 PHOTOLOFT.COM STOCK OPTION PLAN PhotoLoft.com, a corporation organized and existing under the laws of the State of Nevada (hereinafter referred to as the "Company"), hereby adopts the following Stock Option Plan for certain of Its employees and outside consultants: 1. PURPOSE. ------- This Stock Option Plan (herein referred to as the "Plan") Is intended to advance the interests of the Company by providing employees and outside consultants having substantial responsibility for the direction and management of the Company & its subsidiaries with an opportunity to acquire a proprietary interest in the Company and an additional Incentive to promote its success and to encourage them to remain In the employ of the Company. The Plan Is intended to permit stock options granted to employees under the Plan to qualify as incentive stock options, herein referred to as "Incentive Stock Options", under Section 422 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). All options granted under the plan which are not intended to qualify as Incentive Stock Options shall herein be referred to as "Non- Statutory Options". All options granted under the Plan, including Incentive Stock Options, and Non-Statutory Options are referred to as "Options". 2. ADMINISTRATION OF PLAN. ------------------------ The Plan shall be administered by a Stock Option Committee (the "Committee") consisting of directors of the Company who shall be appointed by Its Board of DirectorThe Committee may adopt rules and regulations from time to time for carrying out the Plan. The interpretation and construction of any provision of the Plan by the Committee shall be final and conclusive, The Committee may consult with counsel, who may be counsel to the Company, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. 3. ELIGIBILITY. ------------ All employees of the Company and all outside consultants providing services to the Company shall be eligible to have options granted to them. The Committee shall grant Options only to employees of the Company and Company outside consultants of the Company who perform services of major importance in the management, operation end development of the business of the Company, and it shall determine the number of shares to be allocated to each Option. The Company shall effect the grant of Options under the Plan in accordance with determinations made by the Committee pursuant to the provisions of the Plan by execution and delivery of written Instruments in a form approved by the Committee. All persons to whom Incentive Stock Options are granted must be employees of the Company. 4. STOCK. ----- The Company has authorized the Committee to appropriate and to grant Options for and to issue and sell for the purpose of the Plan an aggregate of 1,000,000 shares of the common stock of the Company. Options to purchase any shares issued pursuant to the Plan that, for any reason expire or are terminated unexercised may be reissued under the Plan. The Company shall not be required to Issue or deliver any certificate for shares of its stock purchased upon the exercise of any part of an Option before (i) - 2 - completion of any registration or other qualification of such shares under any state or federal law or ruling or regulation of any governmental regulatory body that the Company shall, in its sole discretion, determine is necessary or advisable, or (ii) the Board of Directors shall have been advised by counsel that the issuance of such shares is exempted from any such registration or qualification of such shares. In this regard the Committee shall be able to require the execution of an "investment lettert' in standard form prior to the Issuance of any shares purchased upon the exercise of any part of an Option. Before the granting of any Option hereunder, Optionee must agree that no share of stock transferred to him pursuant to this Plan may be disposed of by him within two (2) years from the date of the granting of the Option nor within one (1) year after the transfer of such share to said Optionee or such Option will not be qualified as an Incentive Stock Option. 5. TAX CHARACTER OF OPTIONS. --------------------------- The Committee shall have discretion to designate whether Options shall be Incentive Stock Options or Non-Statutory Options. Subject to the limitations described in Sections 4,11, 16 and 17, all Options granted to employees of Company shall be Incentive Stock Options, unless the Committee determines otherwise. 6. PRICE. ------ Except as to Options to which the provisions of paragraph 16 and 17 apply, the purchase price of each share of stock covered by an Option granted hereunder shall be equal to the fair market value per share of the Company's common stock on the date the Option Is granted. As to Options to which the provisions of paragraph 16 apply the - 3 - purchase price of each share of stock covered by such Option granted hereunder shall be at least one hundred ten percent (110%) of the fair market value per share of the Company's common stock on the date the Option is granted. If the stock is traded in the over-the-counter market, such fair market value shall be deemed to be the mean between the asked and the bid prices on such day as reported by the NASD. If the stock is traded on an exchange, such fair market value shall be deemed to be the mean of the high and low prices at which it is quoted or traded on such day on the exchange on which it generally has the greatest trading volume. If the stock is not traded on either an over-the-counter market or on an exchange, the fair market value shall be set by the Committee in good faith based upon all relevant facts and circumstances pursuant to any and all regulations issued by the internal Revenue Service. 7. DURATION AND EXERCISE OF OPTIONS. ------------------------------------ A. Except as to Options to which the provisions of paragraph 16 and 17 hereof apply, the Option period shall be ten (10) years or less from the date the Option is granted, and as to Options to which the provisions of paragraph 16 apply, the Option period shall be five (5) years or less from the date the Option is granted, except that either such period shall be reduced with respect to any Option as outlined below in the event of death or termination of employment or retirement of the Optionee; provided that the Committee may, in the case of merger, consolidation, dissolution or liquidation. accelerate the expiration date and the dates on which any part of the Option shall be exercisable for all of the shares covered thereby, but the effectiveness of such acceleration, and any exercise of the Option pursuant thereto in excess of the number - 4 - of shares for which it would have been exercisable in the absence of such acceleration, shall be conditioned upon the consummation of the merger, consolidation, dissolution or liquidation. B. The exercise of any Option and delivery of the optioned shares shall be contingent upon receipt by the Company of the full purchase price in cash. C. No Incentive Stock Option may be exercised more than thirty (30) days after termination of employment of the Optionee except as hereinafter provided. D. Except as otherwise provided herein, or unless otherwise determined by the Committee, every Option granted hereunder shall, upon its grant, be immediately exercisable. The Committee shall have the right to set any vesting schedule or delay of exercisability it deems appropriate. E. Incentive Stock Options granted under the Plan may be exercised, if otherwise timely, (I) within three (3) months after retirement, other than retirement by reason of disability, of the Optionee at or after the age of sixty-five (65) years, if such retirement occurs on or after one year following the grant of any incentive Stock Option hereunder, and (ii) within three (3) months after retirement occurring at any age by reason of disability. In any such case, the Incentive Stock Option may not be exercised for more than the number of shares, if any, as to which if was exercisable by the Optionee immediately before such retirement; provided that if such retirement was by reason of disability, said Option shall in any case be exercisable for at least fifty percent (50%) of the shares covered thereby; and provided further that if such retirement occurred when - 5 - or after the Optionee attained the age of sixty-five (65) years, said Option shall be exercisable for all of the shares covered thereby. F. If an Optionee shall die while employed by the Company or within three (3) months after retirement, such incentive Stock Option may be exercised (to the extent that the Optionee would have been entitled to do so at the date of this death) by the legatees, personal representative or distributees of the Optionee during the balance of the term thereof or within one year of the date of the Optionee's death, whichever is shorter. G. if Optionee is at the time of exercise, a person who is regularly required to report his ownership and changes of ownership of the common stock of the Company to the Securities and Exchange Commission and is subject to short swing profit liability under the provisions of Section 16(b) of the Securities Exchange Act of 1934 as the same, or any replacement rule, now exists, or may, from time to time, be amended, then the Optionee may only exercise Options and Release Rights during the period beginning on the third business day and ending on the twelfth business day following the release for publication of quarterly or annual summary statements of sales and earnings. This condition shall be deemed to be satisfied if the specified financial data appears (I) on a wire service, (ii) in a financial news service, (iii) in a newspaper of general circulation, or (iv) is otherwise made publicly available, and shall remain in effect so long as it does not violate the law or any rule or regulation adopted by appropriate governmental authority, - 6 - H. Options may be exercised in whole or in part, but only with respect to whole shares of stock. The Committee shall have the right to set any minimum amount on the number of shares which must be exercised at any one time as it deems appropriate. 8. NON-TRANSFERABILITYOFOPTIONS. ---------------------------- An Incentive Stock Option, by its terms, shall not be transferable otherwise than by will or by the laws of descent and distribution, and an Incentive Stock Option may be exercised during the lifetime of the Optionee only by him. 9. EFFECT OF STOCK DIVIDENDS, ETC. ---------------------------------- The Committee shall make appropriate adjustments in the price of the shares and the number allotted or subject to allotment if there are any changes in the common stock of the Company by reason of stock dividends, stock splits, reverse stock splits, recapitalizations, mergers or consolidations. 10. REORGANIZATION. -------------- If (a) the Company is merged or consolidated with another corporation and the Company is not the surviving corporation, (b) all or substantially all of the property is acquired by another corporation, or (o) the Company is reorganized, then the Company, or the corporation assuming the obligations of the Company, shall by action of its Board of Directors either: (i) make equitable provisions so that the excess of the aggregate fair market value of the shares subject to the Stock Options over the option price of such shares immediately after the merger, consolidation or reorganization of the Company, is equivalent to the excess of the aggregate fair market value of the - 7 - shares subject to such Stock Options over the option price of such shares immediately before such merger, consolidation or reorganization of the Company, or (ii) give written notice to the employee that the Options shall be terminated if they are not exorcised within a prescribed period after the date of such notice. 11. LIMITATIONS ON INCENTIVE STOCK OPTIONS. ------------------------------------------ Notwithstanding anything in this Plan to the contrary, the aggregate fair market value (determined at the time of grant) of stock for which an employee may exercise incentive Stock Options under all plans of the Company shall not exceed $1O0~0QO per calendar year. If any employee shall have the right to exercise any Options in excess of $100,000 during any calendar year, the options in excess of $100,000 shall be deemed not to be Incentive Stock Options. 12 EXPIRATION AND TERMINATION OF THE PLAN. ------------------------------------------- Options may be granted under the Plan at any time until the Plan is terminated by the Board of Directors of the Company or until such earlier date when termination of the Plan shall be required by applicable low. If not sooner terminated, the Plan shall terminate automatically on that date which is ten years from the earlier of the date on which the Plan was originally approved by the shareholders of the Company or the date on which this' Plan was adopted. - 8 - 13. AMENDMENTS. ---------- The Board of Directors of the Company may from time to time make such changes in and additions to the Plan as it may deem proper; provided that no change shall be made that increases (except pursuant to Section 9) the total number of shares covered by the Plan or effects any change in who may receive Options under the Plan or materially Increases the benefits accruing to Optionees hereunder unless such change Is authorized by the holders of the common stock of the Company. Notwithstanding the foregoing, the Board of Directors of the Company may amend the Plan, without stockholder approval, to the extent necessary to cause Incentive Stock Options granted under the Plan to meet the requirements of Section 422 of the Internal Revenue Code. 14. INTERPRETATION. -------------- The terms of this Plan concerning Incentive Stock Options are subject to all present and future regulations and rulings of the Secretary of the Treasury or his delegate relating to the qualification of Incentive Stock Options under Section 422 of the Internal Revenue Code. If any provision of the Plan conflicts with any such regulation or ruling, then that provision of the Plan shall be void and of no effect. 15. EFFECTIVE DATE OF THE PLAN. ------------------------------ This Plan shall become effective February 26, 1999, having been approved by shareholders and adopted by the Board of Directors. 16. TEN PERCENTOR GREATER SHAREHOLDERS. ------------------------------------- Anything to the contrary contained herein notwithstanding, no incentive Stock Option shall be granted hereunder to any individual, if at the time such Incentive Stock - 9 - Option is granted, such individual owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of Company or its parent or subsidiary corporations, unless at the time such option is granted the option price is at least one hundred ten percent (110%) of the fair market value of the stock subject to the option and such option by its terms is not exercisable after the expiration of five (5) years or less from the date of such option is granted. My option which does not comply with the terms of this paragraph shall be deemed not to be an Incentive Stock Option. 17. Non-StatutoryOptions -------------------- The Committee shall have the right to determine, subject to approval of the Board of Directors, the rights and terms of all Non-Statutory Options, including price, duration, transferability and limitations on exercise. PHOTOLOFT.COM By: /s/ Gary B. Peterson ----------------------------------- Gary B. Peterson, President - 10 - EXHIBIT A FIRST AMENDMENT TO TEE PHOTOLOFT.COM STOCK OPTION PLAN This First Amendment (the "Amendment") to the PhotoLoft.com Stock Option Plan (the "Plan") is adopted this __ day of ___, 1999. 1. Section 4 of the Plan is hereby amended to increase the number of Options available to be granted under the Plan from 1,000,000 to 3,800,000. 2. Except as set forth in this A.rnendxnent, all terms and conditions of the Plan shall remain in full force and effect. EX-10.22 28 PHOTOLOFT.COM STOCK OPTION AGREEMENT [FORM] This Photoloft.com Stock Option Agreement (the "Agreement"), by and between Photoloft.com, a Nevada corporation (the "Company"), and _______________ ("Optionee"), is made effective as of this day of ______________, 199__. RECITALS 1. Pursuant to the Photoloft.com 1999 Stock Option Plan (the "Plan"), the Board of Directors of the Company (the "Board") has authorized the grant of an option to purchase common stock of the Company ("Common Stock") to Optionee, effective on the date indicated above, thereby allowing Optionee to acquire a proprietary interest in the Company in order that Optionee will have further incentive for continuing his or her employment by, and increasing his or her efforts on behalf of, the Company or an Affiliate of the Company. 2. The Company desires to issue a stock option to Optionee and Optionee desires to accept such stock option on the terms and conditions set forth below. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: AGREEMENT 1. Option Grant. The Company hereby grants to the Optionee, as a ------------- separate incentive and not in lieu of any fees or other compensation for his or her services, an option to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ____________________ (________________) shares of authorized but unissued shares of Common Stock, at the Purchase Price set forth in paragraph 2 of this Agreement. 2. Purchase Price. The Purchase Price per share (the "Option Price") --------------- shall be $_________, which is not less than ___________________________ percent (___%) of the fair market value per share of Common Stock on the date hereof. The Option Price shall be payable in the manner provided in paragraph 9 below. 3. Adjustment. The number and class of shares specified in paragraph 1 ---------- above, and the Option Price, are subject to appropriate adjustment in the event of certain changes in the capital structure of the Company such as stock splits, recapitalizations and other events which alter the per share value of Common Stock or the rights of holders thereof. In connection with (i) any merger, consolidation, acquisition, separation, or reorganization in which more than fifty percent (50%) of the shares of the Company outstanding immediately before such event are converted into cash or into another security, (ii) any dissolution or liquidation of the Company or any partial liquidation involving fifty percent (50%) or more of the assets of the Company, (iii) any sale of more than fifty percent (50%) of the Company's assets, or (iv) any like occurrence in which the Company is involved, the Company may, in its absolute discretion, do one or more of the following upon ten days' prior written notice to the Optionee: (a) accelerate any vesting schedule to which this option is subject; (b) cancel this option upon payment to the Optionee in cash, to the extent this option is then exercisable, of any amount which, in the absolute discretion of the Company, is determined to be equivalent to any excess of the market value (at the effective time of such event) of the consideration that the Optionee would have received if this option had been exercised before the effective time over the Option Price; (c) shorten the period during which this option is exercisable (provided that this option shall remain exercisable, to the extent otherwise exercisable, for at least ten days after the date the notice is given); or (d) arrange that new option rights be substituted for the option rights granted under this option, or that the Company's obligations under this option be assumed, by an employer corporation other than the Company or by a parent or subsidiary of such employer corporation. The actions described in this paragraph 3 may be taken without regard to any resulting tax consequence to the Optionee. [OPTIONAL FOUR YEAR VESTING] 4. Option Exercise. Commencing on the date one (1) year after the date --------------- of this Agreement the right to exercise this option will accrue as to one-fourth ( ) of the number of shares subject to this option. Thereafter, the right to exercise the remainder of this option will accrue in twelve (12) equal quarterly installments. Shares entitled to be, but not, purchased as of any accrual date may be purchased at any subsequent time, subject to paragraphs 5 and 6 below. The number of shares which may be purchased as of any such anniversary date will be rounded up to the nearest whole number. No partial exercise of the option may be for an aggregate exercise price of less than One Hundred Dollars ($100). In order to exercise any part of this option, Optionee must agree to be bound by the Company's Shareholder Buy-Sell Agreement, if any, existing at the time of the exercise of this Option. 5. Termination of Option. The right to exercise this option will lapse --------------------- in four (4) equal installments of the number of shares subject to this option on each of the sixth, seventh, eighth, and ninth anniversaries of the effective date of this Agreement. Notwithstanding any other provision of this Agreement, this option may not be exercised after, and will completely expire on, the close of business on the date ten (10) years after the effective date of this Agreement, unless terminated sooner pursuant to paragraph 6 below. 6. Termination of Employment. In the event of termination of --------------------------- Optionee's employment with the Company for any reason, this option will terminate three (3) months after the date of the termination of Optionee's employment, unless terminated earlier pursuant to paragraph 5 above. However, (i) if termination is due to the death of Optionee, the Optionee's estate or a legal representative thereof, may at any time within and including six (6) months after the date of death of Optionee, exercise the option to the extent it was exercisable at the date of termination; or (ii) if termination is due to Optionee's "disability" (as determined in accordance with Section 22(e)(3) of the Internal Revenue Code), Optionee may, at any time, within one (1) year following the date of this Agreement, exercise the option to the extent it was exercisable at the date of termination. If the Optionee or his or her legal representative fails to exercise the option within the time periods specified in this paragraph 6, the option shall expire. The Optionee or his or her legal representative may, on or before the close of business on the earlier of the date for exercise set forth in paragraph 5 or the dates specified in paragraph 4 above, exercise the option only to the extent Optionee could have exercised the option on the date of such termination of employment pursuant to paragraphs 4 and 5 above. 7. Repurchase Option of Company. Pursuant to Section 6.1.8 of the ------------------------------- Plan, in the event of termination of Optionee's employment with the Company for any reason, the Company shall have an option to repurchase ("Repurchase Option") any Common Stock owned by the Optionee or his or her heirs, legal representatives, successors or assigns at the time of termination, or acquired thereafter by any of them at any time, by way of an option granted hereunder. The Repurchase Option must be exercised, if at all, by the Company within ninety (90) days after the date of termination upon notice ("Repurchase Notice") to the Optionee or his or her heirs, legal representatives, successors or assigns, in conformance with paragraph 13 below. The purchase price to be paid for the shares subject to the Repurchase Option shall be the average trading price for the shares of common stock of the Company over a thirty (30) day period prior to the delivery of the Repurchase Notice. Any shares issued pursuant to an exercise of an option hereunder shall contain the following legend condition in addition to any other applicable legend condition: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REPURCHASE PROVISIONS IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. 2 8. Transferability. This option will be exercisable during Optionee's --------------- lifetime only by Optionee. Except as otherwise set forth in the Plan, this option will be non-transferable. 9. Method of Exercise. Subject to paragraph 10 below, this option may ------------------- be exercised by the person then entitled to do so as to any shares which may then be purchased by delivering to the Company an exercise notice in the form attached hereto as Exhibit A and: ---------- (a) full payment of the Option Price thereof (and the amount of any tax the Company is required by law to withhold by reason of such exercise) in the form of: (i) cash or readily available funds; or (ii) delivery of Optionee's promisory note (the "Note") substantially in the form attached hereto as Exhibit B in the amount of the --------- aggregate Option Price of the exercised shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit C; --------- or (iii) a written request to Net Exercise, as defined in this paragraph 9(a)(iii). In lieu of exercising this Option via cash payment or promissory note, Optionee may elect to receive shares equal to the value of this Option (or portion thereof being canceled) by surrender of Options at the principal office of the Company together with notice of election to exercise by means of a Net Exercise in which event the Company shall issue to Optionee a number of shares of the Company computed using the following formula: X = Y (A-B) -------- A where X is the number of shares of stock to be issued to Optionee; Y is the number of shares purchasable under this Option; A is the fair market value of the stock determined in accordance with Section 6.1.12 of the Plan; and B is the Option Price as adjusted to the date of such calculation. (b) payment of any withholding or employment taxes, if any. The Company will issue a certificate representing the shares so purchased within a reasonable time after its receipt of such notice of exercise, payment of the Option Price and withholding or employment taxes, and execution of any other appropriate documentation, with appropriate certificate legends. 10. Securities Laws. The issuance of shares of Common Stock upon the ---------------- exercise of the option will be subject to compliance by the Company and the person exercising the option with all applicable requirements of federal and state securities and other laws relating thereto. No person may exercise the option at any time when, in the opinion of counsel to the Company, such exercise is permitted under applicable federal or state securities laws. Nothing herein will be construed to require the Company to register or qualify any securities under applicable federal or state securities laws, or take any action to secure an exemption from such registration and qualification for the issuance of any securities upon the exercise of this option. 11. No Rights as Shareholder. Neither Optionee nor any person claiming ------------------------ under or through Optionee will be, or have any of the rights or privileges of, a shareholder of the Company in respect of any of the shares issuable upon the exercise of the option, unless and until this option is properly and lawfully exercised. 12. No Right to Continued Employment. Nothing in this Agreement will ---------------------------------- be construed as granting Optionee any right to continued employment. EXCEPT AS THE COMPANY AND OPTIONEE WILL HAVE OTHERWISE AGREED IN WRITING, OPTIONEE'S EMPLOYMENT WILL BE TERMINABLE BY THE COMPANY, AT WILL, WITH OR WITHOUT CAUSE FOR ANY REASON OR NO REASON. Except as otherwise provided in the Plan, the Board in its sole discretion will determine whether any leave of absence or interruption in service (including an interruption during military service) will be deemed a termination of employment for the purpose of this Agreement. 3 13. Notices. Any notice to be given to the Company under the terms of ------- this Agreement will be addressed to the Company, in care of its Secretary, at its executive offices, or at such other address as the Company may hereafter designate in writing. Any notice to be given to Optionee will be in writing and delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, addressed to Optionee at the address set forth beneath Optionee's signature in writing. Any such notice will be deemed to have been duly given where deposited in a United States post office in compliance with the foregoing. 14. Non-Transferrable. Except as otherwise provided in the Plan or in ----------------- this Agreement, the option herein granted and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise). Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this option, or of any right or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, this option will immediately become null and void. 15. Successor. Subject to the limitation on the transferability of the --------- option contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legal representatives, successors and assigns of the parties hereto. 16. California Law. This Agreement will be governed by and construed --------------- in accordance with the laws of the State of California. 17. Type of Option. The option granted in this Agreement: ---------------- [ ] Is intended to be an Incentive Stock Option ("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. [ ] Is a non-qualified Option and is not intended to be an ISO. 18. Plan Provisions Incorporated by Reference. A copy of the Plan is ------------------------------------------- attached hereto as Exhibit "A" and incorporated herein by this reference. In the case of conflict between any provision in this Agreement and any provision in the Plan or a Shareholder Buy-Sell Agreement, if any, the terms of this Agreement shall prevail. In the case of conflict between any provision in the Plan and a provision in a Shareholders Buy-Sell Agreement, if any, the terms of the Plan shall prevail. 19. Term. Capitalized terms used herein, except as otherwise ---- indicated, shall have the same meaning as those terms have under the Plan. 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year written below. COMPANY: PHOTOLOFT.COM By:________________________________ Title:_____________________________ OPTIONEE: ___________________________________ (print name) ___________________________________ (signature) Address:___________________________ ___________________________________ 5 EX-10.23 29 PHOTOLOFT.COM STOCK OPTION AGREEMENT This Photoloft.com Stock Option Agreement (the "Agreement"), by and between Photoloft.com, a Nevada corporation (the "Company"), and CHRISTOPHER MCCONN ("Optionee"), is made as of this 1ST DAY OF JULY, 1999. RECITALS 1. Pursuant to the Photoloft.com Stock Option Plan (the "Plan"), the Board of Directors of the Company (the "Board") has authorized the grant of an option to purchase common stock of the Company ("Common Stock") to Optionee, effective on the date indicated above, thereby allowing Optionee to acquire a proprietary interest in the Company in order that Optionee will have further incentive for continuing his or her employment by, and increasing his or her efforts on behalf of, the Company or an Affiliate of the Company. 2. The Company desires to issue a stock option to Optionee and Optionee desires to accept such stock option on the terms and conditions set forth below. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: AGREEMENT 1. Option Grant. The Company hereby grants to the Optionee, as a ------------- separate incentive and not in lieu of any fees or other compensation for his or her services, an option to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of FOUR HUNDRED FIFTY FOUR THOUSAND THIRTEEN (454,013) shares of authorized but unissued shares of Common Stock, at the Purchase Price set forth in paragraph 2 of this Agreement. 2. Purchase Price. The Purchase Price per share (the "Option Price") --------------- shall be $0.48, which is not less than ONE HUNDRED TEN PERCENT (110%) of the fair market value per share of Common Stock on the date hereof. The Option Price shall be payable in the manner provided in paragraph 9 below. 3. Adjustment. The number and class of shares specified in paragraph 1 ---------- above, and the Option Price, are subject to appropriate adjustment in the event of certain changes in the capital structure of the Company such as stock splits, recapitalizations and other events which alter the per share value of Common Stock or the rights of holders thereof. In connection with (i) any merger, consolidation, acquisition, separation, or reorganization in which more than fifty percent (50%) of the shares of the Company outstanding immediately before such event are converted into cash or into another security, (ii) any dissolution or liquidation of the Company or any partial liquidation involving fifty percent (50%) or more of the assets of the Company, (iii) any sale of more than fifty percent (50%) of the Company's assets, or (iv) any like occurrence in which the Company is involved, the Company may, in its absolute discretion, do one or more of the following upon ten days' prior written notice to the Optionee: (a) accelerate any vesting schedule to which this option is subject; (b) cancel this option upon payment to the Optionee in cash, to the extent this option is then exercisable, of any amount which, in the absolute discretion of the Company, is determined to be equivalent to any excess of the market value (at the effective time of such event) of the consideration that the Optionee would have received if this option had been exercised before the effective time over the Option Price; (c) shorten the period during which this option is exercisable (provided that this option shall remain exercisable, to the extent otherwise exercisable, for at least ten days after the date the notice is given); or (d) arrange that new option rights be substituted for the option rights granted under this option, or that the Company's obligations under this option be assumed, by an employer corporation other than the Company or by a parent or subsidiary of such employer corporation. The actions described in this paragraph 3 may be taken without regard to any resulting tax consequence to the Optionee. 4. Option Exercise. Commencing on July 1, 1998 the right to exercise ---------------- this option will accrue in forty (48) equal monthly installments. Shares entitled to be, but not, purchased as of any accrual date may be purchased at any subsequent time, subject to paragraphs 5 and 6 below. The number of shares which may be purchased as of any such anniversary date will be rounded up to the nearest whole number. No partial exercise of the option may be for an aggregate exercise price of less than One Hundred Dollars ($100). In order to exercise any part of this option, Optionee must agree to be bound by the Company's Shareholder Buy-Sell Agreement, if any, existing at the time of the exercise of this Option. 5. Termination of Option. The right to exercise this option will lapse --------------------- on the ninth anniversary of the effective date of this Agreement. Notwithstanding any other provision of this Agreement, this option may not be exercised after, and will completely expire on, the close of business on the date ten (10) years after the effective date of this Agreement, unless terminated sooner pursuant to paragraph 6 below. 6. Termination of Employment. In the event of termination of --------------------------- Optionee's employment with the Company for any reason, this option will terminate three (3) months after the date of the termination of Optionee's employment, unless terminated earlier pursuant to paragraph 5 above. However, (i) if termination is due to the death of Optionee, the Optionee's estate or a legal representative thereof, may at any time within and including six (6) months after the date of death of Optionee, exercise the option to the extent it was exercisable at the date of termination; or (ii) if termination is due to Optionee's "disability" (as determined in accordance with Section 22(e)(3) of the Internal Revenue Code), Optionee may, at any time, within one (1) year following the date of this Agreement, exercise the option to the extent it was exercisable at the date of termination. If the Optionee or his or her legal representative fails to exercise the option within the time periods specified in this paragraph 6, the option shall expire. The Optionee or his or her legal representative may, on or before the close of business on the earlier of the date for exercise set forth in paragraph 5 or the dates specified in paragraph 4 above, exercise the option only to the extent Optionee could have exercised the option on the date of such termination of employment pursuant to paragraphs 4 and 5 above. 7. Repurchase Option of Company. Pursuant to Section 6.1.8 of the ------------------------------- Plan, in the event of termination of Optionee's employment with the Company for any reason, the Company shall have an option to repurchase ("Repurchase Option") any Common Stock owned by the Optionee or his or her heirs, legal representatives, successors or assigns at the time of termination, or acquired thereafter by any of them at any time, by way of an option granted hereunder. The Repurchase Option must be exercised, if at all, by the Company within ninety (90) days after the date of termination upon notice ("Repurchase Notice") to the Optionee or his or her heirs, legal representatives, successors or assigns, in conformance with paragraph 13 below. The purchase price to be paid for the shares subject to the Repurchase Option shall be the average trading price for the shares of common stock of the Company over a thirty (30) day period prior to the delivery of the Repurchase Notice. Any shares issued pursuant to an exercise of an option hereunder shall contain the following legend condition in addition to any other applicable legend condition: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REPURCHASE PROVISIONS IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. 8. Transferability. This option will be exercisable during Optionee's --------------- lifetime only by Optionee. Except as otherwise set forth in the Plan, this option will be non-transferable. 9. Method of Exercise. Subject to paragraph 10 below, this option may ------------------- be exercised by the person then entitled to do so as to any shares which may then be purchased by delivering to the Company an exercise notice in the form attached hereto as Exhibit A and: ---------- 2 (a) full payment of the Option Price thereof (and the amount of any tax the Company is required by law to withhold by reason of such exercise) in the form of: (i) cash or readily available funds; or (ii) delivery of Optionee's promisory note (the "Note") substantially in the form attached hereto as Exhibit B in the amount of the --------- aggregate Option Price of the exercised shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit C; --------- or (iii) a written request to Net Exercise, as defined in this paragraph 9(a)(iii). In lieu of exercising this Option via cash payment or promissory note, Optionee may elect to receive shares equal to the value of this Option (or portion thereof being canceled) by surrender of Options at the principal office of the Company together with notice of election to exercise by means of a Net Exercise in which event the Company shall issue to Optionee a number of shares of the Company computed using the following formula: X = Y (A-B) -------- A where X is the number of shares of stock to be issued to Optionee; Y is the number of shares purchasable under this Option; A is the fair market value of the stock determined in accordance with Section 6.1.12 of the Plan; and B is the Option Price as adjusted to the date of such calculation. (b) payment of any withholding or employment taxes, if any. The Company will issue a certificate representing the shares so purchased within a reasonable time after its receipt of such notice of exercise, payment of the Option Price and withholding or employment taxes, and execution of any other appropriate documentation, with appropriate certificate legends. 10. Securities Laws. The issuance of shares of Common Stock upon the ---------------- exercise of the option will be subject to compliance by the Company and the person exercising the option with all applicable requirements of federal and state securities and other laws relating thereto. No person may exercise the option at any time when, in the opinion of counsel to the Company, such exercise is permitted under applicable federal or state securities laws. Nothing herein will be construed to require the Company to register or qualify any securities under applicable federal or state securities laws, or take any action to secure an exemption from such registration and qualification for the issuance of any securities upon the exercise of this option. 11. No Rights as Shareholder. Neither Optionee nor any person claiming ------------------------ under or through Optionee will be, or have any of the rights or privileges of, a shareholder of the Company in respect of any of the shares issuable upon the exercise of the option, unless and until this option is properly and lawfully exercised. 12. No Right to Continued Employment. Nothing in this Agreement will ---------------------------------- be construed as granting Optionee any right to continued employment. EXCEPT AS THE COMPANY AND OPTIONEE WILL HAVE OTHERWISE AGREED IN WRITING, OPTIONEE'S EMPLOYMENT WILL BE TERMINABLE BY THE COMPANY, AT WILL, WITH OR WITHOUT CAUSE FOR ANY REASON OR NO REASON. Except as otherwise provided in the Plan, the Board in its sole discretion will determine whether any leave of absence or interruption in service (including an interruption during military service) will be deemed a termination of employment for the purpose of this Agreement. 13. Notices. Any notice to be given to the Company under the terms of ------- this Agreement will be addressed to the Company, in care of its Secretary, at its executive offices, or at such other address as the Company may hereafter designate in writing. Any notice to be given to Optionee will be in writing and delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, addressed to Optionee at the address set forth beneath Optionee's signature in writing. Any such notice will be deemed to have been duly given where deposited in a United States post office in compliance with the foregoing. 3 14. Non-Transferrable. Except as otherwise provided in the Plan or in ----------------- this Agreement, the option herein granted and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise). Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this option, or of any right or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, this option will immediately become null and void. 15. Successor. Subject to the limitation on the transferability of the --------- option contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legal representatives, successors and assigns of the parties hereto. 16. California Law. This Agreement will be governed by and construed --------------- in accordance with the laws of the State of California. 17. Type of Option. The option granted in this Agreement: ---------------- [X] Is intended to be an Incentive Stock Option ("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. [ ] Is a non-qualified Option and is not intended to be an ISO. 18. Plan Provisions Incorporated by Reference. A copy of the Plan is ------------------------------------------- attached hereto as Exhibit "A" and incorporated herein by this reference. In the case of conflict between any provision in this Agreement and any provision in the Plan or a Shareholder Buy-Sell Agreement, if any, the terms of this Agreement shall prevail. In the case of conflict between any provision in the Plan and a provision in a Shareholders Buy-Sell Agreement, if any, the terms of the Plan shall prevail. 19. Term. Capitalized terms used herein, except as otherwise ---- indicated, shall have the same meaning as those terms have under the Plan. 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year written below. COMPANY: PHOTOLOFT.COM By: /S/ CHRISTOPHER MCCONN ------------------------------ Title:_____________________________ OPTIONEE: CHRISTOPHER MCCONN Address:___________________________ ___________________________________ 5 EX-10.24 30 PHOTOLOFT.COM STOCK OPTION AGREEMENT This Photoloft.com Stock Option Agreement (the "Agreement"), by and between Photoloft.com, a Nevada corporation (the "Company"), and JACK MARSHALL ("Optionee"), is made as of this 1ST DAY OF JULY, 1998. RECITALS 1. Pursuant to the Photoloft.com Stock Option Plan (the "Plan"), the Board of Directors of the Company (the "Board") has authorized the grant of an option to purchase common stock of the Company ("Common Stock") to Optionee, effective on the date indicated above, thereby allowing Optionee to acquire a proprietary interest in the Company in order that Optionee will have further incentive for continuing his or her employment by, and increasing his or her efforts on behalf of, the Company or an Affiliate of the Company. 2. The Company desires to issue a stock option to Optionee and Optionee desires to accept such stock option on the terms and conditions set forth below. NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: AGREEMENT 1. Option Grant. The Company hereby grants to the Optionee, as a ------------- separate incentive and not in lieu of any fees or other compensation for his or her services, an option to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ONE MILLION ONE HUNDRED THIRTY FIVE THOUSAND THIRTY TWO (1,135,032) shares of authorized but unissued shares of Common Stock, at the Purchase Price set forth in paragraph 2 of this Agreement. 2. Purchase Price. The Purchase Price per share (the "Option Price") --------------- shall be $0.48, which is not less than ONE HUNDRED TEN PERCENT (110%) of the fair market value per share of Common Stock on the date hereof. The Option Price shall be payable in the manner provided in paragraph 9 below. 3. Adjustment. The number and class of shares specified in paragraph 1 ---------- above, and the Option Price, are subject to appropriate adjustment in the event of certain changes in the capital structure of the Company such as stock splits, recapitalizations and other events which alter the per share value of Common Stock or the rights of holders thereof. In connection with (i) any merger, consolidation, acquisition, separation, or reorganization in which more than fifty percent (50%) of the shares of the Company outstanding immediately before such event are converted into cash or into another security, (ii) any dissolution or liquidation of the Company or any partial liquidation involving fifty percent (50%) or more of the assets of the Company, (iii) any sale of more than fifty percent (50%) of the Company's assets, or (iv) any like occurrence in which the Company is involved, the Company may, in its absolute discretion, do one or more of the following upon ten days' prior written notice to the Optionee: (a) accelerate any vesting schedule to which this option is subject; (b) cancel this option upon payment to the Optionee in cash, to the extent this option is then exercisable, of any amount which, in the absolute discretion of the Company, is determined to be equivalent to any excess of the market value (at the effective time of such event) of the consideration that the Optionee would have received if this option had been exercised before the effective time over the Option Price; (c) shorten the period during which this option is exercisable (provided that this option shall remain exercisable, to the extent otherwise exercisable, for at least ten days after the date the notice is given); or (d) arrange that new option rights be substituted for the option rights granted under this option, or that the Company's obligations under this option be assumed, by an employer corporation other than the Company or by a parent or subsidiary of such employer corporation. The actions described in this paragraph 3 may be taken without regard to any resulting tax consequence to the Optionee. 4. Option Exercise. Commencing on July 1, 1998 the right to exercise ---------------- this option will accrue in forty (48) equal monthly installments. Shares entitled to be, but not, purchased as of any accrual date may be purchased at any subsequent time, subject to paragraphs 5 and 6 below. The number of shares which may be purchased as of any such anniversary date will be rounded up to the nearest whole number. No partial exercise of the option may be for an aggregate exercise price of less than One Hundred Dollars ($100). In order to exercise any part of this option, Optionee must agree to be bound by the Company's Shareholder Buy-Sell Agreement, if any, existing at the time of the exercise of this Option. 5. Termination of Option. The right to exercise this option will lapse --------------------- on the ninth anniversary of the effective date of this Agreement. Notwithstanding any other provision of this Agreement, this option may not be exercised after, and will completely expire on, the close of business on the date ten (10) years after the effective date of this Agreement, unless terminated sooner pursuant to paragraph 6 below. 6. Termination of Employment. In the event of termination of --------------------------- Optionee's employment with the Company for any reason, this option will terminate three (3) months after the date of the termination of Optionee's employment, unless terminated earlier pursuant to paragraph 5 above. However, (i) if termination is due to the death of Optionee, the Optionee's estate or a legal representative thereof, may at any time within and including six (6) months after the date of death of Optionee, exercise the option to the extent it was exercisable at the date of termination; or (ii) if termination is due to Optionee's "disability" (as determined in accordance with Section 22(e)(3) of the Internal Revenue Code), Optionee may, at any time, within one (1) year following the date of this Agreement, exercise the option to the extent it was exercisable at the date of termination. If the Optionee or his or her legal representative fails to exercise the option within the time periods specified in this paragraph 6, the option shall expire. The Optionee or his or her legal representative may, on or before the close of business on the earlier of the date for exercise set forth in paragraph 5 or the dates specified in paragraph 4 above, exercise the option only to the extent Optionee could have exercised the option on the date of such termination of employment pursuant to paragraphs 4 and 5 above. 7. Repurchase Option of Company. Pursuant to Section 6.1.8 of the ------------------------------- Plan, in the event of termination of Optionee's employment with the Company for any reason, the Company shall have an option to repurchase ("Repurchase Option") any Common Stock owned by the Optionee or his or her heirs, legal representatives, successors or assigns at the time of termination, or acquired thereafter by any of them at any time, by way of an option granted hereunder. The Repurchase Option must be exercised, if at all, by the Company within ninety (90) days after the date of termination upon notice ("Repurchase Notice") to the Optionee or his or her heirs, legal representatives, successors or assigns, in conformance with paragraph 13 below. The purchase price to be paid for the shares subject to the Repurchase Option shall be the average trading price for the shares of common stock of the Company over a thirty (30) day period prior to the delivery of the Repurchase Notice. Any shares issued pursuant to an exercise of an option hereunder shall contain the following legend condition in addition to any other applicable legend condition: THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO REPURCHASE PROVISIONS IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY. 8. Transferability. This option will be exercisable during Optionee's --------------- lifetime only by Optionee. Except as otherwise set forth in the Plan, this option will be non-transferable. 9. Method of Exercise. Subject to paragraph 10 below, this option may ------------------- be exercised by the person then entitled to do so as to any shares which may then be purchased by delivering to the Company an exercise notice in the form attached hereto as Exhibit A and: ---------- 2 (a) full payment of the Option Price thereof (and the amount of any tax the Company is required by law to withhold by reason of such exercise) in the form of: (i) cash or readily available funds; or (ii) delivery of Optionee's promisory note (the "Note") substantially in the form attached hereto as Exhibit B in the amount of the --------- aggregate Option Price of the exercised shares together with the execution and delivery by the Optionee of the Security Agreement attached hereto as Exhibit C; --------- or (iii) a written request to Net Exercise, as defined in this paragraph 9(a)(iii). In lieu of exercising this Option via cash payment or promissory note, Optionee may elect to receive shares equal to the value of this Option (or portion thereof being canceled) by surrender of Options at the principal office of the Company together with notice of election to exercise by means of a Net Exercise in which event the Company shall issue to Optionee a number of shares of the Company computed using the following formula: X = Y (A-B) -------- A where X is the number of shares of stock to be issued to Optionee; Y is the number of shares purchasable under this Option; A is the fair market value of the stock determined in accordance with Section 6.1.12 of the Plan; and B is the Option Price as adjusted to the date of such calculation. (b) payment of any withholding or employment taxes, if any. The Company will issue a certificate representing the shares so purchased within a reasonable time after its receipt of such notice of exercise, payment of the Option Price and withholding or employment taxes, and execution of any other appropriate documentation, with appropriate certificate legends. 10. Securities Laws. The issuance of shares of Common Stock upon the ---------------- exercise of the option will be subject to compliance by the Company and the person exercising the option with all applicable requirements of federal and state securities and other laws relating thereto. No person may exercise the option at any time when, in the opinion of counsel to the Company, such exercise is permitted under applicable federal or state securities laws. Nothing herein will be construed to require the Company to register or qualify any securities under applicable federal or state securities laws, or take any action to secure an exemption from such registration and qualification for the issuance of any securities upon the exercise of this option. 11. No Rights as Shareholder. Neither Optionee nor any person claiming ------------------------ under or through Optionee will be, or have any of the rights or privileges of, a shareholder of the Company in respect of any of the shares issuable upon the exercise of the option, unless and until this option is properly and lawfully exercised. 12. No Right to Continued Employment. Nothing in this Agreement will ---------------------------------- be construed as granting Optionee any right to continued employment. EXCEPT AS THE COMPANY AND OPTIONEE WILL HAVE OTHERWISE AGREED IN WRITING, OPTIONEE'S EMPLOYMENT WILL BE TERMINABLE BY THE COMPANY, AT WILL, WITH OR WITHOUT CAUSE FOR ANY REASON OR NO REASON. Except as otherwise provided in the Plan, the Board in its sole discretion will determine whether any leave of absence or interruption in service (including an interruption during military service) will be deemed a termination of employment for the purpose of this Agreement. 13. Notices. Any notice to be given to the Company under the terms of ------- this Agreement will be addressed to the Company, in care of its Secretary, at its executive offices, or at such other address as the Company may hereafter designate in writing. Any notice to be given to Optionee will be in writing and delivered or mailed by registered or certified mail, return receipt requested, postage prepaid, addressed to Optionee at the address set forth beneath Optionee's signature in writing. Any such notice will be deemed to have been duly given where deposited in a United States post office in compliance with the foregoing. 3 14. Non-Transferrable. Except as otherwise provided in the Plan or in ----------------- this Agreement, the option herein granted and the rights and privileges conferred hereby will not be transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise). Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of this option, or of any right or upon any attempted sale under any execution, attachment or similar process upon the rights and privileges conferred hereby, this option will immediately become null and void. 15. Successor. Subject to the limitation on the transferability of the --------- option contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legal representatives, successors and assigns of the parties hereto. 16. California Law. This Agreement will be governed by and construed --------------- in accordance with the laws of the State of California. 17. Type of Option. The option granted in this Agreement: ---------------- [X] Is intended to be an Incentive Stock Option ("ISO") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. [ ] Is a non-qualified Option and is not intended to be an ISO. 18. Plan Provisions Incorporated by Reference. A copy of the Plan is ------------------------------------------- attached hereto as Exhibit "A" and incorporated herein by this reference. In the case of conflict between any provision in this Agreement and any provision in the Plan or a Shareholder Buy-Sell Agreement, if any, the terms of this Agreement shall prevail. In the case of conflict between any provision in the Plan and a provision in a Shareholders Buy-Sell Agreement, if any, the terms of the Plan shall prevail. 19. Term. Capitalized terms used herein, except as otherwise ---- indicated, shall have the same meaning as those terms have under the Plan. 4 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year written below. COMPANY: PHOTOLOFT.COM By: /s/ Jack Marshall ------------------------------ Title: President ------------------------------ OPTIONEE: Jack Marshall Address: 1668 Hyacirith Ln. ------------------------- San Jose, CA 95124 ------------------------- 5 EX-10.25 31 PhotoLoft.com, Inc. Co-Branded Marketing Agreement Thus Agreement is made March 8 1999 (the "Effective Date") between Picture Works a California corporation, having a place of business at __________, Danville, CA ("Partner"), and PhotoLoft.com, Inc., a California corporation having a place of business at 300 Orchard City Drive Suite#142, Campbell, California 95009 ("PhotoLoft.com"). 1.0 INTENT: PhotoLoft.com offers certain proprietary software and ------- services for creation, maintenance and storage of on-line digital photo albums via its PhotoLoft.com web site (the "Service"). PhotoLoft.com and Partner desire to provide the Service to Partner's customers through: 1.1 The creation of a Co-Branded PhotoLoft.com entrance page on PhotoLoft.com's server (having the URL address http://www.photoloft.com/Pictureworks ("Co-Branded PhotoLoft.com") to enable Partner's visitors and customers ("Visitors") to register to use services or view photo albums from PhotoLoft.com. 1.2 The creation of a link in Partners Software products and a link on Partner's web page that will promote and direct a customer to the Co-branded page. 2.0 LINK: PhotoLoft.com. will cooperate to promptly develop (a) a ----- specially co-branded PhotoLoft.com page using both PhotoLoft.com's and Partner's names and logos (the "Co-Branded Pages"); and (b) links from Partner's Site to the Co-Branded Pages (the "Links"). 3.0 USAGE: Partner's customers will be offered a one year free Premium ------ PhotoLoft account. 5.0 PROMOTION BY PHOTOLOFT.COM: Every image posted by Partner's customer ----------------------------- will be identified as a Partner's customer image. Every time that that image is viewed by any PhotoLoft viewer, the logo or link of the Partner will also be on display to the PhotoLoft viewer. Partners logo and link may not be displayed on any private label or customized site built or run specifically for a third party. 7.0 CO-PROMOTION: Partner will mention and reference the relationship ------------- with PhotoLoft.com in Partner's launch press release. PhotoLoft.com may put out a separate press release announcing the relationship between the two companies. Partner will cooperate with PhotoLoft in developing this release. 8.0 FURTHER CUSTOMIZATION: PhotoLoft.com has complete discretion on ----------------------- making any additional page modifications to the Co-Branded PhotoLoft.com after the initial design. 9.0 TRADEMARKS: ----------- PHOTOLOFT.COM MARKS: PhotoLoft.com hereby grants Partner a nonexclusive - --------------------- limited license to use, reproduce and display the PhotoLoft.com trademarks and - ---- logos designated by PhotoLoft.com on Partner's Web Site during the term of this Agreement in accordance with any guidelines that PhotoLoft.com may provide to Partner from time to time. PhotoLoft.com will supply Partner with electronic versions of the PhotoLoft.com trademarks and logos for Partner's use. All representations of the PhotoLoft.com trademarks and logos that Partner uses will be exact copies of those provided by PhotoLoft.com, or shall First be submitted to PhotoLoft.com for approval. PARTNER MARKS: Partner hereby grants PhotoLoft.com a nonexclusive limited - --------------- license to use, reproduce and display Partner's trademarks and logos designated by Partner on the Co-Branded Pages during the term of this Agreement in accordance with any guidelines that Partner may provide to PhotoLoft.com from time to time. Partner will supply PhotoLoft.com with electronic versions of the Partner trademarks and logos for PhotoLoft.com's use. All representations of the Partner's trademarks and logos that PhotoLoft.com intends to use will be exact copies of those Initials of PhotoLoft.com Initials of Partner provided by Partner, or shall first be submitted to Partner for approval. 10.0 PROPRIETARY RIGHTS: Except as expressly provided herein, each party ------------------- shall own all right, title and interest in its respective web site and all portions thereof, including without limitation all intellectual property rights therein. Except as specifically and clearly set forth in this Agreement, neither party shall be granted any right or license to any of the other party's property, including intellectual property in its respective software, web site or any portions thereof 11.0 TERM: This Agreement shall become effective on the Effective Date ----- and shall remain in effect for a one (1) year term which shall renew automatically for successive one-year terms, unless terminated by written notice by either party @ (30) days prior to the end of any one-year term. In the event of a breach, the non-breaching party may serve written notice of breach on the breaching party. If such breach is not cured within fourteen (14) days, the non-breaching party may immediately terminate this Agreement. 12.0 ASSIGNMENT: This Agreement and any rights under this Agreement may ---------- be transferred, assigned or delegated by either party without the prior written consent of the other party. 13.0 INDEPENDENT CONTRACTOR: With respect to all matters relating to ------------------------ this Agreement each party is deemed to be an independent contractor. Neither party shall represent itself as an employee, servant, agent or legal representative of the other party for any purposes whatsoever. 14.0 GOVERNING LAW/DISPUTE RESOLUTION: The parties intend this Agreement to -------------------------------- be construed in accordance with the laws of the State of California. Partner and PhotoLoft.com agree that they will attempt to settle any claim or controversy arising out of this Agreement through consultation and negotiation in the spirit of mutual friendship and cooperation. Any dispute which the parties cannot resolve between themselves in good faith within six (6) months of the date of the initial demand by either party for such resolution will be submitted for final determination by one (1) mutually agreed arbitrator within the State of California. 15.0 Limitation of Liability: Neither party shall be liable to the other ------------------------- for any lost profit or other commercial damage, including, without limitation, indirect, special, consequential, incidental or punitive damages of any nature arising out of this Agreement. 16.0 ENTIRE AGREEMENT: This Agreement contains the entire agreement of the ------------------ parties and supersedes all previous understandings and agreements between the parties relating to the subject matter hereof. 17.0 NOTICES: Any notice or request required to be given under or in -------- connection with this Agreement shall be in writing and given by facsimile or postpaid registered or certified mail return receipt requested. The date of receipt shall be deemed die date on which such notice or request has been given. Until such time as written notice of a change of address is given by either party to the other, any such notice or request shall be deemed sufficiently addressed when directed to the addresses of the parties set out in the first paragraph of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agree Effective Date: BY: Name: Jack Marshall Name: -------------- Date: 3/22/99 Date: Title: President Title: PhotoLoft.com, Inc. Initials of PhotoLoft.com Initials of Partner EX-10.26 32 PHOTOLOFT.COM, INC. CO-BRANDED MARKETING AGREEMENT This Agreement is made this March 11,1999 (the "Effective Date") between Umax ------------- Technologies, Inc., a California corporation, having a place of business at 3361 Gateway Blvd., Fremont, CA 94538 ("Partner"), and PhotoLoft.com, Inc., a California corporation having a place of business at 300 Orchard City Drive Suite#142, Campbell, California 95008 ("PhotoLoft.com"). 1.0 INTENT: PhotoLoft.com offers certain proprietary software and services ------- for creation, maintenance and storage of on-line digital photo albums via its PhotoLoft.com web site (the "Service"). PhotoLoft.com and Partner desire to provide the Service to Partner's customers through the creation of a Co-Branded PhotoLoft.com site on PhotoLoft.com's server (having the URL address http://www.photoloft.com/UMAX ("Co-Branded PhotoLoft.com") to enable Partner's visitors and customers ("Visitors") to register to use services or view photo albums from PhotoLoft.com. 2.0 LINK: PhotoLoft.com. will cooperate to promptly develop (a) a specially ----- co-branded PhotoLoft.com page using both PhotoLoft.com's and Partner's names and logos (the "Co-Branded Pages"); and (b) links from Partner's Site to the Co-Branded Pages (the "Links"). During the term of this agreement, the Partner will maintain the links on the Partners home page/front page (http://www.umax.com), toolbar/menu bar, and other appropriate locations to be agreed upon by PhotoLoft.com and Partner. 3.0 CLIENT SOFTWARE: Partner agrees to ship the PhotoLoft Client software ----------------- with each copy of the product. The PhotoLoft Client software will direct customers to the Co-Branded Page, and contain the Partner Logo. 4.0 USAGE: Partner's customers will be offered a one year free Premium ----- PhotoLoft account. Partner's customers will be identified by the serial number associated with the hardware. 5.0 PROMOTION BY PHOTOLOFT.COM: Every image posted by PhotoLoft's customer ---------------------------- will be identified as a Partner's customer. Every time that that image is viewed by any PhotoLoft viewer, the logo of the Partner will also be on display to the PhotoLoft viewer. 6.0 PROMOTION BY PARTNER: Partner will (a) provide a sticker or logo on -------------------- the hardware box identifying Partner as a PhotoLoft partner, and (b) provide in box documentation promoting the Premium Account special offer. 7.0 CO-PROMOTION: Upon completion of the Co-Branded pages and associated ------------ links, PhotoLoft.com and Partner will issue a joint press release. In addition, Partner will notify installed base of the availability of PhotoLoft.com via e-mail. 8.0 FURTHER CUSTOMIZATION: PhotoLoft.com will be entitled to make changes ---------------------- to the co-branded entrance page to assure the same look and feel with the rest of the site. Umax shall approve these changes within 10 days of notification by PhotoLoft. Umax shall not unreasonably withhold approval of these changes. 9.0 TRADEMARKS: ---------- PHOTOLOFT.COM MARKS: PhotoLoft.com hereby grants Partner a nonexclusive --------------------- limited license to use, reproduce and display the PhotoLoft.com trademarks and logos designated by PhotoLoft.com on Partner's Web Site and in Partner's promotional material and documentation during the term of this Agreement in accordance with any guidelines that PhotoLoft.com may provide to Partner from time to time. PhotoLoft.com will supply Partner with electronic versions of the PhotoLoft.com trademarks and logos for Partner's use. All representations of the PhotoLoft.com trademarks and logos that Partner uses will be exact copies of those provided by PhotoLoft.com, or shall first be submitted to PhotoLoft.com for approval. 1 PARTNER MARKS: Partner hereby grants PhotoLoft.com a nonexclusive limited --------------- license to use, reproduce and display Partner's trademarks and logos designated by Partner on the Co-Branded Pages during the term of this Agreement in accordance with any guidelines that Partner may provide to PhotoLoft.com from time to time. Partner will supply PhotoLoft.com with electronic versions of the Partner trademarks and logos for PhotoLoft.com's use. All representations of the Partner's trademarks and logos that PhotoLoft.com intends to use will be exact copies of those provided by Partner, or shall first be submitted to Partner for approval. 10.0 PROPRIETARY RIGHTS: Except as expressly provided herein, each party ------------------- shall own all right, title and interest in its respective web site and all portions thereof, including without limitation all intellectual property rights therein. Except as specifically and clearly set forth in this Agreement, neither party shall be granted any right or license to any of the other party's property, including intellectual property in its respective software, web site or any portions thereof 11.0 TERM: This Agreement shall become effective on the Effective Date and ----- shall remain in effect for a one (1) year term which shall renew automatically for successive one-year terms, unless terminated by written notice by either party thirty (30) days prior to the- end of any one-year term. In the event of a breach, the non-breaching party may serve written notice of breach on the breaching party. If such breach is not cured within fourteen (14) days, the non-breaching party may immediately terminate this Agreement. 12.0 NON ASSIGNMENT: Neither this Agreement nor any rights under this --------------- Agreement may be transferred, assigned or delegated by either party without the prior written consent of the other party. 13.0 INDEPENDENT CONTRACTOR: With respect to all matters relating to this ------------------------ Agreement, each party is deemed to be an independent contractor. Neither party shall represent itself as an employee, servant, agent or legal representative of the other party for any purposes whatsoever. 14.0 GOVERNING LAW/DISPUTE RESOLUTION: The parties intend this Agreement to -------------------------------- be construed in accordance with the laws of the State of California. Partner and PhotoLoft.com agree that they will attempt to settle any claim or controversy arising out of this Agreement through consultation and negotiation in the spirit of mutual friendship and cooperation. Any dispute which the parties cannot resolve between themselves in good faith within six (6) months of the date of the initial demand by either party for such resolution will be submitted for FINAL determination by one (1) mutually agreed arbitrator within the State of California. 15.0 LIMITATION OF LIABILITY: NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ----------------------- ANY LOST PROFIT OR OTHER COMMERCIAL DAMAGE, INCLUDING, WITHOUT LIMITATION, INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES OF ANY NATURE ARISING OUT OF THIS AGREEMENT. 16.0 ENTIRE AGREEMENT: This Agreement contains the entire agreement of the ----------------- parties and supersedes all previous understandings and agreements between the parties relating to the subject matter hereof. 17.0 NOTICES: Any notice or request required to be given under or in -------- connection with this Agreement shall be in writing and given by facsimile or postpaid registered or certified mail return receipt requested. The date of receipt shall be deemed the date on which such notice or request has been given. Until such time as written notice of a change of address is given by either party to the other, any such notice or request shall be deemed sufficiently addressed when directed to the addresses of the parties set out in the first paragraph of this Agreement. 2 IN WITNESS WHEREOF, the parties hereto have executed this Agreement in as of the Effective Date: By: s. Jack Marshall By: s. John ------------------ -------------------------- Date: 3/12/99 Date: 3/11/99 Title: President Title: Senior Director Mktg. PhotoLoft.com, Inc. 3 EX-10.27 33 INTERNET SERVICES AND CO-LOCATION AGREEMENT PLEASE READ THIS INTERNET SERVICES AND CO-LOCATION AGREEMENT (THIS "AGREEMENT") CAREFULLY BEFORE SIGNING, SINCE BY SIGNING THIS AGREEMENT, YOU CONSENT TO ALL OF ITS TERMS AND CONDITIONS. This Agreement is made by and between AboveNet Communications, Inc. ('AboveNet') and Customer. This Agreement is effective upon AboveNet's acceptance as indicated by its signature below on the date below (the 'Effective Date'). This Agreement may be executed in two or more counterparts, each of which will ad an original, but all of which together shall constitute one and the same instrument.
Customer Signature: /S/ Chris McConn Customer ID# - -------------------------------------- (print name): Chris McConn Contract No. C - -------------------------------------- Title : V.P. Effective Date: - -------------------------------------- Date: 3/15/99 AboveNet Signature - -------------------------------------- Company Name: PhotoLoft.com (print name) - -------------------------------------- Address:300 Orchard City Dr. Suite 142 - -------------------------------------- Campbell, CA 95008 - -------------------------------------- Phone: 408-364-8777 - -------------------------------------- Fax: 408-364-8778 - --------------------------------------
Thank you for choosing AboveNet to provide your Internet co-location services. As used in this Agreement, the term 'you' and "Customer" refers to the above-named corporation, partnership or other business entity that enters into this Agreement, and "Service" means the transmission of data to and from the Internet through the network of routers, switches and communication channels owned and controlled by AboveNet ('Network') together with co-location services including 24x7 connectivity to the Internet and Co-location Space, as further defined in this Agreement and in your Order for AboveNet Services Form (the 'Order Form'). The initial Order Form is attached to this Agreement as Exhibit A. AboveNet and Customer may enter into subsequent Order Forms, which may supercede or complement prior Order Forms. As used in this Agreement, the term "Customer Equipment' refers to any and all computer equipment, software, networking hardware or other materials placed by or for Customer in the Co-location Space, other than AboveNet Equipment. AboveNet will begin installation, initiation and Service after it receives and accepts: (1) your Order Form: (2) a copy of this Agreement signed by your authorized representative and (3) payment of amounts due under Section 1.1 below, detailed on your Order Form. 1. SERVICE FEES AND BILLING. Customer agrees to pay the Service Activation Charges, Monthly Service Fees, and other fees indicated on the Order Form (collectively, "Service Fees'). 1.1 ACTIVATION CHARGES. AboveNet will bill Customer for all Service Activation Charges and first and last month Service Fees (the "Activation Charges") upon AboveNet's acceptance of this Agreement and the Order Form. AboveNet will not commence installation, initiation and Service unless and until it either has received payment in full of all Activation Charges or has agreed, at its sole option, to extend credit to Customer. 1.2 RECURRING FEES. AboveNet will begin billing for recurring Service Fees on the date that is the earlier of: (a) the Installation Date specified in the Order Form ' and (b) the date that Customer places Customer Equipment in AboveNet's premises. If, however, Customer is unable to use the Services commencing on the Installation Date solely as a result of delays caused by AboveNet, then the Installation Date specified in the Order Form shall be extended one day for each day of delay caused by AboveNet. On or about the first day of each month, AboveNet will bill Customer for Network services provided during the previous month, and for co-location services to be provided in the current month. Recurring Service Fees do not include monthly telephone company charges which are billed separately by the local telephone company(s). Rev. 2 4 1 Page I of 8 ABOVENET COMMUNICATIONS, INC. CONFIDENTIAL 1.3 PAYMENT. All Fees and charges will be due, in U.S. dollars, within twenty (20) days of the date of each AboveNet invoice. Late payments will accrue interest at a rate of one and one-half percent (1 1/2%) per month, or the highest rate allowed by applicable law, whichever is lower, If in its judgment AboveNet determines that Customer lacks financial resources, AboveNet may, upon written notice to Customer, modify the payment terms to secure Customer's payment obligations before providing Services. 1.4 TAXES. All payments required by this Agreement are exclusive of applicable taxes and shipping charges. Customer will be liable for and will pay in full all such amounts, other than taxes based on AboveNet net income. 2. CO-LOCATION. 2.1 INSTALLATION. AboveNet grants you the right to operate Customer Equipment at the Co-location Space, as specified on your Order Form. The Co-location Space is provided on an 'AS-IS' basis and you may use the Co-location Space only for the purposes of maintaining and operating Customer Equipment as necessary to support local access communications facilities and links to AboveNet and to third parties. Customer will install Customer Equipment in the Co-location Space after obtaining the appropriate authorization from AboveNet to access AboveNet premises. Customer will remove and be solely responsible for all packaging for Customer Equipment. 2.2 ACCESS. You may access the Co-location Space only in accordance with the AboveNet Co-Location Access Policies located at http://www.above.net/html/security.html, as updated from time to time. Customer - ---------------------------------------- may not provide or make available to any third party any portion of the Co-location Space without AboveNet's prior written consent, which consent AboveNet may withhold in its sole discretion. 2.3 REMOVAL OF CUSTOMER EQUIPMENT. Customer will provide AboveNet with written notification two (2) days before Customer wishes to remove any Customer Equipment. Before authorizing the removal of any Customer Equipment, AboveNet's accounting department will verify that Customer has no payments due to AboveNet. Once AboveNet authorizes removal of Customer Equipment, Customer will remove such Customer Equipment, and will be solely responsible to bring appropriate packaging and moving materials. Should Customer use an agent or other third party (for example, but without limitation, a common carrier such as U.P.S.) to remove Customer Equipment, Customer will be solely responsible for the acts of such party, and any damages caused by such party to Customer Equipment or otherwise. At Customer's option, AboveNet will remove and package Customer Equipment, and place such Customer Equipment in a designated area for pick-up, on the condition that Customer either provides all packaging needed or pays AboveNet to package Customer Equipment. Customer may thereafter remove Customer Equipment from the designated area, or may arrange for a carrier to remove and ship such equipment with any necessary insurance to be paid by Customer. 3. SECURITY. AboveNet does not guarantee security of Customer Equipment, the Co-Location Space or of the Network. AboveNet requires that you and your employees comply with all Co-Location Security Procedures, as modified from time to time, in order to maximize the security of the Network and AboveNet premises. AboveNet's current Go-Location Security Procedures are located at http://www.above.net In particular, you must establish a password with AboveNet - -------------------- for purposes of requesting any support services with respect to Customer Equipment or your Network connection, either by telephone or email, Information detailing password requirements is available on the World Wide Web at http://www.above.net/html/aug.html. Only individuals whom you have identified - ---------------------------------- as 'Customer Representatives" in writing to AboveNet will be permitted to enter the Co-location Space, to request Services on your behalf, or to request any support services with respect to Customer Equipment or your Network connection, either by telephone or email (for example, but without limitation, instructing AboveNet to modify or reconfigure its Services or to remove Customer Equipment). For good cause, AboveNet may suspend the right of any Customer Representative or other person to visit the AboveNet premises and/or the Co-location Space. AboveNet will assist in Network security breach detection or identification, but shall not be liable for any inability, failure or mistake in doing so. 4. LOCAL AND LONG DISTANCE CARRIERS. AboveNet will provide Customer with a list of approved third party carriers for data communications and telecommunications. Customer is responsible for ordering all local and long-distance lines from such third party carriers and ordering any and all necessary cross-connects from AboveNet. AboveNet Service Fees for such cross-connects are as indicated on the Order Form, The carriers will install such circuits in Customer's name. Customer will be solely responsible for such circuits and for all payments due to the carriers. Customer will notify the carrier directly when Customer wishes to terminate or modify such circuit, 5. DOMAIN INFORMATION AND REGISTRATION APPLICATION, If Customer has not registered the domain name that it wishes to use, Customer may complete the applicable sections of the Order Form to request registration or a change in domain name. Rev. 2.4 1 Page 2 of 8 ABOVENET COMMUNICATIONS, INC. CONFIDENTIAL 6. OTHER NETWORKS; APPROVAL AND USAGE, Services include the ability to transmit data beyond AboveNet's Network, through other networks, public and private, Use of or presence on other networks may require approval of the respective network authorities and will be subject to any acceptable usage policies such networks may establish. Customer will not hold AboveNet responsible for, and AboveNet will not be liable for, such approval or for violation of such policies. Customer understands that AboveNet does not own or control other networks outside of its Network, and AboveNet is not responsible or liable for performance (or non-performance) within such networks or within interconnection points between the Service and other networks that are operated by third parties. 7. RESALE. Customer may resell the Service after receiving AboveNet's prior written approval as to the nature and scope of such resale as set forth in Section 2.2. Should Customer resell any portion of the Service to any other party, Customer assumes a[( liabilities arising out of or related to such third party sites and communications, Customer agrees to enter into written agreements with any and all parties to which it resells any portion of the Services with terms and conditions at least as restrictive and as protective of AboveNet's rights as the terms and conditions of this Agreement, including, without limitation, Sections 2.3, 3, 6, 8, 9.6-9.8. 10, 11, 12, 14 and 16, and naming AboveNet as a third party beneficiary 8. ACCEPTABLE USE GUIDELINES. Customer must at all times conform its use of the Service to AboveNet's Acceptable Use Guidelines and Anti-SPAM Policy, as AboveNet may update such Guidelines and Policy from time to time, The current version of AboveNet's Acceptable Use Guidelines can be found at http://www.above.net/html/aug.html. AboveNet's Anti-SPAM Policy is located at - ---------------------------------- http://www.above.net/html/anti-spam.html. If AboveNet is informed by government - ---------------------------------------- authorities or other parties of inappropriate or illegal use of AboveNet's facilities (including but not limited to the Network) or other networks accessed through AboveNet, or AboveNet otherwise learns of such use or has reason to believe such use may be occurring, then Customer will cooperate in any resulting investigation by AboveNet or government authorities. Any government determinations will be binding on Customer. If Customer fails to cooperate with any such investigation or determination, or fails to immediately rectify any illegal use, AboveNet may immediately suspend Customer's Service. Further, upon notice to Customer, AboveNet may modify or suspend Customer's Service as necessary to comply with any law or regulation as reasonably determined by AboveNet. This includes, without limitation, any use contrary to the Digital Millennium Copyright Act of 1998, 17 U.S.C. 512. 9. LIMITED SERVICE LEVEL WARRANTY. AboveNet warrants that it will use its commercially reasonable efforts to minimize Excess Packet Loss and Latency, and to avoid Downtime, and that AboveNet will provide the following remedies to Customer: (Excess Packet Loss, Latency and Downtime are defined below) 9.1 PACKET LOSS AND LATENCY. AboveNet does not proactively monitor the packet loss or transmission latency of specific customers. AboveNet does, however, proactively monitor the aggregate packet loss and transmission latency within its LAN and WAN. In the event that AboveNet discovers (either from its own efforts or after being notified by Customer) that Customer is experiencing packet loss in excess of five percent (5%) ("Excess Packet Loss") or transmission latency in excess of 120 milliseconds round-trip time based on AboveNet's measurements ("Latency') between any two routers within the continental United States portion of the Network on average for each hour, and Customer notifies AboveNet (or AboveNet has notified Customer), then AboveNet will use its commercially reasonable actions to determine the source of the Excess Packet Loss or Latency and correct the problem. 9.2 Remedy FOR Failure. If either Excess Packet Loss or Latency occurs and it stems from a source within the Network and not from the Customer or beyond the Network, and if AboveNet fails to correct the Excess Packet Loss or Latency after using its commercially reasonable efforts for a period of twenty four (24) hours after the onset of such Excess Packet Loss or Latency, then AboveNet will credit Customer's account the pro-rata Bandwidth Fees (as set forth in the applicable Order Form) for the continuous duration of such Excess Packet Loss or Latency; provided that all such credits will not exceed an aggregate maximum credit of Bandwidth Fees otherwise due from Customer for one (1) calendar month for failures in any one (1) calendar month. 9.3 INABILITY TO ACCESS THE INTERNET (DOWNTIME). AboveNet will use its commercially reasonable efforts to avoid Downtime for 99.9% of the hours as an average calculated over each calendar year. If Customer is unable to transmit and receive information from the Network to other portions of the Internet because AboveNet failed to provide Network access Services ("Downtime") for more than four (4) continuous hours, then AboveNet will credit Customer's account the pro-rata Bandwidth Fees (as set forth in the applicable Order Form) for the continuous duration of such Excess Packet Loss or Latency; provided that all such credits will not exceed an aggregate maximum credit of Bandwidth Fees otherwise due from Customer for one (1) calendar month for failures in any one (1) calendar month. For purposes of the foregoing, "unable to transmit and receive" shall mean sustained packet loss in excess of fifty percent (50%) based on AboveNet' measurements. 9.4 YEAR 200O. AboveNet hereby incorporates its Year 2000 Compliance Disclosure found at http://www.above.netlhtml/y2k.html into this Agreement. If ---------------------------------- Customer experiences any Excess Packet Loss, Rev. 2.4 1 Page 3 of 8 ABOVENET COMMUNICATIONS, INC. CONFIDENTTAL Latency or Downtime due to AboveNet's failure to be Year 2000 compliant (as defined in the Year 2000 Compliance Disclosure), Customer will have the remedies set forth in this Section 9, and the limitations set forth in this Section 9, Section 11 and the Year 2000 Compliance Disclosure. The Year 2000 Compliance Disclosure, as incorporated into this Agreement, is provided as a 'Year 2000 Readiness Disclosure" as defined in the Year 2000 Information and Readiness Disclosure Act of 1998 (Public Law 105-271, 112 Stat. 2386) enacted on October 19, 1998. 9.5 CUSTOMER MUST REQUEST CREDIT. Customer must notify AboveNet within three (3) business days from the time Customer becomes eligible to receive a credit under this Section 9 to receive such credit. Failure to comply with this requirement will forfeit Customer's right to receive a credit. 9.6 LIMITATION ON REMEDIES. IF CUSTOMER IS ENTITLED TO MULTIPLE CREDITS UNDER THIS SECTION 9, SUCH CREDITS SHALL NOT BE CUMULATIVE BEYOND A TOTAL OF CREDITS FOR ONE (1) CALENDAR MONTH OF BANDWIDTH FEES IN ANY ONE (1) CALENDAR MONTH IN ANY EVENT. ABOVENET WILL NOT APPLY A CREDIT UNDER SECTION 9.2 FOR ANY EXCESS PACKET LOSS OR LATENCY FOR WHICH CUSTOMER RECEIVED A CREDIT UNDER SECTION 9.3. ABOVENET WILL ONLY APPLY A CREDIT TO THE MONTH IN WHICH THE INCIDENT OCCURRED. FURTHER, ABOVENET WILL NOT APPLY A CREDIT FOR ANY PERIOD IN WHICH CUSTOMER RECEIVED ANY BANDWIDTH SERVICES FREE OF CHARGE. SECTIONS 9.2 AND 9.3 ABOVE STATE CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY FAILURE BY ABOVENET TO PROVIDE SERVICES OR ADEQUATE SERVICE LEVELS, INCLUDING BUT NOT LIMITED TO ANY OUTAGES OR NETWORK CONGESTION. ABOVENET'S BLOCKING OF DATA COMMUNICATIONS IN CONTRAVENTION OF ITS ANTI-SPAM POLICY OR ACCEPTABLE USE GUIDELINES SHALL NOT BE DEEMED TO BE A FAILURE OF ABOVENET TO PROVIDE ADEQUATE SERVICE LEVELS UNDER THIS AGREEMENT. 9.7 NO OTHER WARRANTY. EXCEPT FOR THE EXPRESS WARRANTY SET OUT IN THIS SECTION 9 ABOVE, THE SERVICES ARE PROVIDED ON AN "AS IS" BASIS, AND CUSTOMERS USE OF THE SERVICES IS AT ITS OWN RISK. ABOVENET DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT AND TITLE, AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE. ABOVENET DOES NOT WARRANT THAT THE SERVICES WILL BE UNINTERRUPTED, ERROR-FREE, OR COMPLETELY SECURE. 9.8 DISCLAIMER OF THIRD PARTY ACTIONS AND CONTROL. AboveNet does not and cannot control the flow of data to or from the Network and other portions of the Internet, Such flow depends in large part on the performance of Internet services provided or controlled by third parties. At times, actions or inactions caused by these third parties can produce situations in which AboveNet customers' connections to the Internet (or portions thereof) may be impaired or disrupted. Although AboveNet will use commercially reasonable efforts to take actions it deems appropriate to remedy and avoid such events, AboveNet cannot guarantee that they will not occur. Accordingly, AboveNet disclaims any and all liability resulting from or related to such events, 10. INSURANCE. Customer will keep in full force and effect during the term of this Agreement: (i) business loss and interruption insurance in an amount not less than that necessary to compensate Customer and its customers for complete failure of Service ' (ii) comprehensive general liability insurance in an amount not less than one (1) million dollars per occurrence for bodily injury and property damage, (ii) employer's liability insurance in an amount not less than one (1) million dollars per occurrence; and (iii) workers' compensation insurance in an amount not less than that required by applicable law. Customer also agrees that it will be solely responsible for ensuring that its agents (including contractors and subcontractors) maintain other insurance at levels no less than those required by applicable law and customary in Customer's and its agents' industries, Prior to installation of any Customer Equipment in the Co-location Space or otherwise as AboveNet may request, Customer will furnish AboveNet with certificates of insurance which evidence the minimum levels of insurance set forth above. Customer agrees that prior to the installation of any Customer Equipment at AboveNet premises or the Co-location Space, Customer will cause its insurance provider(s) to name both AboveNet and the AboveNet landlord indicated on the applicable Order Form as additional insured and notify AboveNet in writing of the effective date of such coverage. Customer agrees that Customer and its agents and representatives shall not pursue any claims against AboveNet for any liability AboveNet may have under or relating to this Agreement unless and until Customer or Customer's employee, as applicable, first makes claims against Customer's insurance provider(s) and such insurance provider(s) finally resolve(s) such claims. Any inability by Customer to furnish the proof the insurance required under this Section 10 or failure to obtain such insurance shall be a material breach of this Section 10 and of this Agreement. 11. LIMITATIONS OF LIABILITY. 11.1 PERSONAL INJURY. Each Customer Representative and any other persons visiting AboveNet facilities does so at his or her own risk and AboveNet shall not be liable for any harm to such persons resulting from any cause Rev. 2.4 1 Page 4 of 8 ABOVENET COMMUNICATIONS, INC CONFIDENTIAL other than AboveNet's gross negligence or willful misconduct resulting in personal injury to such persons during such a visit. 11.2 Damage to Customer Business. Except as expressly set forth in Section 9 including the limited remedy and other limitations set forth under Section 9, in no event will AboveNet be liable to Customer, any Customer Representative, or any third party for any claims arising out of or related to Customer's business, Customer's customers or clients, Customer Representative's activities at AboveNet or otherwise, or for any lost revenue, lost profits, replacement goods, loss of technology, rights or services, incidental, punitive, indirect or consequential damages, loss of data, or interruption or loss of use of Service or of any Customer's business, even if advised of the possibility of such damages, whether under theory of contract, tort (including negligence), strict liability or otherwise. 11.3 Damage to Customer Equipment. AboveNet assumes no liability for any damage to, or loss of, any Customer Equipment resulting from any cause other than AboveNet's gross negligence or willful misconduct. To the extent AboveNet is liable for any damage to, or loss of, the Customer Equipment for any reason, such liability will be limited solely to the then-current value of the Customer Equipment and further subject to the limitations set forth in this Section 11.3 and in Section 11.4 below. In no event will AboveNet be liable to Customer, any Customer Representative, or any third party for any claims arising out of or related to Customer Equipment for any lost revenue, lost profits, replacement goods, loss of technology, rights or services, incidental, punitive, indirect or consequential damages, loss of data, or interruption or loss of use of any Customer Equipment, even if advised of the possibility of such damages, whether under theory of contract, tort (including negligence), strict liability or otherwise. 11.4 Maximum Liability. Notwithstanding anything to the contrary in this Agreement, AboveNet's maximum aggregate liability to Customer related to or in connection with this Agreement will be limited to the total amount paid by Customer to AboveNet hereunder for the Twelve (12) month period prior to the event or events giving rise to such liability 12. DEFENSE OF THIRD PARTY CLAIMS AND INDEMNIFICATION. 12.1 DEFENSE. Customer will defend AboveNet, its directors, officers, employees, affiliates and customers (collectively, the 'Covered Entities') from and against any and all claims, actions or demands brought by or against AboveNet and/or any of the Covered Entities alleging: (a) with respect to the Customer's business (i) infringement or misappropriation of any intellectual property rights: (ii) defamation, libel, slander, obscenity, pornography, or violation of the rights of privacy or publicity; or (iii) spamming, or any other offensive, harassing or illegal conduct or violation of the Acceptable Use Guidelines or Anti-Spam Policy. (b) any damage or destruction to the Co-location Space, the Network, AboveNet premises, AboveNet Equipment or to any other AboveNet customer which damage is caused by or otherwise results from acts or omissions by Customer, Customer Representative(s) or Customer's designees; (c) any personal injury or property damage to any Customer employee, Customer Representative or other Customer designee arising out of such individual's activities related to the Services, unless such injury or property damage is caused solely by AboveNet's gross negligence or willful misconduct; or (d) any other damage arising from the Customer Equipment or Customer's business (collectively, the 'Covered Claims'). 12.2 INDEMNIFICATION. Customer hereby agrees to indemnify AboveNet and each Covered Entity from and against all damages, costs, and fees awarded in favor of third parties in each Covered Claim, and Customer will indemnify and hold harmless AboveNet and each Covered Entity from and against any and all claims, demands, liabilities, losses, damages, expenses and costs (including reasonable attorneys fees) (collectively, "Losses") suffered by AboveNet and each Covered Entity which Losses result from or arise out of a Covered Claim. 12.3 NOTIFICATION. Customer will provide AboveNet with prompt written notice of each Covered Claim of which Customer becomes aware, and, at AboveNet's sole option, AboveNet may elect to participate in the defense and settlement of any Covered Claim, provided that such participation shall not relieve Customer of any of its obligations under this Section 12. 13. RELIANCE ON DISCLAIMER, LIABILITY LIMITATIONS AND INDEMNIFICATION OBLIGATIONS. Customer acknowledges that AboveNet has set its prices and entered into this Agreement in reliance upon the limitations and exclusions of liability, the disclaimers of warranties and damages and Customer's indemnity obligations set forth herein, and that the same form an essential basis of the bargain between the parties. The parties agree that the limitations and exclusions of liability and disclaimers specified in this Agreement will survive and apply even if this Agreement is found to have failed of their essential purpose. Rev. 2.4.1 Page 5 of 8 ABOVENET COMMUNICATIONS, INC. CONFIDENTIAL 14. CONFIDENTIAL INFORMATION. Each party acknowledges that it will have access to certain confidential information of the other party concerning the other party's business, plans, customers, technology, and products, including the terms and conditions of this Agreement ('Confidential Information'). Confidential Information will include, but not be limited to, each party's proprietary software and customer information. Each party agrees that it will not use in any way, for its own account or the account of any third party, except as expressly permitted by this Agreement, nor disclose to any third party (except as required by law or to that party's attorneys, accountants and other advisors as reasonably necessary), any of the other party's Confidential Information and will take reasonable precautions to protect the confidentiality of such information. Information will not be deemed Confidential Information hereunder if such information: (I) is known to the receiving party prior to receipt from the disclosing party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (ii) becomes known (independently of disclosure by the disclosing party) to the receiving party directly or indirectly from a source other than one having an obligation of confidentiality to the disclosing party; (iii) becomes publicly known or otherwise ceases to be secret or confidential, except through a breach of this Agreement by the receiving party. (iv) is independently developed by the receiving party; or (v) is required to be released by law or regulation, provided that the receiving party provide prompt written notice to the disclosing party of such impending release, and the releasing party cooperate fully with the disclosing party to minimize such release. 15. TERM. This Agreement will be effective beginning on the Effective Date and ending at the end of the last 'Term' specified in any Order Form accepted by AboveNet, unless terminated as provided in Section 16 below. Use of any Service after the Term specified on the Order Form under which such Service was provided will constitute Customer's acceptance of AboveNet's then current standard Agreement and the fee rates then in effect, but be terminable by AboveNet upon notice. 16. TERMINATION. 16.L FOR NONPAYMENT. After fifteen (15) days of non-payment from the due date, or such longer period as AboveNet's Billing Terms & Conditions may provide, AboveNet may disable Service. To re-enable Service, AboveNet will require a reconnection fee. After thirty (30) days of nonpayment from the AboveNet invoice due date, or such longer period as AboveNet's Billing Terms & Conditions may provide, AboveNet may terminate the Service permanently. Termination does not remove Customer's obligations under this Agreement, including the obligation to pay all fees for Service until termination or due for a committed, initial Term. 16.2 UNACCEPTABLE USE; BANKRUPTCY. AboveNet may terminate this Agreement upon written notice to Customer for violation of the Acceptable Use Guidelines or Anti-Spam Policy or if Customer becomes the subject of a voluntary petition in bankruptcy or any voluntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors or becomes the subject of an involuntary petition in bankruptcy or any involuntary proceeding relating to insolvency, receivership, liquidation, or composition for the benefit of creditors, if such petition or proceeding is not dismissed within sixty (60) days of filing. 16.3 FOR CAUSE. Either party may terminate this Agreement if the other party materially breaches any term or condition of this Agreement and fails to cure such breach within thirty (30) days after receipt of written notice of the same, except in the case of failure to pay fees which failure is subject to Section 16.1 above or for failure to comply with AboveNet's Acceptable Use Guidelines or Anti-SPAM Policy as set forth in Section 16.2. 16.4 NO LIABILITY FOR TERMINATION. Neither party will be liable to the other for any termination or expiration of this Agreement in accordance with its terms. However, expiration or termination will not extinguish claims or liability (including, without limitation, for payments due) arising prior to such expiration or termination. 16.5 EFFECT OF TERMINATION. Upon the effective date of expiration or termination of this Agreement: (a) AboveNet will immediately cease providing the Services, (b) any and all payment obligations of Customer under this Agreement will become due immediately, including but not limited to Recurring Service Fees through the end of the term indicated on the Order Form adjusted for the net present value of the prospective payments; (c) within thirty (30) days after such expiration or termination, each party will return all Confidential Information of the other party in its possession at the time of expiration or termination and will not make or retain any copies of such Confidential Information except as required to comply with any applicable legal or accounting record keeping requirement: and (d) Customer will remove from AboveNet's premises all Customer Equipment and any of its other property on AboveNet premises within ten (10) days of AboveNet's request (and only after Customer receives authorization from AboveNet as provided in Section 2.3) and return the Co-location Space to AboveNet in the same condition as it was prior to Customer's installation. If Customer does not remove such property (or cannot remove such property because of payments due to AboveNet) within such ten (10) day period, then AboveNet may move any and all such property to storage and charge Customer for the cost of such removal and storage, without being liable for related damages. If Customer does not pay all amounts due to AboveNet and remove such property from AboveNet premises or storage within thirty (30) days of such Rev. 2.4 1 Page 6 of 8 ABOVENET COMMUNICATIONS, INC. CONFIDENTIAL AboveNet request, AboveNet may liquidate the property in any reasonable manner, without being liable for related damages. 16.6 SURVIVAL. The following provisions will survive any expiration or termination of the Agreement: Sections 1.3, 1.4, 2 (until all Customer Equipment is removed from the Co-location Space), 3, 4, 6, 8, 9.5-9.8, 10-13, 14 (for a period of three (3) years), 16.4-16.6, and 17. 17. MISCELLANEOUS PROVISIONS. 17.1 FORCE MAJEURE. Except for the obligation to pay money, neither party will be liable for any failure or delay in its performance under this Agreement, or for credits under Section 9, due to any cause beyond its reasonable control, including act of war, acts of God, earthquake, flood, embargo, riot, sabotage, labor shortage or dispute, governmental act or failure of the Internet, provided that the delayed party: (a) gives the other party prompt notice of such cause, and (b) uses its reasonable commercial efforts to correct promptly such failure or delay in performance. 17.2 NO LEASE. This Agreement is a services agreement and is not intended to and will not constitute a lease of any real or personal property. In particular, Customer acknowledges and agrees that Customer has not been granted any real property interest in the Co-location Space or other AboveNet premises, and Customer has no rights as a tenant or otherwise under any real property or landlord/tenant laws, regulations, or ordinances. 17.3 MARKETING. Customer agrees that AboveNet may refer to Customer by trade name and trademark, and may briefly describe Customer's Business, in AboveNet marketing materials and web site. Customer hereby grants AboveNet a limited license to use any Customer trade names and trademarks solely in connection with the rights granted to AboveNet pursuant to this Section 17.3. All goodwill associated with Customer's trade name and trademarks will inure solely to Customer. Customer may display the slogan 'Powered by AboveNet' together with the AboveNet logo, or any other AboveNet trademark or service mark or logo, on Customer's web sites or marketing literature only after obtaining AboveNet's written approval on a case-by-case basis, and provided that Customer abide by the AboveNet trademark guidelines and such other guidelines as AboveNet may provide Customer. All goodwill associated with AboveNet's trade name, trademarks, slogans and logos will inure solely to AboveNet. 17.4 GOVERNMENT REGULATIONS. Customer will not export, re-export, transfer, or make available, whether directly or indirectly, any regulated item or information to anyone outside the U.S. in connection with this Agreement without first complying with all export control laws and regulations which may be imposed by the U.S. Government and any country or organization of nations within whose jurisdiction Customer operates or does business. 17.5 ASSIGNMENT. Neither party may assign its rights or delegate its duties under this Agreement either in whole or in part without the prior written consent of the other party, except to a party that acquires substantially all of the assigning party's assets or a majority of its stock as part of a corporate merger or acquisition. Any attempted assignment or delegation without such consent will be void. This Agreement will bind and inure to the benefit of each party's successors and permitted assigns. 17.6 NOTICES. Any notice or communication required or permitted to be given hereunder may be delivered personally, deposited with an overnight courier, sent by confirmed facsimile, or mailed by registered or certified mail, return receipt requested, postage prepaid, in each case to the address of the receiving party first indicated above, or at such other address as either party may provide to the other by written notice. Such notice will be deemed to have been given as of the date it is delivered, or five (5) days after mailed or sent, whichever is earlier. 17.7 RELATIONSHIP OF PARTIES. AboveNet and Customer are independent contractors and this Agreement will not establish any relationship of partnership, joint venture, employment, franchise or agency between AboveNet and Customer. Neither AboveNet nor Customer will have the power to bind the other or incur obligations on the other's behalf without the other's prior written consent, except as otherwise expressly provided herein. 17.8 CHOICE OF LAW AND ARBITRATION. This Agreement will be governed by and construed in accordance with the laws of the State of California, excluding its conflict of laws principles. Each party agrees to submit any and all disputes concerning this Agreement, if not resolved between the parties, to binding arbitration under one (1) neutral, independent and impartial arbitrator in accordance with the Commercial Rules of the American Arbitration Association ("AAA") provided, however, the arbitrator may not vary, modify or disregard any of the provisions contained in this Section 17.8. The decision and any award resulting from such arbitration shall be Rev. 2.4 1 Page 7 of 8 ABOVENET COMMUNICATIONS, INC. CONFIDENTIAL final and binding. The place of arbitration will be at AboveNet's offices. The arbitrator is not empowered to award damages in excess of compensatory damages and each party hereby irrevocably waives any right to recover such damages with respect to any dispute resolved by arbitration. Both parties shall equally share the fees of the arbitrator. The language of arbitration will be English, provided, however that an interpreter may be provided for any witness that requires an interpreter. The costs of such interpretation will be borne by the party requesting the interpreter. Any final decision or award from arbitration under this Section 17.8 NO. I be in writing and reasoned. The arbitrator may award attorney's fees to the prevailing party as determined by the arbitrator with wide discretion considering both (I) which party bettered its position most by the outcome of the Arbitration, and (II) that the parties intended that all limitations on liability would be enforced by the arbitrator. Except for attorney's fees as the arbitrator may award as provided in the previous sentence, each will bear their own costs and expenses that are reasonable and necessary for participating in arbitration under this Section 17.8. As part of any arbitration conducted under this Section 17.8, each party may: (i) request from the other party documents and other materials relevant to the dispute and likely to bear on the issues in such dispute, (ii) conduct no more than five (5) oral depositions each of which will be limited to a maximum of seven hours in testimony, and (iii) propound to the other party no more than thirty (30) written interrogatories, answers to which the other party will give under oath. All the dispute resolution proceedings contemplated in this Section 17.8 will be as confidential and private as permitted by law. The parties will not disclose the existence, content or results of any proceedings conducted in accordance with this Section 17.8, and materials submitted in connection with such proceedings will not be admissible in any other proceeding, provided however, that this confidentiality provision will not prevent a petition to vacate or enforce an arbitration award, and shall not bar disclosures required by law. The parties agree that any decision or award resulting from proceedings in accordance with this Section 17.8 shall have no preclusive effect in any other matter involving third parties. All applicable statutes of limitation and defenses based upon the passage of time will be tolled while the procedures specified in this Section 17.8 are pending. The parties will take such action, if any. required to effectuate such tolling, The arbitration shall be governed by the United States Arbitration Act and judgement upon the award rendered by the arbitrator may be entered by any court having jurisdiction. 17.9 CHANGES PRIOR TO EXECUTION. Customer represent and warrants that it made no changes to this Agreement prior to providing this Agreement to AboveNet for its acceptance and execution, and that AboveNet alone incorporated any and all changes negotiated between, and accepted by, Customer and AboveNet into this Agreement or into an addendum executed by both parties. 17.10 ENTIRE AGREEMENT. This Agreement, together with the Order Form and AboveNet policies referred to in this Agreement represents the complete agreement and understanding of the parties with respect to the subject matter herein, and supersedes any other agreement or understanding, written or oral. This Agreement may be modified only through a written instrument signed by both parties. Both parties represent and warrant that they have full corporate power and authority to execute and deliver this Agreement and to perform their obligations under this Agreement and that the person whose signature appears above is duly authorized to enter into this Agreement on behalf of the respective party. Should any terms of this Agreement be declared void or unenforceable by any arbitrator or court of competent jurisdiction, such terms will be amended to achieve as nearly as possible the same economic effect as the original terms and the remainder of this Agreement will remain in full force and effect. If a conflict arises between Customer's purchase order terms and this Agreement, this Agreement shall take precedence. In the case of international, federal, state or local government orders, Customer's purchase order must contain the following language: 'Notwithstanding any provisions to the contrary on the face of this purchase order, attachments to this purchase order, or on the reverse side of this purchase order, this purchase order is being used for administrative purposes only, and this purchase order is placed under and subject solely to the terms and conditions of the AboveNet Network Agreement executed between Customer and AboveNet.' End OF ABOVENET Internet SERVICES Agreement Rev. 2 4 1 Page 8 of 8 ABOVENET COMMUNICATIONS. INC. CONFIDENTIAL 50 WEST SAN FERNANDO STREET #1010 SAN JOSE CA 95113 TEL: 408-367-6666 FAX: 408-367-6688 HTTP:HWWW.ABOVE.NET March 1, 1999 Christopher McConn Photoloft.com 300 Orchard City Drive ste. 142 Campbell, CA 95008 Dear Christopher, it was a pleasure speaking with you, and discussing your requirements, and our Internet Service Exchange. ABOVENET is pleased to present PHOTOLOFT.COM the following QUOTATION OF SERVICE for your mission critical, secured, co-located business server application. I believe that AboveNet is the best possible choice for your connectivity solution for the following reasons: SUPPORT AboveNet's entire support focus is MISSION CRITICAL Co-location service. BANDWIDTH AboveNet provides non-stop, non congestive GUARANTEED BANDWIDTH. MAINTAINABILITY AboveNet's pro-active, automated service reporting and ALERTING SYSTEM. The 1.5 Mbps bandwidth included with your space is based upon 5 minute averages of your actual usage, then subjected to 95" percentile adjustment. (Additional bandwidth beyond the 1.5 Mbps is figured this way also.) Here's how that works: We sample your actual usage 5 minutes, we then average the total and post the result as a 5 minute usage point on a 5 minute usage point on your usage graph. Over the month, we will continue to plot the 5 minute averages, which total about 8640 points plotted on the graph. We then take the top 5 percent of your usage (432 points) and throw it out! Your usage is determined based upon the highest remaining usage plotted. If your usage is at or lower than 5 Mbps AFTER we've taken off the top 5%, you will not receive any additional billing. Any usage over the minimum will be billed at the appropriate rate. You are automatically placed on a burstable 1OOMbps link. You'll be able to monitor your bandwidth usage to understand exactly what your usage is. At the beginning of the following month, you will get a bill for actual 95t' percentile usage. If you go over your base of 1.5 Mbps, and wish to stay on the burstable link, simply pay the bill. If you want to remain at 1.5 Mbps, simply contact our customer service department, pay your agreed upon base, and VOLI will be capped at 1.5 Mbps. Also, AboveNet will only charge for traffic one way. This method of billing provides you with a number of advantages. First, any usage bursts that are untypical of your bandwidth requirements are riot charged to you. Second, this equates to receiving your highest 36 hours of bandwidth usage free each month. Third, like our network, our billing is scaleable - the cost of entry is reduced and your bill will only increase as actual bandwidth usage occurs. AboveNet appreciates this opportunity to be of service to Photoloft.com. We look forward to a long lasting, mutually beneficial business relationship. Once you have read this proposal, please contact me to discuss the details. Sincerely, Todd Mayo 408-367-6621 tmayo@above.net 50 WEST SAN FERNANDO STREET #1010 SAN JOSE CA 95113 Q M TEL: 408-367-6666 FAX: 408-367-6688 HTTP://WWW.ABOVE.NET SUPPORT SERVICES The following AboveNet service offerings are designed to cover commonly requested support needs of our Network Operations Center (NOC). Customized support plans are available on a case by case basis. AUTOMATED PRO-ACTIVE SERVICE (APST") INCLUDED Every 5 minutes your equipment will be pinged and probed (HTTP, FTP, SNTP, NNTP) You will need to select who will be notified and at what intervals. A full description of these and our escalation procedures can be reviewed on our web site http://www.above.net/html/customer - services.html. At the time of install your customer service representative will help you select the configuration that best suits your requirements. REMOTE HANDS LEVEL 1 INCLUDED This service is provided at no additional cost, involves the most basic activities of an AboveNet 24x7 on-duty staff performed with "eyes", "ears" and "fingers", but without involvement of tools or equipment. Examples of Level I services would include: pushing a button, switching a toggle, setting a dip switch, power cycling (turning on and off) equipment, securing cabling to connections, observing, describing or reporting on indicator lights or display information on machines or consoles basic observation and reporting on the local environment in AboveNet's Premises running single, built in diagnostics equipment typing commands on a keyboard cable organization, ties or labeling modifying basic cable layout, such as Ethernet connections labeling or/and re-labeling equipment installation of newly or previously received equipment in rack space. REMOTE HANDS LEVEL 2 OPTIONAL $125/HOUR Provided for a fee, this service involves all the service of level 1, plus direct contact with equipment configuration, including hardware and software interaction. Upon request, AboveNet will provide the Customer with a list of AboveNet's 3rd party partners for advanced service requirement. Please contact service@above.net for details. Examples of Level 2 services would include: replacing hardware components with spares or upgrades adding memory upgrading drive capacity by installation of new or additional disk drives install or re-install legal software REMOTE POWER CYCLE FOR REBOOT OPTIONAL $15/MONTH From time to time many servers require reboot after a notification of a problem. You can call and have the tech support team re-boot your server, or with a Power Cycle Port, you can have Remote power reset activated with a Web based interface. By using this feature, you will be able to reboot remotely. In addition, if designated, the PPS will automatically reboot your system when a malfunction is detected. TAPE BACK UP OPTIONAL $100/MONTH AboveNet can facilitate daily tape backup of your equipment, To take advantage of this service, the equipment must have its own tape drive and be accompanied by a set of tapes. Before installation of the server, configure the software to back up files to be saved every day. When the server arrives, AboveNet personnel will verify that backups are operating correctly. AboveNet personnel will change the tape in your backup unit and retrieve archived tapes when needed. DNS ADMINISTRATION OPTIONAL $50/DOMAIN See: http://www.above.net/htmi/ip and_dns.html Most customers administer their own DNS (Domain Name Service), however we can administer this for a fee. As names are added or deleted, notify NOC by E-mail. You will be responsible to notify InterNic of the transfer of the account to AboveNet. SECONDARY DNS SERVICE OPTIONAL $]O/DOMAIN Customer must create name entry first before submitting to InterNic hostmaster. Customer must "cc" the domain name registration/modification request to "dns@above.net". Changes to DNS records will be handled by AboveNet as required. Incorrectly registered domains will be deleted. TELCO SERVICES AND REMOTE ACCESS OPTIONAL AboveNet will, assist in co-ordination of the provisioning of telco services to support your co-location remote access. Ordering of and payment for Telco services connected to equipment owned by will be your responsibility. 50 WEST SAN FERNANDO STREET #1010 SAN JOSE CA 95113 TEL: 408-367-6666 FAX: 408-367-6688 HTTP:HWWW.ABOVE.NET MARCH 15,1998 QUOTATION OF SERVICE FOR: PHOTOLOFT.COM
SERVICE ACTIVATION CHARGES: - --------------------------------------------------- DESCRIPTION OF SERVICE UNITS COST OF SERVICE EXTENSION Above Net Asymmetric Allocation of Packets (ASAPTM) lncl. Bandwidth on Demand Feature Incl. Automated Pro-Active service (APSTM) Incl. Primary & Secondary DNS service 2 Incl. IP Address 2 Incl. Daily Tape Back-up 1 $100.00 $100.00 Remote Access through leased line 0 $250.00 Installation I ('@ Rack Cage) 1 $ 2,500.00 $2,500.00 TOTAL (ONE TIME) $2,600.00
MONTHLYSERVICE RATES- 100 MB S ETHERNET SEGMENT - -----------------------------------------------------
DESCRIPTION OF SERVICE UNITS COST OF SERVICE EXTENSION Remote Hands Level I incl. 1.5 Mbps of Bandwidth usage (95" Percentile) incl. Additional bandwidth usage per Kbps f. 00-.90 Amps of Clean 120V AC Power TBD $ 20.00 Additional Power per Amp $ 20.00 Daily Tape Back Up 1 $100.00 $100.00 Remote Access through Leased Line 0 $ 50.00 Power Cycle for Remote Reboot 0 $ 15.00 Shelf Space 1 (3 Rack Cage) 1 $4,500.00 $4,500.00 TOTAL (MONTHLY) $4,600.00
ADDITIONAL BANDWIDTH 1-2 Mbps $1.30 per Kbps - --------------------------- 2-4 Mbps $1.20 per Kbps - --------------------------- 4-10 Mbps $1.10 per Kbps - ---------------------------- 10-20 Mbps $1.00 per Kbps - ----------------------------- Over 20 Mbps$.95 per Kbps - ----------------------------- TOTAL AMOUNTS DUE UPON SIGNING: - ----------------------------------- TOTAL SERVICE ACTIVATION $2,600.00 FIRST MONTH'S SERVICE $4,600.00 LAST MONTH'S SERVICE $4,600.00 TOTAL: $11,800.00 TERM: 1 YEAR SERVICE ORDER AUTHORIZED BY: Print Name Chris McConn Title V.P Engineering ------------ --------------------- Company: PhotoLoft.com Signature: s. Chris McConn Date: 3/15/99_____________________ - ----------------------------- ----------------------------------- (signature executes this Service Order) SERVICES AND PRICES ARE TO ABOVENET SPECIFICATIONS AND SUBJECT TO CHANGE WITHOUT PRIOR NOTIFICATION. QUOTE VALID FOR 30 DAYS. Quote prepared by: Todd Mayo Tel: 408-367-6621 Fax: 408-367-6688 E-mail: tmayo@above.net - --------------- PAYMENT INFORMATION - -------------------- Charge Invoice Other Credit Card # Expiration Date - ------------------- ---------------- Name on Card visa Amex Mastercard - ------------------- ------------------------------------------------------ Card Holder's Card - ------------------- Signature EX-10.28 34 COWABUNGA RECIPCAL WEB SITE LINKING AGREEMENT This AGREEMENT (this "Agreement") entered into this ___ day of April, 1999 ("Effective Date"), by and between Cowabunga Enterprises Inc, a wholly owned subsidiary of Gateway 2000 Inc., ("Cowabunga"), having an office at 610 Gateway Drive, N. Sioux City, SD 57049 and PhotoLoft.com, Inc. a Nevada corporation, having an office at 300 Orchard City Drive, Suite 142, Campbell, CA 95008 ("Provider"). In consideration of the mutual promises and covenants herein contained, Cowabunga and Provider agree as follows: 1. This Web Linking Agreement ("Agreement") shall take effect on the date set forth above and shall remain in effect until sooner terminated as set forth in this Agreement. 2. Provider hereby grants to Cowabunga during the term of this Agreement the worldwide, non-exclusive, non-transferable license, subject to the terms and conditions of this Agreement, to establish one or more hyperlinks ("Link(s)") to the Provider's URL http://www.photoloft.com/gatewaynet and from Provider's URL to gateway.net's URL: http://www.gateway.net,("Site") under the guidelines provided by Cowabunga. 2.1 Provider acknowledges and agrees that its use of the Link will comply with the Logo and Distribution Guidelines provided by Cowabunga. If Provider makes a new release of the Link or component thereof, then: the Link will comply with the Logo and Distribution Guidelines provided by Cowabunga. If Cowabunga utilizes Provider's icon or brand features to indicate the location(s) of the Links, then Provider further grants to Cowabunga a worldwide, non-exclusive, non-transferable license to use, reproduce, distribute and display Provider's icon or brand features solely for the purpose of indicating the location of the Link(s), as set forth above. 2.2 Cowabunga may display Provider's icon or brand features to establish one or more Links, provided that set-up fee is timely paid. 2.3 Cowabunga may not use or modify the Provider's icon, brand features, marks or logos without the prior written consent of Provider. 3. Inclusion of Link. During the term of this agreement, Cowabunga shall designate the Provider's Site Link on the Site in the Travel and Family category. 3.1 Within 30 days following the completion of each calendar quarter, Provider shall submit to Cowabunga a report setting forth the number of end-users that accessed the Provider's Site pursuant to Section 2 above and Provider shall pay Cowabunga the amounts due pursuant to Section 3.6 above. 3.2 Neither Cowabunga nor Provider make any representations(s) of fact or opinion or promises to each other with respect to anticipated or minimum commercial activity, revenues, customer volume or other tangible results from their respective activities under this Agreement. 3.3 Cowabunga shall have the right to audit Providers' books and records, no more than twice per year to determine revenue due and owing. If errors in payments resulting from the audit are greater than five percent (5%), Provider agrees to pay for all the costs of the audit. Cowabunga shall not engage the auditors under a contingency fee basis. 3.4 Cowabunga will offer its users a Free Premium Account. This has a value of $29.95 and entitles the user to 50Mbytes of disk space for image storage on Providers site and password protection of the users on-line photo albums for a period of one year. Web Link Agreement -1 3.5 Provider will create a co-branded site with a unique Cowabunga entrance page that will contain the Cowabunga logo and branding information on each page. 3.6 Provider will share 10% of the page view advertising revenue generated from the Cowabunga co-branded site. All advertising revenue sharing is based on net income received by Provider after allowances are made for commissions, agency fees, and any other fees. 3.7 Cowabunga will feature the Free Premium Account offer to its customer base in the following manner a) list the special offer in the Special Offer section of the gateway.net web page, c) display Providers logo and link information in the family and travel sections of the Cowabunga site. 4. Neither Cowabunga, its officers, directors or employees may be held liable for any damages suffered or incurred by Provider arising out of Cowabunga's failure to display Provider's icon or brand features, or Cowabunga's failure to display Provider's icon or brand features within a certain time period. 5. Neither party will be liable for any failure to perform any obligations hereunder, or from any delay in the performance hereof, due to causes beyond its control. 6. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, THERE ARE NO WARRANTIES, CONDITIONS, GUARANTIES OR REPRESENTATIONS AS TO MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHER WARRANTIES, CONDITIONS, GUARANTIES OR REPRESENTATIONS, WHETHER EXPRESS OR IMPLIED, IN LAW OR IN FACT, ORAL OR IN WRITING. 7. Under no circumstances will either party, or their respective officers, directors or employees be liable for any indirect, special or consequential damages with respect to the provision of the Provider's Content to Cowabunga, including lost profits regardless of whether such damages could have been foreseen or prevented by either party. 9. Notwithstanding any provision contained herein to the contrary, in no event will the aggregate liability of Cowabunga or its officers, directors and employees to Provider for damages, direct or otherwise, arising out of or in connection with this Agreement exceed $1,000.00, regardless of the cause or form of action. 10. Provider will indemnify, defend and hold Cowabunga and its officers, directors and employees harmless from and against any claim, suit, action, or other proceeding and all damages resulting from or arising out of claims that any of the Provider's icon or brand features infringes any United States trademark right of any third party or breach of representation or warranty of Provider contained herein. 11. Term; Termination. 11.1 Term. This Agreement will remain in effect for a period of one year from the date hereof and shall automatically renew for successive one-year periods unless terminated by either party upon written notice at least 30 days prior to expiration of the then current term. 11.2 Automatic Immediate Termination. This Agreement shall be automatically terminated immediately upon either party becoming the subject of any bankruptcy, liquidation, receivership or similar proceedings, making an assignment for the benefit of its creditors, or becoming unable to pay its debts as they become due. 11.3 Termination for Non-compliance of Linking Policies. Without prejudice to any other rights or remedies available at law non-breaching party demands in writing (email included) or in equity, either party may terminate this Agreement at any time if the other party does not comply with the terms and policies in this Agreement and does not cure its breach within five (5) days after notice do so. Web Link Agreement -2 11.4 Cowabunga may terminate the Agreement on thirty (30) days notice for any reason. 12. Nothing will be deemed to limit or restrict either party from entering into agreements with any other person-covering establishment of branded Links similar to Provider's or to Cowabunga's Site or from offering such similar Links itself. 13. Neither party will make or issue any press statement or publicity regarding the terms of this Agreement. 14. The terms and conditions of this Agreement shall be considered confidential and shall not be disclosed to any third parties except to such party's accountants or attorneys or except as otherwise required by law. 15. This Agreement represents the entire agreement of the parties regarding the subject matter hereof. 16. This Agreement will be governed by and construed in accordance with the laws of the State of New York. 17. All notices, requests and other communications to any party hereunder will be in writing and will be given to such party at its address set forth in this Agreement. 18. Neither party may assign any of its rights or delegate any of its duties under this Agreement without the prior written consent of the other. 19. There is no joint venture, partnership, agency or fiduciary relationship existing between the parties and the parties do not intend to create any such relationship by this Agreement. 20. This Agreement may not be amended, modified or superseded unless expressly agreed to in writing by both parties. 21. If any provision or term of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remainder of this Agreement will not be affected. 22. The provisions of Paragraphs 5 through 10, 12, 14, 15, 16, 18, 19, 21 and 22 shall survive the termination of this Agreement. IN WITNESS WHEREOF, the parties to this Agreement have caused it to be duly executed by their respective duly authorized offices or representatives as of the date and year first above written. Cowabunga: Provider: By: __________________________ By: __________________________ Name: Name: Title: Title: Web Link Agreement -3 EX-10.29 35 ADSMART NETWORK REPRESENTATION AGREEMENT ------------------------ THIS REPRESENTATION AGREEMENT (the "Agreement") is made on this 26th day of April, 1999 (the "Effective Date"), by and between ADSMART NETWORK ("ADSMART") with its principal place of business located at 100 Brickstone Square, 5th Floor, Andover, MA 01810 and PHOTOLOFT.COM, INC. ("PLI") with its principal place of business located at 300 Orchard City Dr. Suite 142, Campbell, CA 95008. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, ADSmart and PLI agree to the following: 1. ADSMART RESPONSIBILITIES. (a) Representation. ADSmart will provide advertising sales representation -------------- and consultation services (collectively the "Representation Services") on behalf of PLI's web site(s) (the "Website") set forth in Attachment A ("Attachment A") and made a part of this Agreement. In connection with such Representation Services, ADSmart shall actively promote the Website and solicit advertising for the Website. Any and all advertising shall be subject to the approval of PLI in its absolute and unfettered discretion. (b) Exclusivity. ADSmart is appointed the exclusive sales representative ----------- for PLI for the Initial Term and all Renewal Terms of this Agreement, as defined below (c) Management Services. ADSmart will provide the following management -------------------- services ("Management Services"): (i) Collect advertising creative ("Creative") from advertisers or ad agencies ("Advertisers") that will be displayed on the Website. (ii) Provide pipeline reports (the "Pipeline Reports") every two (2) weeks, which outline advertising schedule, including costs, number of impressions and outstanding proposals to Advertisers. (iii)Update PLI on the progress and demand of the Internet advertising marketplace. (iv) Consult with PLI on marketing and advertising opportunities. (d) Ad Serving & Tracking. ------------------------ (i) Banners. PLI will utilize banner serving through ADSmart. There ------- will be no charge by ADSmart for this service (Subject to section 2F below). ADSmart shall have exclusive control of the banner inventory allocated to ADSmart by PLI and ADSmart shall have reasonable discretion over the content and nature of the banners that can be sold to cover banner serving and bandwidth cost. ADSmart will not run any advertising campaign on the Website, which PLI reasonably determines to be offensive to PLI or its customers or inconsistent with PLI's editorial policy. Promotional campaigns and/or sponsorships shall not be included in the banner inventory allocated to ADSmart. (ii) Specific Requests. If PLI requests specific paid or non-paid ------------------ campaigns to be placed on the banner spots allocated to ADSmart, PLI shall pay ADSmart $.55 net per thousand impressions, for paid or non-paid open inventory banner serving, auditing and reporting. ADSmart will deduct fees for banner serving from checks being sent to PLI for advertising revenue. If PLI requests banners to be served for its own internal purposes, using the cost listed above, the amount of banner impressions will not exceed ten percent (10%) of the monthly banner inventory allocated to ADSmart by PLI. (f) Guarantee --------- ADSmart guarantees that it will sell 100% of PLI's allocated banner inventory at a minimum $2.00 gross CPM. 2. PLI'S RESPONSIBILITIES. (a) Impressions. PLI will allocate a minimum of one- (1) million ----------- impressions ("Impressions") per month to ADSmart. (IMPRESSION-shall mean a ----------- single viewing of a web asset, such as an ad banner or HTML document.) Impressions shall be a cross section of all available Impressions on the Website. PLI will make reasonable efforts to ensure that the Impressions committed to ADSmart are available and notify ADSmart immediately in the event that any major decrease in Impressions is foreseen. (b) Website Information. Upon execution of this Agreement, PLI will provide ------------------- ADSmart with the following information: available demographic and psychographic (interest and behavioral) information regarding Website audience, Website description by section, advertising and sponsorship opportunities, technical specifications relating to advertising, marketing information, and contact information. PLI agrees to keep all information provided to ADSmart current and will advise ADSmart on new opportunities with its Website and new services offered by PLI. (c) Tracking. PLI will provide ADSmart with a detailed inventory projection -------- analysis of the Website's traffic, including visitor and page view totals for its primary sections. (d) Editorial Policy. PLI will provide ADSmart with its Website editorial ----------------- policy. (e) Fulfillment of Advertising Campaigns. PLI shall use its best efforts to ------------------------------------ fulfill all advertising campaigns obtained by ADSmart in a timely manner, including but not limited to fulfilling estimated impressions. (f) In-House Sales.ADSmart acknowledges that PLI's in-house sales force will --------------- continue its advertising sales efforts concurrently with this agreement and ADSmart and PLI agree to work together to prevent duplication of sales efforts and to inform the other of targeted advertisers. To facilitate this process, PLI shall provide ADSmart with a report every month or more often in PLI's discretion, which contains the same information provided by ADSmart to PLI in ADSmart's Pipeline Report. (g) Advertiser Exclusions. ADSmart shall not pursue any Advertiser listed ---------- on Attachment B ("Attachment B") and made a part of this Agreement. 3. MARKETING MATERIAL (a) Highlighting and Approval. ADSmart will highlight the Website in its --------------------------- World Wide Web site on the Internet located at www.adsmart.net and within --------------- its media kit. PLI will have the right to review in advance and approve the final version of the media kit. (b) Marketing Materials. PLI agrees and acknowledges that ADSmart may -------------------- market and promote the Website to potential Advertisers, by such means as it deems appropriate, including, without limitation, listing the in directories, trade publications, ADSmart proposals and presentations, advertisements, and other promotional opportunities. (c) Promotional Material. PLI agrees to provide ADSmart with reasonable --------------------- amounts of PLI's promotional materials. (d) Press Releases. Both parties must approve in writing all press releases -------------- or announcements referring to any ADSmart/PLI agreement before they are released to the press or any third party. (e) Registry as Agent. PLI authorizes ADSmart Network to register as PLI's ----------------- agent in all relevant periodicals, directories, and other marketing sources identified by ADSmart and approved in advance by PLI within the scope of and during the Initial Term and all Renewal Terms of this Agreement. 4. COMPENSATION. For the Representation Services and Management Services provided by ADSmart, PLI agrees to pay ADSmart a thirty-five- (35%) percent commission on all net advertising revenues invoiced and collected by ADSmart arising out of the advertisements placed upon the Website by ADSmart during the term of this Agreement, less credits, refunds and sales or use taxes. 5. BILLING. -------- (a) Collection. ADSmart will invoice and collect all advertising revenue ----------- from Advertisers solicited by ADSmart on behalf of PLI. (b) Billing. Billing by ADSmart is calculated using gross invoice amount, ------- equal to CPM in effect at the time of signature of the insertion Order, multiplied by the number of Impressions delivered divided by one thousand. The net invoice amount is the gross invoice amount less a 15% agency commission (where applicable). The invoice sent by ADSmart to the Advertiser will include both a gross invoice amount and the net invoice amount in applicable situations. ADSmart shall pay PLI the amount for each campaign calculated from the net invoice amount billed to the Advertiser (i.e., the amount that we are actually due to receive from the Advertiser), less ADSmart's Commission, as set forth in Section 4 above. (c) Reports. ADSmart will provide written details of ADSmart generated ------- activity on the Website. These reports will, at a minimum, summarize (i) the ADSmart ad campaigns that ran and how long they ran, (ii) the number of Impressions delivered. (d) Payment. ADSmart shall remit amounts due to PLI within fifteen (15) ------- business days from the date of receipt of payment or within one hundred, twenty (120) days from the end of the campaign, whichever occurs first 6. CONFIDENTIAL INFORMATION. "Confidential Information" means all -------------------------- information identified in written or oral format by the Disclosing Party as confidential, trade secret or proprietary information, and, if disclosed orally, summarized in written format within thirty (30) days of disclosure. Confidential Information shall also include the terms and conditions of this Agreement. "Disclosing Party" is the party disclosing Confidential Information. "Receiving Party" is the party receiving Confidential Information. The Receiving Party shall not use the Confidential Information except to carry out the purposes of this Agreement, or disclose the Confidential Information to any third party other than persons in the direct employ of the Receiving Party who have a need to have access to and knowledge of the Confidential Information solely for the purpose authorized above. Each party shall take appropriate measures by instruction and agreement prior to disclosure to such employees to assure against unauthorized use or disclosure. The Receiving Party shall have no obligation with respect to information which (i) was rightfully in possession of or known to the Receiving Party without any obligation of confidentiality prior to receiving it from the Disclosing Party; (ii) is, or subsequently becomes, legally and publicly available without breach of this Agreement; (iii) is rightfully obtained by the Receiving Party from a source other than the Disclosing Party without any obligation of confidentiality; or (iv) is disclosed by the Receiving Party under a valid order created by a court or government agency, provided that the Receiving Party provides prior written notice to the Disclosing Party of such obligation and the opportunity to oppose such disclosure. Upon written demand of the Disclosing Party, the Receiving Party shall cease using the Confidential Information and return the Confidential Information and all copies, notes or extracts thereof to the Disclosing Party within seven (7) days of receipt of notice. 7. PLI'S REPRESENTATIONS AND WARRANTIES.PLI represents and warrants that (i) ------------------------------------- it has full power and authority to enter into this Agreement, (ii) this Agreement does not conflict with any other agreement or commitment made by PLI, (iii) it shall not do anything to harm or bring into disrepute or disparage ADSmart or any Advertiser, (iv) the Website is year 2000 compliant, and (v) it will use best efforts to provide its services in accordance with the terms of this Agreement and in accordance with industry standards. 8. ADSMART'S REPRESENTATIONS AND WARRANTIES. ADSmart represents and -------------------------------------------- warrants that (i) it has full power and authority to enter into this Agreement, (ii) this Agreement does not conflict with any other agreement or commitment made by ADSmart, (iii) it shall not do anything to harm or bring into disrepute or disparage PLI, and (iv) it will use best efforts to provide its services in accordance with the terms of this Agreement and in accordance with industry standards. 9. WARRANTV DISCLAIMER.EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES -------------------- PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATION OR WARRANTY EXPRESS OR IMPLIED WITH RESPECT TO ANY MATTER WHATSOEVER, INCLUDING WITHOUT LIMITATION, NETWORK FAILURES, THIRD-PARTY AD SERVING DIFFICULTIES, THE SOFTWARE PROGRAMS, SERVICES PROVIDED HEREUNDER, OR ANY OUTPUT OR RESULTS THEREOF. ADSMART SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 10. INDEMNIFICATION. Each party agrees to indemnify, defend, and hold ---------------- harmless the other party, and its successors, officers, directors, employees, agents and assigns, from and against any and all third party actions, causes of action, claims, demands, costs, liabilities, expenses and damages arising out of or in connection with any claim which, if true, would be a breach of the warranties, representations, and covenants set forth in this Agreement. ADSmart is not a party to and has no liability for any and all problems which may arise in connection with the Website, including, without limitation, failure to fulfill an advertising insertion order obtained as part of the Representation Services. 11. LIMITATION OF LIABILITY. Expect as set forth in paragraphs 6 and 10, ADSmart's total liability arising out of this Agreement or the services provided hereunder, whether based on contract, tort or otherwise, shall not exceed commissions paid to ADSmart for ad campaigns run on PLI's behalf or $50,000, whichever is less. PLI's total liability arising out of this Agreement or the services provided hereunder, whether based on contract, tort or otherwise, shall not exceed revenues received from ADSmart for ad campaigns run on PLI's behalf or $50,000, whichever is less. 12. EXCLUSION OF DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOSS OF DATA, LOSS OF USE, OR LOSS OF PROFITS ARISING HEREUNDER OR FROM THE PROVISION OF SERVICES, INCLUDING ADVERTISING ON PLI'S WEBSITE, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 13. TERM AND TERMINATION. ----------------------- (a) Basic Provisions. This Agreement shall have a term of one year (the ----------------- .'Term") and shall automatically renew for periods of one year thereafter (each, a "Renewal Term"), unless either party provides sixty (60) days written notice of their intent to terminate the Agreement immediately prior to any renewal. (b) Minimum Term. After an initial term of ninety- (90) days, either party -------------- may terminate this Agreement at the end of ninety (90) days with thirty- (30) days-advanced written notice. (c) Breach and Cure. In the event a party is given notice that it is in ----------------- material breach of this agreement, it shall have thirty (30) days from receipt to cure its breach in all material respects. On the failure so to cure, the non-breaching party may terminate this agreement. In the event of termination pursuant to this section, all revenue due PLI (minus all ad-serving fees & compensations due ADSmart) prior to termination will be paid in accordance with this Agreement. (d) Content. ADSmart may, in its sole discretion, decide to terminate this ------- Agreement immediately if ADSmart feels that continuing to represent PLI's Website conflicts with ADSmart's standards and the standards being set by other websites in ADSmart's network. Examples of this include: pornography, excessive violence, abusive and/or foul language, or a pattern of neglect on the Website such that it appears PLI is not updating it regularly, or has abandoned it altogether. (e) For a period of three- (3) months following the expiration or earlier termination of this agreement, ADSmart shelf continue to be entitled to its commission for advertising revenue generated from any and all advertisers initially obtained by ADSmart. Except as set forth in this agreement, PLI shall have no other liability to ADSmart whatsoever and shall not be liable for any damages or losses to ADSmart resulting from the expiration or termination of this agreement. 14. NON-COMPETITION.The Parties agree that during the Initial Term and all ---------------- Renewal Terms of this Agreement and for a period of six (6) months following the expiration or earlier termination of this Agreement, a Party shall not solicit the services of any employee of the other Party, including, without limitation, as a full or part-time employee or independent contractor unless such person has left the employment of a Party and formed his or her own business. In such case, Party shall have the right to hire such person as a consultant. 15. MISCELLANEOUS. Sections 4, 6, 7, 8, 9, 10, 11, 12, 13, 13(d), 14 and 15 -------------- shall survive expiration or earlier termination of this Agreement. Nothing in this Agreement shall be deemed to create a partnership or joint venture between the parties and neither ADSmart nor PLI shall hold itself out as the agent of the other, except for that specified in this Agreement. Neither party shall be liable to the other for delays or failures in performance resulting from causes beyond the reasonable control of that party, including, but not limited to, acts of God, labor disputes or disturbances, material shortages or rationing, riots, acts of war, governmental regulations, communication or utility failures, or casualties. Any notice required or permitted to be given by either party under this Agreement shall be in writing and shall be personally delivered or sent by a reputable overnight mail service (e.g., Federal Express), or by first class mail (certified or registered). Failure by either party to enforce any provision of this Agreement will not be deemed a waiver of future enforcement of that or any other provision. Any waiver, amendment or other modification of any provision of this Agreement will be effective only if in writing and signed by the parties. If for any reason a court of competent jurisdiction finds any provision of this Agreement to be unenforceable, that provision of the Agreement will be enforced to the maximum extent permissible so as to effect the intent of the parties, and the remainder of this Agreement will continue in full force and effect. This agreement shall be interpreted under the laws of the Commonwealth of Massachusetts, and the parties submit to the exclusive jurisdiction of the courts of the Commonwealth of Massachusetts, including the federal courts located there. Headings used in this Agreement are for ease of reference only and shall not be used to interpret any aspect of this Agreement. This Agreement, including all attachments which are incorporated herein by reference, constitutes the entire agreement between the parties with respect to the subject matter hereof, and supersedes and replaces all prior and contemporaneous understandings or agreements, written or oral, regarding such subject matter. Neither ADSmart nor its agents, if any, is a franchise, partner, broker, employee, servant or agent of PLI. Each is an independent contractor with respect to its right s and obligations under this agreement. IN WITNESS OF THE FOREGOING, the parties have caused the Agreement to be signed as of the Effective Date set forth above. ADSMART NETWORK PHOTOLOFT.COM BY: /S/ JEFF EISENBERG BY: /S/ JACK MARSHALL ------------------ NAME: JEFF EISENBERG NAME: JACK MARSHALL TITLE: VP, BUSINESS DEVELOPMENT TITLE: PRESIDENT DATE: APRIL 26, 1999 DATE: 4/29/99 ATTACHMENT A This Attachment dated April 26, 1999 supersedes any previous drafted Attachment A. Representation by ADSmart for PLI includes the following Website(s): Site Name - http://www.i)hotoloft.com ------------------------- plus Co-Branded photoloft.com sites - ATTACHMENT B This Attachment dated April 26, 1999 supersedes any previous drafted Attachment B. ADSmart is not to contact any of the following accounts on behalf of PLI, unless PLI formally notifies ADSmart in writing: Competitors: - ------------ Kodak PhotoPoint PhotoNet Live Pictures Zing Photo Highway Club Photo EX-10.30 36 PHOTOLOFT.COM, INC. CO-BRANDED MARKETING AGREEMENT This Agreement is made this ____5/3/99_________________ (the "Effective Date") between Tribal Voice, a California corporation, having a place of business at One Victor Square, Scotts Valley, CA 95066 ("Partner"), and PhotoLoft.com, Inc., a California corporation having a place of business at 300 Orchard City Drive Suite#142, Campbell, California 95008 ("PhotoLoft.com"). 1.0 INTENT: PhotoLoft.com offers certain proprietary software and services ------- for creation, maintenance and storage of on-line digital photo albums via its PhotoLoft.com web site (the "Service"). PhotoLoft.com and Tribal Voice, Inc. desire to provide the Service to Partner's customers through the creation of a Co-Branded PhotoLoft.com site on PhotoLoft.com's server (having the URL address http://www.photoloft.com/tribalvoice ("Co-Branded PhotoLoft.com") to enable Partner's visitors and customers ("Visitors") to register to use services, store, share and view photo albums from PhotoLoft.com. 2.0 LINK: PhotoLoft.com will cooperate to promptly develop (a) a specially ----- co-branded PhotoLoft.com page using both PhotoLoft.com's and Tribal Voice Pow-Wow names and logos (the "Co-Branded Pages"); (b) links from Partner's Site to the Co-Branded Pages (the "Links"); and ( c ) placement of the Tribal Voice link and logo on the Digital Imaging and Resource Page within the PhotoLoft. During the term of this Agreement, the Partner will make commercially reasonable efforts to place and maintain links to the PhotoLoft service from prominent places on the Partner web site. A link from the Partner home page to the PhotoLoft service will be at the discretion of Partner. 2.1 PhotoLoft.com will provide a notice on each co-branded page disclaiming responsibility of both PhotoLoft and Partner for the content of that page. The disclaimer shall be mutually agreed to by both parties. 3.0 USAGE: Partner's customers will be offered a one year free Premium ----- PhotoLoft account. Partner's users will be identified by entering the site through the co-branded page. 4.0 PROMOTION BY PHOTOLOFT.COM: Every image posted by PhotoLoft's customer ---------------------------- will be identified as a Partner's customer. Every time that that image is viewed by any PhotoLoft viewer, the logo of Tribal Voice, Inc. will also be on display to the PhotoLoft viewer. 5.0 PROMOTION BY PARTNER: Tribal Voice, Inc. will participate in the ---------------------- announcement and co-promotion of the partnership on-line, and with press releases, and by furnishing information to its licensees and clients. Usual and customary types of promotional activities outside the sites may be, but are not limited to: special rewards and loyalty points awards programs with sponsors, tradeshow and convention appearance coordination and cooperation, print, broadcast and other media advertising, as appropriate and at the discretion of Tribal Voice. Examples of the type of promotion that Tribal Voice may do are: 5.1 Write and post a feature article on the PhotoLoft capability and post it on the Partner Home Page. 5.2 Include PhotoLoft in email newsletters to the Partner customer base. 5.3 Highlight PhotoLoft in the Partner Community Spotlight feature. 6.0 CO-PROMOTION: PhotoLoft.com and Partner will issue independent press ------------ releases announcing the relationship. Partner and PhotoLoft.com will each review and approve the others' press releases. 7.0 FURTHER CUSTOMIZATION: PhotoLoft.com has complete discretion on making ---------------------- any additional page modifications to the PhotoLoft portion of the Co-Branded web site after the initial design provided such changes do not compromise or demean Tribal Voice's brand name, marketing image and logo. Tribal Voice shall not make unreasonable requests that may interfere with the operation of the site. Initials of PhotoLoft.com _____ Initials of Tribal Voice, Inc. _____ 1 7.1 Tribal Voice will provide input regarding the contents of the login page. Tribal Voice and PhotoLoft.com shall mutually agree and approve the contents of the login page. 7.2 It is agreed that in the event of a major logo change by Tribal Voice, Inc., PhotoLoft.com will make commercially reasonable efforts to coordinate such a change, provided that Tribal Voice agrees to a reciprocal arrangement concerning the PhotoLoft.com Logo and Tribal Voice hosted indicia and content. 8.0 TRADEMARKS: ---------- PHOTOLOFT.COM MARKS: PhotoLoft.com hereby grants Tribal Voice, Inc. a --------------------- nonexclusive limited license to use, reproduce and display the PhotoLoft.com trademarks and logos designated by PhotoLoft.com on Tribal Voice, Inc.'s Web Site during the term of this Agreement in accordance with any guidelines that PhotoLoft.com may provide to Tribal Voice, Inc. from time to time. PhotoLoft.com will supply Tribal Voice, Inc. with electronic versions of the PhotoLoft.com trademarks and logos for Tribal Voice, Inc.'s use. All representations of the PhotoLoft.com trademarks and logos that Tribal Voice, Inc. uses will be exact copies of those provided by PhotoLoft.com, or shall first be submitted to PhotoLoft.com for approval. TRIBAL VOICE, INC. MARKS: Tribal Voice, Inc. hereby grants PhotoLoft.com a -------------------------- nonexclusive limited license to use, reproduce and display Tribal Voice, Inc.'s trademarks and logos designated by Tribal Voice, Inc. on the Co-Branded Pages during the term of this Agreement in accordance with any guidelines that Tribal Voice, Inc. may provide to PhotoLoft.com from time to time. Tribal Voice, Inc. will supply PhotoLoft.com with electronic versions of the Tribal Voice, Inc. trademarks and logos for PhotoLoft.com's use. All representations of the Tribal Voice, Inc.'s trademarks and logos that PhotoLoft.com intends to use will be exact copies of those provided by Tribal Voice, Inc., or shall first be submitted to Tribal Voice, Inc. for approval. 9.0 PROPRIETARY RIGHTS: Except as expressly provided herein, each party ------------------- shall own all right, title and interest in its respective web site and all portions thereof, including without limitation all intellectual property rights therein. Except as specifically and clearly set forth in this Agreement, neither party shall be granted any right or license to any of the other party's property, including intellectual property in its respective software, web site or any portions thereof 10.0 TERM: This Agreement shall become effective on the Effective Date and ----- shall remain in effect for a one (1) year term which shall renew automatically for successive one-year terms, unless terminated by written notice by either party thirty (30) days prior to the- end of any one year term. In the event of a breach, the non-breaching party may serve written notice of breach on the breaching party. If such breach is not cured within fourteen (14) days, the non-breaching party may immediately terminate this Agreement. 11.0 TERMINATION FOR CONVENIENCE: Either party may terminate this ----------------------------- agreement, after the initial 90 days of the agreement, upon 60 days written notice to the other party. If Tribal Voice terminates the Agreement, then Tribal Voice will inform its users that they may continue to use the Service, and PhotoLoft will have no obligation to continue financial payments to the Tribal Voice. If PhotoLoft terminates the agreement, then PhotoLoft and Tribal voice will inform users of a replacement service (if any) and continue with the financial terms of the agreement for a period of 2 years. 12.0 EFFECTS OF TERMINATION: Upon termination of this Agreement ------------------------- PhotoLoft.com will remove all branding information and revenue sharing will - ------------- cease asset forth in 11.0 above. PhotoLoft.com will continue to support Partner members with the same service and support as PhotoLoft supports its own members. 13.0 NON ASSIGNMENT: Neither this Agreement nor any rights under this --------------- Agreement may be transferred, assigned or delegated by either party without the prior written consent of the other party. , In the event the other party has been acquired or undergone a change of control, such consent shall not be unreasonably withheld. Initials of PhotoLoft.com _____ Initials of Tribal Voice, Inc. _____ 2 14.0 INDEPENDENT CONTRACTOR: With respect to all matters relating to this ------------------------ Agreement, each party is deemed to be an independent contractor. Neither party shall represent itself as an employee, servant, agent or legal representative of the other party for any purposes whatsoever. The term "Partner" is descriptive and not indicative of legal partnership, joint venture or co-ownership of any assets or interests. 15.0 GOVERNING LAW/DISPUTE RESOLUTION: The parties intend this Agreement to -------------------------------- be construed in accordance with the laws of the State of California. Tribal Voice, Inc.and PhotoLoft.com agree that they will attempt to settle any claim or controversy arising out of this Agreement through consultation and negotiation in the spirit of mutual friendship and cooperation. Any dispute which the parties cannot resolve between themselves in good faith may be submitted to the courts of the State of California. 16.0 LIMITATION OF LIABILITY: NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ----------------------- ANY LOST PROFIT OR OTHER COMMERCIAL DAMAGE, INCLUDING, WITHOUT LIMITATION, INDIRECT, SPECIAL, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES OF ANY NATURE ARISING OUT OF THIS AGREEMENT. 17.0 INDEMNIFICATION BY PHOTOLOFT.COM: PhotoLoft.com, Inc. shall indemnify, --------------------------------- defend, save and hold Partner harmless from any and all liabilities, including attorney's fees and costs, arising out of claims that the PhotoLoft.com, Inc. software and documentation, and the other intellectual property developed or provided by PhotoLoft.com, Inc. hereunder infringe the patent, trademark, copyright, trade secret or other proprietary or intellectual property rights of others. Partner shall promptly notify PhotoLoft.com, Inc. in writing if PhotoLoft.com, Inc. becomes subject to any such claims. PhotoLoft.com, Inc. shall assume defense of such claim at its own expense and with counsel of its own choosing. 18.0 MEMBER DATA: During the term of this Agreement members who enter via ------------ the Partner Co-Brand area shall provide only the necessary user information for registration to access the Services being provided as if entering via the PhotoLoft.com site. No prospective user shall be allowed to register to access the service unless the user agrees to provide such information during the registration process and agree to the terms and conditions as specified in the Member Agreement 19.0 REVENUE SHARING: PhotoLoft.com agrees to share net advertising revenues ---------------- on page views originated by Partner community members. All advertising revenue sharing is based on net income received by PhotoLoft.com after allowances are made for commissions, agency fees, and any other fees. PhotoLoft.com will pay advertising revenue sharing within 30 days after the end of the calendar quarter. The percentage of revenue sharing that Partner will receive is based on page views according to the following schedule: PAGE VIEWS PER CALENDAR MONTH PERCENTAGE REVENUE SHARE - --------------------------------- -------------------------- 0 to 250,000 20.0% 250,001 to 500,000 30.0% 500,001 and above 40.0% 19.1 Photoloft.com will make commercially reasonable efforts to insure that the commissions, agency fees, and any other fees do not exceed 40% or gross page view advertising revenue. 20.0 ENTIRE AGREEMENT: This Agreement contains the entire agreement of the ----------------- parties and supersedes all previous understandings and agreements between the parties relating to the subject matter hereof. 21.0 NOTICES: Any notice or request required to be given under or in -------- connection with this Agreement shall be in writing and given by facsimile or postpaid registered or certified mail return receipt requested. The date of receipt shall be deemed the date on which such notice or request has been given. Until such time as written notice of a change of address is given by either party to the other, any such notice or request shall be deemed sufficiently addressed when directed to the addresses of the parties set out in the first paragraph of this Agreement. Initials of PhotoLoft.com _____ Initials of Tribal Voice, Inc. _____ 3 IN WITNESS WHEREOF, the parties hereto have executed this Agreement in as of the Effective Date: By:____________________ By:_____________________ Name: Jack Marshall Name: Date: 5/7/99 Date: 5/3/99 Title: President Title: V.P Marketing PhotoLoft.com, Inc. Initials of PhotoLoft.com _____ Initials of Tribal Voice, Inc. _____ 4 EX-10.31 37 PHOTOLOFT.COM, INC. CO-BRANDED MARKETING AGREEMENT This Agreement is made this __May 12,1999___________________ (the "Effective Date") between Netopia, Inc. a Delaware corporation, having a place of business at 2470 Mariner Square Loop, Alameda, CA 94501 ("Partner"), and PhotoLoft.com, Inc., a Nevada corporation having a place of business at 300 Orchid City Drive Suite #142, Campbell, California 95008 ("PhotoLoft.com"). RE CITALS A. PhotoLoft.com offers certain proprietary software for the uploading, editing and management of photos and images (the "Software") and services for creation, maintenance and storage of on-line digital photo albums via its PhotoLoft.com web site (the "Service"). B. PhotoLoft.com and Partner desire to provide the Service to Partner's customers through the creation of a Co-Branded PhotoLoft.com site on PhotoLoft.com's server (having the URL address http://www.PhotoLoft.com/netopia to enable Partner's visitors and customers ("Visitors") to register to use services or view photo albums from PhotoLoft.com. AGREEMENT For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. CO-BRANDING. ----------- 1.1 Co-Branded Pages. Upon the Effective Date, PhotoLoft.com will ----------------- promptly develop (a) a co-branded version of the standard Premium PhotoLoft.com service offering (the "Co-Branded Pages") at the URL address http://www.PhotoLoft.com/netopia showing the logo of Partner. The Co-Branded ------------- Pages will offer users all of the functionality and look and feel of PhotoLoft.com's standard Premium service offering with the sole exception of adding Partner's logo. During the term of this Agreement, the Partner will maintain Links on the Partners home page/front page, toolbar/menu bar, and other appropriate locations to be agreed upon by PhotoLoft.com and Partner. PhotoLoft.com reserves the right to make any additional page modifications to the Co-Branded Pages after the initial design or refuse to include any design or elements that interfere with the operations of the Co-Branded Pages or the Service, provided, however, that the Co-Branded Pages at all times will offer users all of the functionality and look and feel of PhotoLoft.com's standard Premium service. 2. MARKETING BY PARTNER. Partner will provide a logo on visible areas -------------------- of Partner's pages with a link to the Co-branded Pages. Partner will email all current users announcing new photo and album sharing capability. Partner agrees to place the PhotoLoft offer on customers' private pages. 3. MARKETING BY PHOTOLOFT.COM. PhotoLoft.com shall offer Partner's ---------------------------- customers a free Premium PhotoLoft.com account for a period of one (1) year. Partner's customers will be identified by the co-branded entrance page which will be referred to from Partner's site. Every image posted by Partner's customer will be identified as having been posted by Partner's customer. Every time that image is viewed by any user on the PhotoLoft.com branded site, a logo of the Partner containing that image will also be displayed to that user. The size and placement of the logo will be at the discretion of the PhotoLoft.com. 4. CO-PROMOTION: Upon completion of the Co-Branded Pages, the ------------ Co-Branded Software and associated links, PhotoLoft.com and Partner will issue a joint press release. In addition, Partner will notify its installed base of customers of the availability of PhotoLoft.com via e-mail or other mutually agreed upon method. Initials of PhotoLoft.com _____ Initials of Partner _____ 1 5. LICENSES AND OWNERSHIP. ------------------------ 5.1 Licenses by PhotoLoft.com to Partner. During the term of this ---------------------------------------- Agreement PhotoLoft.com hereby grants to Partner a non-exclusive, worldwide, nontransferable, royalty free license to use PhotoLoft.com's trademarks and logos, as the same may be modified from time to time by PhotoLoft.com, only for the purposes of this Agreement. All representations of the PhotoLoft.com trademarks and logos that Partner uses will be exact copies of those provided by PhotoLoft.com, or shall first be submitted to PhotoLoft.com for approval. PhotoLoft.com will supply Partner with electronic versions of the PhotoLoft.com trademarks and logos for Partner's use. 5.2 Licenses by Partner to PhotoLoft.com. During the term of this ---------------------------------------- Agreement Partner hereby grants PhotoLoft.com a nonexclusive, worldwide, nontransferable, royalty free license to use Partner's trademarks and logos, as the same may be modified from time to time by Partner, only for the purposes of this Agreement. All representations of the Partner trademarks and logos that PhotoLoft.com uses will be exact copies of those provided by Partner, or shall first be submitted to Partner for approval. Partner will supply PhotoLoft.com with electronic versions of the Partner trademarks and logos for PhotoLoft.com's use. 5.3 Ownership by PhotoLoft.com. PhotoLoft.com shall own all right, ---------------------------- title, and interest in the PhotoLoft.com trademarks and logos, the Co-Branded Pages, the services offered by PhotoLoft.com at www.PhotoLoft.com and all Intellectual Property Rights therein, including any derivatives, improvements thereof. For purposes of this Agreement, "Intellectual Property Rights" shall mean all patent rights, copyrights, trademarks, service marks, trade dress, trade secrets and other intangible rights. PhotoLoft.com disclaims any ownership interest in the images and content posted by its members to the Partner Co-Branded area and the Service. 5.4 Ownership by Partner. Partner shall own all right, title, and ---------------------- interest in Partner's trademarks and logos, and all Intellectual Property Rights therein, including any derivatives, or improvements thereof. 5.5 Joint Ownership. PhotoLoft.com and Partner shall jointly own the ---------------- data regarding the persons accessing the Co Branded Pages. Neither party shall be required to account to the other party, or share any of the profits from the use, if any, of such data. 5.6 No Implied Licenses. Except as specifically and clearly --------------------- set forth in this Agreement, neither party shall be granted any right or license to any of the other party's property, including intellectual property in its respective software, web site or any portions thereof. 6. PAYMENT: The business terms for this Agreement are defined in ------- Exhibit A. 7. REPRESENTATIONS AND WARRANTIES. -------------------------------- 7.1 Representations and Warranties of Partner. Partner hereby --------------------------------------------- represents and warrants to PhotoLoft.com that: (i) Partner has the full power and authority to enter into this Agreement and to carry out its obligations under this Agreement; (ii) Partner has the full power and authority to grant the rights and licenses granted to PhotoLoft.com in this Agreement; and (iii) Partner owns the Partner trademarks and logos. 7.2 Representations and Warranties of PhotoLoft.com. PhotoLoft.com ----------------------------------------------- hereby represents and warrants to Partner that (i) Photloft.com has the full power and authority to enter into this Agreement and to carry out its obligations under this Agreement; (ii) PhotoLoft.com has the full power and authority to grant the rights and licenses granted to Partner in this Agreement; and (iii) PhotoLoft.com owns the PhotoLoft.com trademarks and logos. Initials of PhotoLoft.com _____ Initials of Partner _____ 2 7.3 THE PHOTOLOFT.COM SERVICES FURNISHED AS A RESULT OF OR UNDER THIS AGREEMENT ARE PROVIDED ON AN "AS IS" BASIS, WITHOUT ANY WARRANTIES OR REPRESENTATIONS EXPRESS, IMPLIED OR STATUTORY; INCLUDING, WITHOUT LIMITATION, WARRANTIES OF QUALITY, PERFORMANCE, NONINFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. NOR ARE THERE ANY WARRANTIES CREATED BY A COURSE OF DEALING, COURSE OF PERFORMANCE OR TRADE USAGE. PHOTOLOFT.COM DOES NOT WARRANT THAT THE SERVICES, WILL MEET PARTNER'S OR ANY END USERS' NEEDS OR BE FREE FROM ERRORS, OR THAT THE OPERATION OF ITS WEB PAGES WILL BE UNINTERRUPTED. THE FOREGOING EXCLUSIONS AND DISCLAIMERS ARE AN ESSENTIAL PART OF THIS AGREEMENT. 8. COVENANTS. --------- 8.1 Adult Content. PhotoLoft.com shall make reasonable commercial -------------- efforts to prevent pornographic material from being publicly viewable on the Co-Branded Pages. Accordingly, all members registering through the Co-Branded Pages shall agree to be bound by the Member Agreement attached hereto as Exhibit ------- B. - -- 8.2 Member Data. During the term of this Agreement, any members ------------ entering via the Co-Branded pages shall provide only such information as is necessary to register to access the Service in the same manner as if such member was entering the Service through the PhotoLoft.com branded site. 8.3 Technical Support. PhotoLoft.com shall provide technical support ------------------ to the users of the Co-Branded Pages. Technical support shall be provided through e-mail. In order to obtain support, users shall send their questions, comments or requests to support@photoloft.com. PhotoLoft.com shall use reasonable efforts to respond in a timely manner. PhotoLoft.com shall also provide technical support to Partner. Support to Partner shall be provided by e-mail and telephone. Telephone support shall be provided Monday through Friday 9:00a.m to 5:00 p.m. Pacific Standard Time, except for holidays. Evening and weekend support shall be provided via pager. 9. CONFIDENTIALITY. --------------- 9.1 Agreement as Confidential Information. The parties shall treat the ------------------------------------- terms and conditions of this Agreement as Confidential Information. Each party shall obtain the other's consent prior to any publication, presentation, public announcement or press release concerning the existence or terms and conditions of this Agreement. 9.2 Confidential Information. "Confidential Information" means all ------------------------- information identified in written or oral format by the Disclosing Party as confidential, trade secret or proprietary information, and, if disclosed orally, summarized in written format within thirty (30) days of disclosure. "Disclosing Party" is the party disclosing Confidential Information. "Receiving Party" is the party receiving Confidential Information. The Receiving Party shall not disclose the Confidential Information to any third party other than persons in the direct employ of the Receiving Party who have a need to have access to and knowledge of the Confidential Information solely for the purpose authorized above. Each party shall take appropriate measures by instruction and agreement prior to disclosure to such employees to assure against unauthorized use or disclosure. The Receiving Party shall have no obligation with respect to information which (i) was rightfully in possession of or known to the Receiving Party without any obligation of confidentiality prior to receiving it from the Disclosing Party; (ii) is, or subsequently becomes, legally and publicly available without breach of this Agreement; (iii) is rightfully obtained by the Receiving Party from a source other than the Disclosing Party without any obligation of confidentiality; (iv) is disclosed by the Receiving Party under a valid order created by a court or government agency, provided that the Receiving Party provides prior written notice to the Disclosing Party of such obligation and the opportunity to oppose such disclosure. Upon written demand of the Disclosing Party, the Receiving Party shall cease using the Confidential Information and return the Confidential Information and all copies, notes or extracts thereof to the Disclosing Party within seven (7) days of receipt of notice. Initials of PhotoLoft.com _____ Initials of Partner _____ 3 10. INDEMNITY AND LIMITATION OF LIABILITY. ----------------------------------------- 10.1 Indemnification by Partner. Partner shall defend, indemnify and ---------------------------- hold PhotoLoft.com harmless from any and all damages, liabilities, costs and expenses (including, but not limited to reasonable attorneys' fees) incurred by PhotoLoft.com as a result of (i) any breach of this Agreement; (ii) any claim that the Partner trademarks or logos or any part thereof, infringes or misappropriates any Intellectual Property Right of a third party; (iii) any claim arising out of PhotoLoft.com 's display of Partner's trademark or logos. PhotoLoft.com shall provide Partner with written notice of the claim and permit Partner to control the defense, settlement, adjustment or compromise of any such claim. PhotoLoft.com may employ counsel at its own expense to assist it with respect to any such claim; provided, however, that if such counsel is necessary because of a conflict of interest of either Partner or its counsel or because Partner does not assume control, Partner will bear the expense of such counsel. 10.2 Indemnification by PhotoLoft.com. PhotoLoft.com shall defend, ---------------------------------- indemnify and hold Partner harmless from any and all damages, liabilities, costs and expenses (including, but not limited to reasonable attorneys' fees) incurred by Partner as a result of (i) any breach of this Agreement; (ii) any claim that the Photoloft.com trademarks or logos or any part thereof, infringes or misappropriates any Intellectual Property Right of a third party; or (iii) any claim arising out of Partner's display of the PhotLoft.com trademarks or logos. Partner shall provide PhotoLoft.com with written notice of the claim and permit PhotoLoft.com to control the defense, settlement, adjustment or compromise of any such claim. Partner may employ counsel at its own expense to assist it with respect to any such claim; provided, however, that if such counsel is necessary because of a conflict of interest of either PhotoLoft.com or its counsel or because PhotoLoft.com does not assume control, PhotoLoft.com will bear the expense of such counsel. 10.3 Limitation of Liability. EXCEPT AS SET FORTH IN SECTION 9 AND 10, ----------------------- UNDER NO CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER UNDER ANY CONTRACT, STRICT LIABILITY, NEGLIGENCE OR OTHER LEGAL OR EQUITABLE THEORY, FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST PROFITS IN CONNECTION WITH THE SUBJECT MATTER OF THIS AGREEMENT. 11. TERM AND TERMINATION. ---------------------- 11.1 Term of Agreement. This Agreement shall be effective upon the ------------------- Effective Date and shall remain in force for a period of three (3) years, and shall be automatically renewed for successive periods of one (1) year unless otherwise terminated as provided herein. 11.3 Termination for Cause. This Agreement may be terminated by a ----------------------- party for cause immediately upon the occurrence of and in accordance with the following: (a) Insolvency Event. Either may terminate this Agreement by delivering written notice to the other party upon the occurrence of any of the following events: (i) a receiver is appointed for either party or its property; (ii) either makes a general assignment for the benefit of its creditors; (iii) either party commences, or has commenced against it, proceedings under any bankruptcy, insolvency or debtor's relief law, which proceedings are not dismissed within sixty (60) days; or (iv) either party is liquidated or dissolved. Initials of PhotoLoft.com _____ Initials of Partner _____ 4 (b) Default. Either party may terminate this Agreement effective upon written notice to the other if the other party violates any covenant, agreement, representation or warranty contained herein in any material respect or defaults or fails to perform any of its obligations or agreements hereunder in any material respect, which violation, default or failure is not cured within thirty (30) days after notice thereof from the non-defaulting party stating its intention to terminate this Agreement by reason thereof. 11.4 Survival of Rights and Obligations Upon Termination. Sections 6, ----------------------------------------------------- 7, 8, 9, 10 and 12 shall survive termination or expiration of this Agreement. 11.5 Return of Materials Upon Termination. On or before ten (10) days ------------------------------------- after the termination of this Agreement, each party shall deliver to the other party all such other party's Confidential Information and trademarks and logos, including but not limited to all work product, diagrams, designs and schematics in Partner's possession. 12. MISCELLANEOUS. ------------- 12.1 Force Majeure. Neither party shall be liable to the other for -------------- delays or failures in performance resulting from causes beyond the reasonable control of that party, including, but not limited to, acts of God, labor disputes or disturbances, material shortages or rationing, riots, acts of war, governmental regulations, communication or utility failures, or casualties. 12.2 Relationship of Parties. The parties are independent contractors ------------------------ under this Agreement and no other relationship is intended, including a partnership, franchise, joint venture, agency, employer/employee, fiduciary, master/servant relationship, or other special relationship. Neither party shall act in a manner which expresses or implies a relationship other than that of independent contractor, nor bind the other party. The term Partner is descriptive and does not imply a legal partnership, joint venture, or co-ownership. 12.3 No Third Party Beneficiaries. Unless otherwise expressly ------------------------------- provided, no provisions of this Agreement are intended or shall be construed to confer upon or give to any person or entity other than PhotLoft.com and Partner any rights, remedies or other benefits under or by reason of this Agreement. 12.4 Equitable Relief. Each party acknowledges that a breach by the ----------------- other party of any confidentiality or proprietary rights provision of this Agreement may cause the non-breaching party irreparable damage, for which the award of damages would not be adequate compensation. Consequently, the non-breaching party may institute an action to enjoin the breaching party from any and all acts in violation of those provisions, which remedy shall be cumulative and not exclusive, and a party may seek the entry of an injunction enjoining any breach or threatened breach of those provisions, in addition to any other relief to which the non-breaching party may be entitled at law or in equity. 12.5 Attorneys' Fees. In addition to any other relief awarded, the ---------------- prevailing party in any action arising out of this Agreement shall be entitled to its reasonable attorneys' fees and costs. 12.6 Notices. Any notice required or permitted to be given by either ------- party under this Agreement shall be in writing and shall be personally delivered or sent by a reputable overnight mail service (e.g., Federal Express), or by first class mail (certified or registered), or by facsimile confirmed by first class mail (registered or certified), to the party at the address indicated above. Notices will be deemed effective (i) three (3) working days after deposit, postage prepaid, if mailed, (ii) the next day if sent by overnight mail, or (iii) the same day if sent by facsimile and confirmed as set forth above. Initials of PhotoLoft.com _____ Initials of Partner _____ 5 12.7 Non Assignment. Neither this Agreement nor any rights under this ---------------- Agreement may be transferred, assigned or delegated by either party without the prior written consent of the other party, which consent shall not be withheld unreasonably. 12.8 Governing Law. This Agreement shall be governed by California law. ------------- 12.9 Entire Agreement. This Agreement contains the entire ----------------- agreement between the parties and supercedes all previous understandings, agreements, correspondence and memorandums between the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement in as of the Effective Date: PHOTOLOFT.COM: PARTNER: By:/S/ Jack Marshall By:/S/ Alan Lefkof -------------------- -------------------- Name: Jack Marshall Name: Title:_________________ Title:_________________ Date:__________________ Date:__________________ TABLE OF EXHIBITS EXHIBIT A - BUSINESS TERMS EXHIBIT B - MEMBER AGREEMENT Initials of PhotoLoft.com _____ Initials of Partner _____ 6 EXHIBIT A BUSINESS TERMS 1. ADVERTISING a. PhotoLoft.com will be solely responsible for selling the ads shown on the Co-Brand Pages. PhotoLoft.com will insure that no ads are shown on the Co-Branded Pages for companies that are directly competitive with Partner. Partner agrees to provide PhotoLoft.com a complete list of companies that it considers to be its direct competitors and that Partner will be responsible for updating such list on behalf of PhotoLoft.com. b. PhotoLoft.com will pay to Partner fifteen percent (15%) of all advertising revenues actually received by PhotoLoft.com. Partner understands that PhotoLoft.com may use third party agencies to manage the sales of such advertising, and that such agencies deduct their ad sales commissions prior to making any payments to PhotoLoft.com. As a result Partner's revenue share is on those amounts actually received by PhotoLoft.com. 2. REPORTING AND PAYMENT a. PhotoLoft.com shall make all payments due to Partner within thirty (30) days of the end of each calendar quarter for all amounts received under Exhibit A, Section 1(b) and Exhibit A, Section 2(b) during such calendar quarter. Such payments will be accompanied by a report which shall provide all reasonably necessary information for computation of the amounts due Partner, if any, for the applicable period. Such report shall also provide Partner with statistics on the number of users that sign up to use the service on the Co-Branded Pages and shall provide Partner with the last name and zip code of all such users. c. PhotoLoft.com agrees to keep accurate books of account and records at its principal place of business covering all amounts receives for advertising sales and commissions on commerce related to the Co-Branded Pages. Upon reasonable notice of not less than seven (7) business days, but in no event more than once per year (unless the immediately preceding audit showed a material underpayment), Partner shall have the right, subject to suitable confidentiality measures, to cause a certified public accountant at Partner's sole expense to inspect those portions of the books of account and records which relate to the royalties owed Partner, to confirm that the correct amount owing Partner under this Agreement has been paid. PhotoLoft.com shall maintain such books of account and records which support each statement for at least two years after the termination or expiration of this contract or for at least two years after the final payment made by PhotoLoft.com to Partner, whichever is later. d. Partner agrees to keep accurate books of account and records at its principal place of business covering all sales resulting from the use of Partner supplied banners on the Co-Branded Pages. Upon reasonable notice of not less than seven (7) business days, but in no event more than once per year (unless the immediately preceding audit showed a material underpayment), PhotoLoft.com shall have the right, subject to suitable confidentiality measures, to cause a certified public accountant at PhotoLoft.com's sole expense to inspect those portions of the books of account and records which relate to the royalties owed PhotoLoft.com, to confirm that the correct amount owing PhotoLoft.com under this Agreement has been paid. Partner shall maintain such books of account and records which support each statement for at least two years after the termination or expiration of this contract or for at least two years after the final payment made by Partner to PhotoLoft.com, whichever is later. Initials of PhotoLoft.com _____ Initials of Partner _____ 7 EXHIBIT B PHOTOLOFT.COM AND PARTNER PRIVATE LABEL MEMBER AGREEMENT PhotoLoft.com, Terms and Conditions AGREEMENT FOR USE OF PHOTOLOFT.COM WEB HOSTING AND E-COMMERCE SERVICES BEFORE YOU USE OR ACCEPT THE WEB HOSTING OR E-COMMERCE SERVICES PROVIDED BY PHOTOLOFT.COM, AND IN ORDER TO CONTINUE THE USE OF THESE SERVICES, CAREFULLY READ THE TERMS AND CONDITIONS OF THIS AGREEMENT. BY INPUTTING SUBSCRIBER INFORMATION, REGISTERING, OR ACTIVATING YOUR WEB HOSTING ACCOUNT or CLICKING ON THE "I ACCEPT" BUTTON, YOU ARE AGREEING TO BE BOUND BY, AND ARE BECOMING A PARTY TO, THIS AGREEMENT. IF YOU DO NOT ACCEPT AND AGREE TO ALL THE TERMS AND CONDITIONS OF THIS AGREEMENT, DO NOT INPUT SUBSCRIBER INFORMATION, REGISTER, OR ACTIVATE YOUR ACCOUNT.This agreement ("Agreement") becomes effective when you complete all of the membership information required on the Member Registration Form and indicate your agreement to this Member Agreement by "clicking" on the "I ACCEPT" button when it is presented. This Agreement is between PHOTOLOFT.COM ("PhotoLoft"), a Nevada corporation, and the Member ("Member," "you," or "your"). This Agreement sets forth the terms and conditions under which you agree to use PhotoLoft's Web Hosting and eCommerce Services ("Service" or "Services"). 1. Terms of Service A. Commencing on the date on which you initiate the Services, you will have use of the Services pursuant to the terms and conditions set forth herein and in the accompanying Acceptable Use Policy. In exchange, you will pay the current charges for such Services, if applicable. The Free Basic PhotoLoft Account, providing simple photo uploading capability, shall be free of charge. The Premium PhotoLoft Account, providing greater functionality, shall be available at the price regularly posted on the PhotoLoft Web site (www.photoloft.com). The terms, conditions, and charges for the Services may be periodically modified. Such modified terms, conditions, and charges can be found at the PhotoLoft Web site (www.photoloft.com). After notice of a modification, your continued use of the Services constitutes an affirmative agreement to be bound by such new terms, conditions, and charges. B. The Services shall continue until such time as you provide PhotoLoft with notice that you wish to discontinue the Services, or the Services are terminated and/or canceled by PhotoLoft, as set forth herein. For termination of the Premium PhotoLoft Account, notice must have been received by PhotoLoft at least two billing days prior to the yearly billing date in order to avoid charges for the subsequent year. C. PHOTOLOFT reserves the right to modify or discontinue the Services, and any rates, terms, or conditions, at any time. 2. Modifications. PhotoLoft may modify this Agreement and its Acceptable Use Policy at any time in its sole discretion. Any modification is effective immediately upon either a posting on the PhotoLoft Home Page, or by a message from PhotoLoft sent by electronic mail, or by conventional mail. If any modification to this Agreement is unacceptable to you, you may immediately terminate the Services. However, if you do not terminate the Services, or continue to use the Services following modification to this Agreement, your continued use will mean that you have accepted that modification. Initials of PhotoLoft.com _____ Initials of Partner _____ 8 3. Fees. For all Charges for the Services, PhotoLoft will bill your credit card. Recurring charges are billed in advance of service. In the event legal action is necessary to collect on balances due, you agree to reimburse PhotoLoft for all expenses incurred to recover sums due, including attorneys fees and other legal expenses. You are responsible for purchase of, and payment of charges for, Internet Access Services and Telecommunications Services needed for use of the Services. 4. Personal Information. You hereby certify that you are not a minor. A minor's parent or legal guardian may authorize a minor to use his/her account(s) under supervision by the parent or guardian. For purposes of identification, billing and marketing, you must provide accurate, complete, and updated information to register for use of the Services ("Member Registration Data"), including your legal name, address, telephone number(s), and applicable payment data (for example, a credit card number and expiration date). You must provide updated information within 30 days of any changes in your Member Registration Data. PhotoLoft may require a copy of a state-issued form of identification before making changes to the billing information or registration data on a Customer's account. 5. Provision of Services. You understand and agree that temporary interruptions of the Services may occur as normal events. You further understand and agree that PhotoLoft has no control over third party networks you may access in the course of the use of the Services, and therefore, delays and disruption of other network transmissions are completely beyond the control of PhotoLoft. 6. Limitation of Liability A. PhotoLoft will make reasonable efforts to provide continuous, uninterrupted, expedient, and error-free Service to you. Under no circumstances shall PhotoLoft be liable to you or any other person for any special, incidental, consequential, or punitive damages of any kind, including without limitation, loss of profits, loss of income or cost of replacement Services. B. PhotoLoft's liability for damages in regards to extraordinary and unreasonable interruptions of service, or for mistakes, omissions, delays, errors and defects (including, but not limited to, interruption of service, deletion of files, loss of or damage to data, and damages resulting from computer viruses) in the provision of the Services, shall in no event exceed an amount equal to the prorata charges to you for the period during which the Services are affected. YOU HEREBY ACKNOWLEDGE THAT THIS PROVISION WILL APPLY WHETHER OR NOT PHOTOLOFT IS GIVEN NOTICE OF THE POSSIBILITY OF SUCH DAMAGES AND THAT THIS PROVISION WILL APPLY TO ALL CONTENT, MERCHANDISE OR SERVICES AVAILABLE FROM PHOTOLOFT OR ITS AFFILIATES AND VENDORS. C. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, PHOTOLOFT HEREBY DISCLAIMS ANY AND ALL WARRANTIES INCLUDING IMPLIED WARRANTIES OF FITNESS, MERCHANTABILITY, AND PERFORMANCE. D. PHOTOLOFT MAKES NO WARRANTY THAT THE SERVICES WILL MEET YOUR REQUIREMENTS, OR THAT THE SERVICES WILL BE UNINTERRUPTED, TIMELY, SECURE, OR ERROR FREE; NOR DOES PHOTOLOFT MAKE ANY WARRANTY AS TO THE ACCURACY OR RELIABILITY OF ANY INFORMATION OBTAINED THROUGH THE SERVICES. YOU UNDERSTAND AND AGREE THAT ANY MATERIAL AND/OR DATA UPLOADED, DOWNLOADED, OR OTHERWISE OBTAINED, THROUGH THE USE OF THE SERVICES IS DONE AT YOUR OWN RISK, AND THAT YOU WILL BE SOLELY RESPONSIBLE FOR ANY DAMAGE TO YOUR COMPUTER SYSTEM OR LOSS OF DATA THAT RESULTS FROM THE UPLOAD OR DOWNLOAD OF SUCH MATERIAL AND/OR DATA. NO ORAL ADVICE OR WRITTEN INFORMATION GIVEN BY PHOTOLOFT, ITS EMPLOYEES, LICENSORS, AGENTS OR THE LIKE, WILL CREATE A WARRANTY, AND YOU MAY NOT RELY ON SUCH ORAL ADVICE OR WRITTEN INFORMATION. Initials of PhotoLoft.com _____ Initials of Partner _____ 9 D. Through your use of the Services, you may have the opportunities to engage in commercial transactions with other Internet users and vendors. You acknowledge that all transactions relating to any merchandise or services offered by any party, including, but not limited to the purchase terms, payment terms, warranties, guarantees, maintenance and delivery terms relating to such transactions, are agreed to solely between the seller or purchaser of such merchandize and services and you. PHOTOLOFT MAKES NO WARRANTY REGARDING ANY TRANSACTIONS EXECUTED THROUGH, OR IN CONNECTION WITH THE SERVICES, AND YOU UNDERSTAND AND AGREE THAT SUCH TRANSACTIONS ARE CONDUCTED ENTIRELY AT YOUR OWN RISK. 7. Indemnity A. You agree to indemnify and hold PhotoLoft harmless from all claims, losses, liens, expenses, suits and attorneys' fees ("Liabilities") for injuries to or death of any person and for damages to or loss of any property which may in any way arise out of or result from or in connection with your use of the Services, except to the extent that such Liabilities arise from the willful misconduct of PhotoLoft. B. You agree to indemnify PhotoLoft, its affiliates and subsidiaries, in the event that your use of the Services (i) constitutes a violation of any law, regulation or tariff (including, without limitation, copyright and intellectual property laws); (ii) is defamatory, fraudulent or deceptive, (iii) is intended to threaten, harass or intimidate, (iv) violates PhotoLoft's Acceptable Use Policy as it is modified from time to time, or (v) interferes with other customers' use or enjoyment of the Services provided by PhotoLoft. 8. Compatibility You are solely responsible for provisioning, configuration and maintenance of all equipment and software on your premises, including, without limitation, computer equipment, photography equipment and software, application software, and modems. PhotoLoft shall not be responsible for delays in the provision of Services resulting from incompatibility of such equipment and software, or resulting from improper provisioning, configuration or maintenance of such equipment and software 9. Advertising You shall not use PhotoLoft's name or any language, pictures or symbols which could, in PhotoLoft's judgment, imply PhotoLoft's endorsement in any (i) written or oral advertising or presentation, or (ii) brochure, newsletter, book, or other written material of whatever nature, without prior written consent. 10. Member Responsibilities and Use Limitations A. You agree to comply with PhotoLoft's Acceptable Use Policy as it may be modified from time to time, and to comply with the rules, regulations, and policies applicable to any network you access. Any violation of such rules, regulation and policies, or any network policy document issued by PhotoLoft, shall be cause for PhotoLoft to suspend or terminate the Services. B. You agree that you will not place or allow anyone using your account to place any copyrighted material on the Service without the permission of the copyright owner or persons authorized by the copyright owner to grant permission. You are responsible for obtaining the necessary permission before permitting any copyrighted material that belongs to others to be placed on the Service. You may download the material available on the Service only for your personal, non-commercial use. Except as authorized to use material without express permission under the copyright laws, you are responsible for obtaining permission before reusing any copyrighted material that is available on the Service. Initials of PhotoLoft.com _____ Initials of Partner _____ 10 C. Nothing contained in this Agreement may be construed to convey to you any interest, title, or license in the user ID, URL, IP Address, or domain name used by you in connection with the Services. D. PhotoLoft reserves the right to suspend or terminate the Services to you, or to suspend or terminate any user ID, URL, IP Address, or domain name used by you, in the event it is used in a manner which (i) constitutes violation of any law, regulation or tariff (including, without limitation, copyright and intellectual property laws); (ii) is defamatory, fraudulent, obscene or deceptive; (iii) is intended to threaten, harass or intimidate; (iv) tends to damage the name or reputation of PhotoLoft, its parent, affiliates and subsidiaries; (vi) violates PhotoLoft's Acceptable Use Policy or (vii) interferes with other customers' use and enjoyment of the Services provided by PhotoLoft. E. You understand and agree that any attempt to break security, or to access an account which does not belong to you, shall be considered a material breach of this Agreement, and such breach may result in suspension or termination of the Services. You further agree to immediately notify PhotoLoft of (i) any unauthorized use of your account and/or (ii) any breach, or attempted breach, of security known to you. 11. License Grant and Copyright Notice A. You retain all rights in any material uploaded to the Service by you or others you authorize to use your account. You grant PhotoLoft and its designated licensees a non-exclusive, paid-up, perpetual, and worldwide right to copy, distribute, display, perform, publish, translate, adapt, modify, and otherwise use such material in connection with the PhotoLoft Service regardless of the medium, technology, or form in which it is used. B. The entire content of the Service is copyrighted by PhotoLoft as a collective work under the United States copyright laws. Portions of the Service are provided to PhotoLoft under license. The copying, reproduction, or publication of any part of the Service is prohibited, unless expressly authorized in writing by PhotoLoft. 1. Force Majeure Neither PhotoLoft nor you shall be responsible for damages or for delays or failures in performance resulting from acts or occurrences beyond their reasonable control, including, without limitation: fire, lightning, explosion, power surge or failure, water, acts of God, war, revolution, civil commotion or acts of civil or military authorities or public enemies: any law, order, regulation, ordinance, or requirement of any government or legal body or any representative of any such government or legal body; or labor unrest, including without limitation, strikes, slowdowns, picketing, or boycotts; inability to secure raw materials, transportation facilities, fuel or energy shortages, or acts or omissions of other common carriers. 12. Cancellation, Termination, and Assignment A. In the event that a ruling, regulation, or order issued by a judicial, legislative or regulatory body causes PhotoLoft to believe that this Agreement and/or the Services provided hereunder, may be in conflict with such rules, regulations, or orders, PhotoLoft may suspend or terminate the Services, or terminate this Agreement, without liability. B. Cancellation Charges: PhotoLoft does not refund charges for unused service. Initials of PhotoLoft.com _____ Initials of Partner _____ 11 C. If you fail to pay any charge when due, including, but not limited to, product charges, service charges, or taxes, or if you fail to perform or observe any other material term or condition of this Agreement, or if you provide false or inaccurate information which is required for the provision of the Services or is necessary to allow PhotoLoft to bill you for the Services, and such condition continues unremedied for thirty days, you shall be in default and PhotoLoft may suspend or terminate the Services. D. You may not assign your account for Services to anyone without the express written consent of PhotoLoft. Upon reasonable notice, PhotoLoft may assign its rights and obligations under this Agreement. 13. Notices. Any notices in connection with this Agreement must be sent to each party as follows: if to PhotoLoft: 300 Orchard City Drive Suite 142 Campbell, CA 95008 Email:support@photoloft.com if to you: Either the e-mail address supplied for your account, or the address supplied by you as part of the Member Registration Data. Any notices or communication under this Agreement will be deemed delivered to the party receiving such communication (1) on the delivery date if delivered personally to the party; (2) two business days after deposit with a commercial overnight carrier, with written verification of receipt; (3) five business days after the mailing date, if sent by US mail, return receipt requested; (4) on the delivery date if transmitted by confirmed facsimile; or (5) on the delivery date if transmitted by confirmed e-mail. 14. General: A. This Agreement, and the provision of the Services, may be terminated at any time by either party upon written notice to the other. B. This Agreement shall be construed in accordance with the Laws of the State of California. C. Some jurisdictions do not allow the exclusion of certain warranties, in which case such warranty exclusions may not apply to you. D. This Agreement and the accompanying Acceptable Use Policy constitute the entire agreement between you and PhotoLoft with respect to the Service and supersede all other communications. E. The provisions of this Agreement are for the benefit of PhotoLoft.com and its service providers, licensors, employees, and agents; and each may assert and enforce those provisions directly on its own behalf. 15. PhotoLoft.com Acceptable Use Policy Important Note: This document is updated often. Please make a habit of reviewing it from time to time to stay abreast of acceptable as well as inappropriate uses of your PhotoLoft.com ("PhotoLoft") account. Reports of activity in violation of this policy may be sent via e-mail to support@photoloft.com This document is divided into the following sections: Introduction General Information Web Sites Security Network Management Network Performance Illegal Activity Initials of PhotoLoft.com _____ Initials of Partner _____ 12 Introduction PhotoLoft.com has established an Acceptable Use Policy in order clarify the duties and responsibilities of the Members. This document is intended to provide a general understanding of PhotoLoft's Acceptable Use Policy. The following factors guide the establishment and enforcement of PhotoLoft's usage policies: Ensure reliable service to our customers Ensure security and privacy of our systems and network, as well as the networks and systems of others. Comply with existing laws Maintain our reputation as a responsible service provider Encourage responsible use of the Internet and discourage activities which reduce the usability and value of Internet services Preserve the value of Internet resources as a conduit for free expression and exchange of information Preserve the privacy and security of individual users We do not routinely monitor the activity of accounts except for measurements of system utilization and the preparation of billing records. However, in our efforts to promote good citizenship within the Internet community, we will respond appropriately if we become aware of inappropriate use of our service. If your account is used to violate the Acceptable Use Policy, we reserve the right to terminate your service without notice. We may also suspend the account, restrict access to it, or remove content from it if necessary or appropriate. We prefer to advise customers of inappropriate behavior and any necessary corrective action. However, flagrant violations of the Acceptable Use Policy will result in immediate termination of service. Our failure to enforce this policy, for whatever reason, shall not be construed as a waiver of our right to do so at any time. As a member of our photographic community, you must use your membership responsibly. If you have any questions regarding this policy, please contact us at support@photoloft.com General Information Your PhotoLoft account provides you with the opportunity to upload, view, organize, and print a variety of your photographs and images quickly and conveniently. Your use of these services is subject to the following policy. Violations of this policy may result in termination of your account with or without notice in accordance with the Agreement for Use of PhotoLoft.com Services that you accepted at the time you created your account. In general, you may NOT use your PhotoLoft account: Initials of PhotoLoft.com _____ Initials of Partner _____ 13 In a manner that violates any law, regulation, treaty or tariff or infringes on the legal rights of any third party; In a manner which is defamatory, fraudulent, indecent, offensive or deceptive; To threaten, harass, abuse or intimidate others; To damage the name or reputation of PhotoLoft, its affiliates, or subsidiaries; To break security on any computer network access an account that does not belong to you; or In a manner that interferes with other customers' use and enjoyment of the services provided by PhotoLoft. PhotoLoft reserves sole discretion to determine whether any use of the service is a violation of this policy. Guidelines for using your account follows. This information is only a guideline, and is not intended to be all-inclusive. Web Sites PhotoLoft provides storage space and access for photographs and images through its Web Hosting service. PhotoLoft will not routinely monitor the contents of your photo albums. You are solely responsible for any information contained in your photo albums. However, if complaints are received regarding language, content, or graphics contained on your web site, PhotoLoft may, at its sole discretion, remove the photographs hosted on PhotoLoft servers and terminate your Web Hosting service. We may also suspend the account, restrict access to it, or remove content from it if necessary or appropriate. You may not use your web site to publish material that PhotoLoft determines, at its sole discretion, to be unlawful, indecent, or objectionable. For purposes of this policy, "material" refers primarily to photographs, but also extends to cover all forms of communication that the PhotoLoft site may allow, including narrative descriptions, other graphics (including illustrations, images, drawings, logos), executable programs, video recordings, and audio recordings. Unlawful content is that which violates any law, statute, treaty, regulation, or order. This includes, but is not limited to: obscene material; defamatory, fraudulent, or deceptive statements; threatening, intimidating, or harassing statements, or material that violates the privacy rights or property rights of others (copyrights or trademarks, for example). Indecent content is that which depicts sexual or excretory activities in a patently offensive matter as measured by contemporary community standards. Objectionable content is otherwise legal content with which PhotoLoft concludes, in its sole discretion, it does not want to be associated in order to protect its reputation and brand image, or to protect its employees, shareholders and affiliates. This includes, but is not limited to, all content that, in the sole discretion of PhotoLoft, is determined to be advertising or otherwise for commercial purposes, unless expressly permitted in writing by PhotoLoft. Examples of prohibited web site content: Materials that depict or describe scantily-clad and lewdly depicted male and/or female forms or body parts, and which lack serious literary, artistic, political or scientific value. Initials of PhotoLoft.com _____ Initials of Partner _____ 14 Materials that suggest or depict obscene, indecent, vulgar, lewd or erotic behavior, and which lack serious literary, artistic, political or scientific value. Materials that hold PhotoLoft including its affiliates, employees or shareholders up to public scorn or ridicule. Materials that encourage the commission of a crime; or which tends to incite violence; or which tends to degrade any person or group based on sex, nationality, religion, color, age, marital status, sexual orientation, disability or political affiliation. Materials including product advertisements. Security You are responsible for any misuse of your account, even if the inappropriate activity was committed by a friend, family member, guest, or employee. Therefore, you must take steps to ensure that others do not gain access to your account. In addition, you may not use your account to breach security of another account or attempt to gain unauthorized access to another network or server. You must adopt adequate security measures to prevent or minimize unauthorized use of your account. You may not attempt to circumvent user authentication or security of PhotoLoft. This includes, but is not limited to, attempting to access data not intended for you, logging into or making use of a server or account you are not expressly authorized to access, or probing the security of other networks. Use or distribution of tools designed for compromising security is prohibited. Examples of these tools include, but are not limited to, password guessing programs, cracking tools or network probing tools. Users who violate systems or network security may incur criminal or civil liability. PhotoLoft will cooperate fully with investigations of violations of systems or network security at other sites, including cooperating with law enforcement authorities in the investigation of suspected criminal violations. Network Management You are responsible for ensuring that the services obtained from PhotoLoft are used in an appropriate manner by those who you encourage to view your photo albums. Therefore, you must take steps to manage the use of the services obtained from PhotoLoft in such a way that network abuse is minimized. You must respond in a timely manner to complaints concerning misuse of the services obtained from PhotoLoft. Failure to responsibly manage the use of the services obtained from PhotoLoft may be cause for termination of services to you. Network Performance PhotoLoft accounts operate on shared resources. Excessive use or abuse of these shared network resources by one customer may have a negative impact on all other customers. Misuse of network resources in a manner which impairs network performance is prohibited by this policy and may result in termination of your account. You are prohibited from excessive consumption of resources, including CPU time, memory, disk space, and session time. You may not use resource-intensive programs which negatively impact other customers or the performance of PhotoLoft systems or networks. PhotoLoft reserves the right to terminate or limit such activities. Initials of PhotoLoft.com _____ Initials of Partner _____ 15 Illegal Activity Any activity on our network that is a violation of any state or federal law is a violation of this policy and will result in immediate termination of service. Prohibited activities include, but are not limited to: Transmitting obscene materials Intentionally spreading or threatening to spread computer viruses Gaining or attempting to gain unauthorized access to any network, including PhotoLoft's private network infrastructure Accessing or attempting to access information not intended for you Transmitting pirated software Initials of PhotoLoft.com _____ Initials of Partner _____ 16 EX-21.1 38 LIST OF SUBSIDIARIES Photoloft.com, Inc. A California Corporation EX-27.1 39
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIALS STATEMENTS. 1000 YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 370000 0 0 0 0 1211100 99800 34100 2939000 502900 0 6700 0 0 1762700 2939000 674300 674300 113000 113000 1324000 0 500 2411300 748000 1663300 0 0 0 1633300 .26 .18
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