<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
IMPROVENET, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 1521 77-0452868
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
720 BAY ROAD, SUITE 200
REDWOOD CITY, CA 94063-2469
(650) 701-8000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
RONALD B. COOPER
PRESIDENT
AND CHIEF EXECUTIVE OFFICER
IMPROVENET, INC.
720 BAY ROAD, SUITE 200
REDWOOD CITY, CA 94063-2469
(650) 701-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
Mark P. Tanoury, Esq. Laird H. Simons III, Esq.
Michael L. Weiner, Esq. Katherine T. Schuda, Esq.
Ryan E. Naftulin, Esq. R. Gregory Roussel, Esq.
Cooley Godward LLP Fenwick & West LLP
3000 Sand Hill Road Two Palo Alto Square
Building 3, Suite 230 Palo Alto, CA 94306-2155
Menlo Park, CA 94025-7116 (650) 494-0600
(650) 843-5100
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE AMOUNT OF
TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Common Stock ($0.001 par value)............................. $ 57,500,000 $ 15,180
</TABLE>
(1) Includes shares that the Underwriters will have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting offers to buy these securities
in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED DECEMBER 16, 1999
Shares
[LOGO]
Common Stock
---------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price is expected to be between
$ and $ per share. We have applied to list our common
stock on The Nasdaq Stock Market's National Market under the symbol "IMPV."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
Investing in our common stock involves risks. See Risk Factors on page 7.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions ImproveNet, Inc.
----------------- ----------------- -----------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Credit Suisse First Boston
Robertson Stephens
E*OFFERING
The date of this prospectus is , 2000.
<PAGE>
DESCRIPTION OF INSIDE-COVER ARTWORK
PANEL ONE
Picture of a service provider with his arm around an older woman with the
caption, "Another beautiful relationship started on the Internet."
(INSIDE TWO-PAGE GATEFOLD SPREAD)
Reverse blueline drawing of a house depicting our information and services in
type and clip art in each room of the house under the title
"ImproveNet--America's Home Improvement Resource." The foundation of the house
includes the captions "ImproveNet.com" and "ImproveNetPro.com".
The roofline contains a counterclockwise ordering of our home improvement cycle
stages, beginning at the upper left and moving across and over the attic with:
"Dream & Design" "Plan & Budget" "Hire and Build" and "Fix and Maintain" all
connected in the triangle by directional arrows. Our logo appears in the
delineated attic.
The following text appears as a caption in each room of the house that
accompanies typed descriptions and clip art. From left to right and from top to
bottom the rooms are as follows:
"Personal Project Folder" with a subcaption "A place to compile project
elements" which relates to an image of a folder in the shape of a house
which bears our logo.
"Project Estimator" with a subcaption "Balancing the dream against reality"
which accompanies an image of a calculator whose display is our logo.
"Personal Project Advisor" with a subcaption "ImproveNet professionals take
the homeowner and service provider through a successful project" which
corresponds to a trio of people indicated as "homeowner", "advisor" and
"contractor."
"Contractor Screening, Matching & Leads" with a subcaption "Ensuring quality
service providers & fit to project" which is beneath a 5-point checklist
itemizing the following: "Credit", "License", "Legal", "Insurance" and
"Recommendations."
"Pro Site" with a subcaption "Professional services for contractors &
architects--job postings and more" which relates to an image of a drafting
table with a ruler, draftsman's triangle and folder with our logo.
"The Design Gallery" with a subcaption "Room designs organized by style"
which accompanies an image of a room with two workers, one measuring a wall
and the other installing a window, all under our logo.
"The Product Showcase" with a subcaption "Items organized by use and by
maker" which goes with an image of a showroom with an individual standing in
front of a display of different windows positioned under and beside our
logo. Three brochures with our logo are also shown to the left of the image.
"SmartLeads-TM-" with a subcaption "Targeted marketing opportunities based
on homeowner project" which ties with an image of the planet with a
satellite dish and two brochures beneath it which bear our logo.
"Powered By ImproveNet" with a subcaption "Providing service on partner's
behalf" which goes with the image of a cloud with our "Powered by
ImproveNet" logo inside and a lightening bolt coming out of the cloud.
"The Home Center" with a subcaption "Home & Garden, Remodeling, Real Estate,
Relocation and Financing Resources" corresponds to the image of a tool box
filled with a saw, screwdriver, ruler, hammer, rake and real estate sign
with the words "For Sale."
INSIDE BACK COVER ARTWORK:
Image depicting the ImproveNet logo as the roof of a house. The house is
comprised of the logos of MSN (Microsoft) HomeAdvisor, Dow Styrofoam Brand
Insulation, Armstrong, Cendant, DuPont Corian, Owens Corning and General
Electric. The foundation of the house includes the caption "Building the Home
Improvement Destination."
<PAGE>
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
PROSPECTUS SUMMARY.................... 4
RISK FACTORS.......................... 7
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS.................. 17
USE OF PROCEEDS....................... 18
DIVIDEND POLICY....................... 18
CAPITALIZATION........................ 19
DILUTION.............................. 20
SELECTED FINANCIAL DATA............... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 22
</TABLE>
<TABLE>
BUSINESS.............................. 32
<CAPTION>
PAGE
--------
<S> <C>
MANAGEMENT............................ 44
RELATED PARTY TRANSACTIONS............ 52
PRINCIPAL STOCKHOLDERS................ 54
DESCRIPTION OF CAPITAL STOCK.......... 56
SHARES ELIGIBLE FOR FUTURE SALE....... 59
UNDERWRITING.......................... 61
NOTICE TO CANADIAN RESIDENTS.......... 63
LEGAL MATTERS......................... 64
EXPERTS............................... 64
WHERE YOU CAN FIND ADDITIONAL
INFORMATION......................... 64
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
--------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
EXCEPT AS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS IS BASED ON
THE FOLLOWING ASSUMPTIONS:
- THE CONVERSION OF ALL OUR OUTSTANDING SHARES OF PREFERRED STOCK INTO
SHARES OF COMMON STOCK IMMEDIATELY UPON THE CLOSING OF THIS OFFERING;
- NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION; AND
- THE FILING, UPON APPROVAL OF OUR STOCKHOLDERS, OF OUR RESTATED CERTIFICATE
OF INCORPORATION, BEFORE THE CLOSING OF THIS OFFERING.
"ImproveNet," is a registered trademark of ImproveNet, Inc. "Powered by
ImproveNet," "ImproveNetPro" and "SmartLeads" are trademarks of
ImproveNet, Inc. This prospectus also includes trademarks owned by other
parties.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION YOU
SHOULD CONSIDER BEFORE BUYING SHARES IN THIS OFFERING. YOU SHOULD READ THE
ENTIRE PROSPECTUS CAREFULLY.
IMPROVENET, INC.
We are a leading source on the Internet for home improvement information and
services. Through our ImproveNet.com and ImproveNetPro.com Web sites, matching
services and targeted advertising, we are creating a national marketplace for
home improvement products and services in which homeowners, service providers
and suppliers of home improvement products benefit from an organized and
efficient online flow of information and communication.
We generate quality job leads for service providers from highly interested
homeowners within their geographic area using our proprietary matching service.
We have processed approximately 123,000 job submissions, in total, and have
processed job submissions valued at approximately $3.4 billion, in total, since
the national launch of our Web site in August 1997. We have designed our
services to deliver a satisfying home improvement experience to homeowners and
assist them through the four phases of the home improvement process:
- DREAM AND DESIGN--We provide homeowners free online information and design
tools such as our design gallery and product showcase as well as a
personal project folder that allows homeowners to store all ideas and
information about their projects on our Web site.
- PLAN AND BUDGET--Our Web site provides interactive tools, such as our
kitchen visualization tool, that allow homeowners to plan their projects.
We offer interactive tools, such as our kitchen estimator, that allow
homeowners to calculate the expected cost of their projects based on
parameters such as physical dimensions, styles and estimated costs for
service providers within a given zip code.
- HIRE AND BUILD--Our proprietary screening and matching processes allow us
to match qualified and reputable service providers with pre-qualified job
leads submitted by homeowners. We provide participating homeowners free
access, both online and offline, to one of our project advisors, who
assists them through the entire process.
- FIX AND MAINTAIN--Our online and offline information, services and support
personnel empower homeowners to continuously maintain and improve their
homes, from idea creation to project completion.
The home improvement industry is large and fragmented. According to the
United States Department of Commerce, total expenditures for residential home
improvements for 1998 were $120.7 billion. Based upon a compilation of industry
sources, we believe there are up to 900,000 service providers in the United
States. Further, according to the United States Census Bureau, as of
September 30, 1999 there were 70.5 million owner-occupied homes out of a total
of 120 million housing units.
Our strategy is to become America's home improvement resource on the
Internet. The key elements of our strategy are:
- deliver a satisfying home improvement experience to homeowners, service
providers and suppliers;
- increase the number of jobs submitted to us and the percentage of those
jobs won by service providers in our network;
4
<PAGE>
- create new commercial relationships and expand existing ones with
suppliers of home improvement products and services and related home
services; and
- continue to build the ImproveNet brand.
We generate revenues from three sources:
- service providers pay us lead fees and win fees for our matching service;
- suppliers of home improvement products and services as well as other
advertisers purchase advertising space on our Web site; and
- homeowners pay us fees, which to date have not been significant, for our
premium home improvement services.
We have entered into multi-year commercial relationships with the following
providers of home improvement products and services and related home services:
Armstrong, Cendant, Dow Chemical, DuPont, General Electric, Microsoft and Owens
Corning. We have also entered into advertising arrangements on the following
high traffic Web sites: AltaVista, America Online, Excite@Home, Lycos, Microsoft
HomeAdvisor, Quicken.com and Yahoo!
We were incorporated in California in January 1996 as Netelligence, Inc.,
changed our name to ImproveNet, Inc. in May 1996 and reincorporated in Delaware
in June 1998. Our principal executive offices are located at 720 Bay Road,
Suite 200, Redwood City, California 94063-2469. Our telephone number is
(650) 701-8000. Our consumer Internet address is WWW.IMPROVENET.COM and our
professional Internet address is WWW.IMPROVENETPRO.COM. The information found on
our Web sites is not part of this prospectus.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered........................... shares
Common stock to be outstanding after the
offering..................................... shares
Use of proceeds................................ For capital expenditures, working capital and
other general corporate purposes, including
expansion of our sales and marketing programs,
product development and general and
administrative operations and potential
acquisitions.
Proposed Nasdaq National Market symbol......... IMPV
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999, and
excludes:
- 1,760,197 shares subject to options outstanding as of September 30, 1999,
at a weighted average exercise price of $0.90 per share;
- 524,576 shares subject to warrants outstanding as of September 30, 1999,
at a weighted average exercise price of $1.02 per share;
- 1,262,596 shares subject to warrants issued after September 30, 1999, at a
weighted average exercise price of $9.01 per share;
- 2,017,314 additional shares that are available for issuance under our
stock option plans;
- 300,000 shares that we could issue under our employee stock purchase plan;
and
- 48,592 shares to be issued in connection with the acquisition of The J.L.
Price Corporation.
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.............................................. $ 2 $ 60 $ 258 $ 144 $ 1,285
Loss from operations........................................ (360) (1,239) (4,199) (2,654) (19,219)
Net loss attributable to common stockholders................ (359) (1,328) (4,832) (3,071) (19,134)
Basic and diluted net loss per common share................. $(0.73) $ (1.08) $ (3.49) $ (2.22) $ (12.87)
Shares used in calculating basic and diluted net loss per
common share.............................................. 493 1,228 1,383 1,382 1,487
Pro forma basic and diluted net loss per common share....... $ (1.17) $ (2.66)
Shares used in calculating pro forma basic and diluted net
loss per common share..................................... 4,124 7,183
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $23,093 $58,054 $
Working capital............................................. 20,648 55,609
Total assets................................................ 29,514 64,475
Total stockholders' equity.................................. 23,255 58,216
</TABLE>
- ------------------------------
See Note 2 of the notes to our financial statements for an explanation of
the determination of the number of shares used in computing per share data.
The pro forma balance sheet information gives effect to the sale of
2,597,135 shares of series E convertible preferred stock in November and
December 1999 for net proceeds of approximately $35.0 million, stock-based
compensation of approximately $11.3 million from the issuance of warrants to
purchase 1,262,596 shares of common stock in November and December 1999 and the
conversion of all outstanding shares of preferred stock into common stock upon
the closing of this offering.
The pro forma as adjusted information is adjusted to give effect to the sale
of shares of common stock in this offering at an assumed initial
public offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses.
6
<PAGE>
RISK FACTORS
THIS OFFERING AND AN INVESTMENT IN OUR COMMON STOCK INVOLVE A HIGH DEGREE OF
RISK. YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW AND THE OTHER
INFORMATION IN THIS PROSPECTUS BEFORE PURCHASING OUR SHARES. ADDITIONAL RISKS
AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY SEE AS
IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS OPERATIONS. IF ANY OF THE FOLLOWING
RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
RISKS RELATED TO OUR BUSINESS
WE ARE AN EARLY STAGE COMPANY WITH A LIMITED OPERATING HISTORY, WHICH MAKES IT
DIFFICULT TO EVALUATE OUR BUSINESS.
We were incorporated in January 1996 and did not begin offering home
improvement services on the Internet until August 1997. Therefore, we have a
limited operating history upon which you can evaluate our business. Before
investing, you should evaluate the risks, expenses and problems frequently
encountered by companies such as ours that are in the early stages of
development and that are entering new and rapidly changing markets like the
Internet. We face a number of challenges including:
- maintaining and increasing our homeowner base;
- maintaining and increasing our network of service providers;
- generating continuing revenues through our Web sites from homeowners,
service providers, suppliers and other commercial relationships;
- competing effectively with existing and potential competitors;
- developing further our business model;
- developing further the ImproveNet brand;
- anticipating and adapting to changes on the Internet;
- continuing to develop our technology infrastructure to handle greater
Internet traffic efficiently;
- managing expanding operations;
- broadening our product and service offerings and attracting and retaining
additional commercial relationships; and
- attracting and retaining qualified personnel.
We may not successfully implement any of our strategies or successfully address
these risks and uncertainties.
OUR BUSINESS MODEL IS NEW AND UNPROVEN, AND WE MUST CONTINUE TO GENERATE AND
SUSTAIN SUFFICIENT REVENUES TO SURVIVE.
Our business model depends on a majority of our revenues being derived from
service fees as well as our ability to attract and retain commercial
relationships and a network of service providers. If we fail to attract
commercial relationships or service providers, our service revenues and
advertising revenues may not grow, we may never achieve profitability and our
business would suffer.
Matching homeowners to service providers for home improvement projects is
our key to earning revenues from a variety of sources, including service fees,
advertising and commercial relationships. To generate revenues, we must offer
services that achieve broad market acceptance by homeowners, service providers
and suppliers of home improvement products. In particular, our matching service
must
7
<PAGE>
gain broad market acceptance from homeowners and service providers or our
business would be harmed.
To remain competitive, we must continue to enhance and improve the ease of
use, responsiveness, functionality and features of our online and offline
services. These efforts may require the development or licensing of increasingly
complex technologies. In addition, we may change or extend our business model to
take advantage of new business opportunities, including business areas in which
we do not have extensive experience. We may not be successful in developing or
introducing new features, functions and services, and they may not achieve
market acceptance or enhance our brand loyalty. If we fail to develop and
introduce new features, functions or services effectively, our business could be
harmed.
WE HAVE A LARGE ACCUMULATED DEFICIT, WE EXPECT FUTURE LOSSES, AND WE MAY NOT
ACHIEVE OR MAINTAIN PROFITABILITY.
We have incurred substantial losses and used substantial cash to support our
operations as we have expanded our sales and marketing programs, funded the
development of our services, promoted our Web sites and matching service and
expanded our operations infrastructure. Our net losses were $359,000 in 1996,
approximately $1.2 million in 1997, approximately $4.1 million in 1998 and
approximately $18.9 million for the nine months ended September 30, 1999. As of
September 30, 1999, we had an accumulated deficit of approximately
$24.6 million. We expect our expenditures on sales and marketing activities and
the development of new products, services and technologies to continue to
increase. We will continue to lose money unless we significantly increase our
revenues. We cannot predict when we will operate profitably, if ever.
OUR QUARTERLY FINANCIAL RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND
SEASONALITY AND ARE DIFFICULT TO PREDICT.
Our results of operations could vary significantly from quarter to quarter.
In the near term, we expect our revenues to be substantially dependent on
advertising sales. We also expect to incur significant sales and marketing
expenses to promote our brand and services. Therefore, our quarterly revenues
and operating results are likely to be particularly affected by the amount of
advertising sold on our Web site, the timing of payments for this advertising,
sales and marketing expenses for a particular period and the timing of our fixed
infrastructure expenditures. If revenues fall below our expectations, we will
not be able to reduce our spending rapidly in response to the shortfall.
Other factors that could affect our quarterly operating results include
those described below and elsewhere in this prospectus:
- the number of new service providers we add to our network;
- the amount of service fees we generate and our ability to collect this
revenue;
- the amount and timing of our operating expenses and capital expenditures;
- the cost of commercial relationships;
- the amount and timing of noncash stock-based compensation charges;
- costs and charges related to acquisitions or internal development of
businesses or technologies; and
- the seasonality of the home improvement industry.
Our limited operating history and rapid growth make it difficult to assess
the impact of seasonal factors on our business. However, because our business is
dependent upon the home improvement industry, we expect that our revenues may be
lower during the first and fourth quarters since more homeowners commit to home
improvement projects during the spring and summer months.
8
<PAGE>
SINCE OUR MARKET IS HIGHLY COMPETITIVE, WE MAY SUFFER PRICE REDUCTIONS, REDUCED
GROSS MARGINS AND LOSS OF MARKET SHARE IF WE DO NOT COMPETE EFFECTIVELY.
The market for our services is intensely competitive, evolving and subject
to rapid technological change. We expect the intensity of competition to
increase in the future. Increased competition may result in price reductions,
changes in our pricing model, reduced gross margins and loss of market share,
any one of which could significantly reduce our profitability. In addition,
technological barriers to entry are relatively low. As a result, current and new
competitors could launch Web sites offering content, products and services
similar to ours at relatively low cost.
Many of our competitors have more resources and broader and deeper customer
access than we do. In addition, many of these competitors have or can readily
obtain extensive knowledge of the home improvement industry. Our competitors may
be able to respond more quickly than we can to new technologies or changes in
Internet user preferences and devote greater resources than we can to the
development, promotion and sale of their services. We may not be able to
maintain our competitive position against current and future competitors,
especially those with significantly greater resources.
FAILURE TO DEVELOP OUR BRAND COULD LIMIT OR REDUCE THE DEMAND FOR OUR SERVICES.
If we fail to promote and maintain ImproveNet's brand or incur substantial
expenses in an unsuccessful attempt to promote and maintain our brand, our
business could be harmed. We believe that continuing to strengthen our brand
will be critical to increasing demand for, and achieving widespread acceptance
of, our services. Promoting and positioning our brand will depend largely on the
success of our marketing efforts and our ability to provide high quality
services and support. To promote our brand, we will need to increase our
marketing budget and otherwise increase our financial commitment to creating and
maintaining brand loyalty among users. Brand promotion activities may not yield
increased revenues and, even if they do, any increased revenues may not offset
the expenses we incur in building and maintaining our brand.
IF WE FAIL TO MANAGE OUR GROWTH, OUR ABILITY TO MARKET, SELL AND DEVELOP OUR
SERVICES COULD BE HARMED.
Our growth has placed and will continue to place a significant strain on our
management systems and resources, and we may be unable to effectively manage our
growth in the future. We must plan and manage our growth effectively to offer
our services and achieve revenue growth and profitability in a rapidly evolving
market. We continue to increase the scope of our operations and have added a
number of employees recently, including employees in key management and sales
positions. We grew from 16 employees as of December 31, 1997 to 127 as of
September 30, 1999. For us to effectively manage our growth, we must continue
to:
- improve our operational, financial and management systems and controls;
- install new management and information systems and controls;
- locate additional office space in a number of geographic locations; and
- hire, train and motivate our workforce.
Failure to manage our growth effectively would hinder our ability to
develop, market and sell our services and therefore harm our business.
IF WE DO NOT ATTRACT AND RETAIN A NETWORK OF HIGH QUALITY SERVICE PROVIDERS, OUR
BUSINESS COULD BE HARMED.
We expect to derive the majority of our revenues from our network of service
providers in the form of payments for each homeowner referral that we provide to
them and for each home improvement project that they win. Our business is highly
dependent on homeowners' use of our Web
9
<PAGE>
site to find service providers for their home improvement projects so that
service providers will achieve a satisfactory return on their participation in
the ImproveNet program.
A key element of the growth of our business is the pace at which service
providers adopt the ImproveNet matching process. This adoption includes
responding to homeowner inquiries within 48 hours, providing a competitive, firm
quote to homeowners quickly, and paying the service fees to ImproveNet. We
devote significant effort and resources to screening and supporting
participating service providers and to developing programs that monitor service
providers' job wins and that collect service fees from service providers for
these wins. Our inability to screen and support service providers effectively,
or the failure of our service providers to respond professionally and in a
timely manner to homeowner inquiries, could result in low homeowner satisfaction
and harm our business. In addition, the failure of our service providers to win
home improvement projects, report their wins to us, or pay us service fees could
harm our business.
We must actively recruit new service providers and retain our current
service providers to ensure that we continually have adequate national coverage.
Generally, there is a high rate of turnover among service providers in the home
improvement industry. We expect that not all of our service providers will
remain active participants in our network. If we are unable to reduce turnover
among our network of service providers our business could be harmed.
WE DEPEND ON THIRD-PARTY RELATIONSHIPS TO GENERATE REVENUES, DRIVE TRAFFIC TO
OUR WEB SITE AND PROVIDE SOFTWARE TOOLS AND INFRASTRUCTURE.
Our business model relies on our ability to enter into and maintain
relationships with various suppliers of home improvement products and services.
Companies that we may pursue for a commercial relationship, may offer services
competitive with suppliers with which we currently have commercial
relationships. As a result, these suppliers may be reluctant to enter into
commercial relationships with us. If we do not maintain our existing commercial
relationships on terms as favorable as currently in effect, if we do not
establish additional ones on commercially reasonable terms, or if any or all do
not result in an increased use of our Web sites, our business could be harmed .
We depend on establishing and maintaining a number of advertising
relationships with high-traffic Web sites that can help us to increase the
number of visitors to ImproveNet.com. There is intense competition for
preferential placements on some of these Web sites, and in the future we may not
be able to enter into these relationships on commercially reasonable terms or at
all. Even if we enter into commercial relationships with these Web sites, they
themselves may not attract significant numbers of homeowners and we may not
receive a significant number of additional homeowners from these relationships.
Moreover, we may have to pay significant fees to establish new commercial
relationships or renew our current relationships.
We integrate third-party software into our service offerings on our Web
sites. We would be harmed if the providers from which we license software ceased
to deliver and support reliable products, to enhance their current products, or
to respond to emerging industry standards. In addition, third-party software may
not continue to be available to us on commercially reasonable terms or at all.
The loss of, or inability to maintain or obtain, this software could limit the
features available on our Web sites, which could harm our business.
IF WE FAIL TO ATTRACT AND RETAIN QUALIFIED PERSONNEL, OUR ABILITY TO COMPETE
COULD BE HARMED.
We depend on the continued service of our key technical, sales and senior
management personnel. In particular, the loss of the services of Ronald B.
Cooper, our President and Chief Executive Officer, or other senior management
personnel, individually or as a group, could cause us to incur increased
operating expenses and divert other senior management time in searching for
their replacements. We do not have employment agreements with any employee,
except Mr. Cooper, and we do not maintain any key person life insurance policies
for any of our key employees, except for Mr. Cooper and Robert
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<PAGE>
L. Stevens, our Chairman of the Board. The loss of any of our key technical,
sales or senior management personnel could harm our business.
In addition, we must attract, retain and motivate highly skilled employees.
We face significant competition for individuals with the skills required to
develop, market and support our services. We may not be able to recruit and
retain sufficient numbers of highly skilled employees, and as a result our
business could suffer.
IF WE FAIL TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS, WE COULD LOSE THESE
RIGHTS AND OUR BUSINESS COULD BE HARMED.
We depend upon our ability to develop and protect our intellectual property
rights, including our proprietary databases of homeowners and service providers,
to distinguish our services from our competitors' services. We rely on a
combination of copyright, trademark and trade secret laws, as well as
confidentiality agreements and licensing arrangements, to establish and protect
our proprietary rights. We have no issued patents. Existing laws afford only
limited protection of intellectual property rights. Attempts could be made to
copy or reverse engineer aspects of our processes or services or to obtain and
use information that we regard as proprietary. Accordingly, we may not be able
to protect our intellectual property rights against unauthorized third-party
copying or use. Furthermore, policing the unauthorized use of our product is
difficult, and expensive litigation may be necessary in the future to enforce
our intellectual property rights. The use by others of our proprietary rights
could harm our business.
OUR SERVICES COULD INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS CAUSING
COSTLY LITIGATION AND THE LOSS OF SIGNIFICANT RIGHTS.
Third parties could claim that we have infringed their intellectual property
rights. The resolution of any claims could be time-consuming, result in costly
litigation, delay or prevent us from offering our products or services or
require us to enter into royalty or licensing agreements, any of which could
harm our business. In the event an infringement claim against us is successful
and we cannot obtain a license on acceptable terms, license a substitute
technology or redesign our services, our business would be harmed. Furthermore,
former employers of our current and future employees may assert that our
employees have improperly disclosed to us or are using confidential or
proprietary information in our business.
IF WE EXPERIENCE SYSTEM FAILURES, OUR REPUTATION WOULD BE HARMED AND USERS MIGHT
SEEK ALTERNATIVE SERVICE PROVIDERS, CAUSING US TO LOSE REVENUES.
We depend on the efficient and uninterrupted operation of our computer and
communications hardware and software systems. Substantially all of our computer
hardware for operating our Web sites is currently located at Exodus
Communications in Santa Clara, California, with backups located at our facility
in Redwood City, California. These systems and operations are vulnerable to
damage or interruption from earthquakes, floods, fires, power loss,
telecommunication failures and similar events. They are also subject to
break-ins, sabotage, intentional acts of vandalism and similar misconduct. We do
not have fully redundant systems, a formal disaster recovery plan or alternative
providers of hosting services, and we do not carry business interruption
insurance to compensate us for losses that could occur. Despite any precautions
we may take, the occurrence of a natural disaster or other unanticipated
problems either at Exodus or at our facility could result in interruptions in
our services. Any damage to or failure of our systems could result in
interruptions in our service. In addition to placing an increased burden on our
engineering staff, any system failure could create user questions and complaints
that must be responded to by our customer support personnel. The system failures
of various third-party Internet service providers, online service providers and
other Web site operators could result in interruptions in our service to those
users who require the services of these third-party providers and
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<PAGE>
operators to access our Web sites. These interruptions could reduce our revenues
and profits, and our future revenues and profits will be harmed if our users
believe that our system is unreliable.
WE MAY HAVE CAPACITY RESTRAINTS THAT COULD LIMIT THE GROWTH OF OR REDUCE OUR
REVENUES.
The satisfactory performance, reliability and availability of our Web sites,
processing systems and network infrastructure are critical to our reputation and
our ability to attract and retain large numbers of users. If the volume of
traffic on our Web sites increases, we will need to expand and upgrade our
technology, transaction processing systems and network infrastructure. We may
not be able to accurately project the rate or timing of these increases, if any,
in the use of our services or to expand or upgrade our systems and
infrastructure in a timely manner to accommodate these increases.
We use internally developed systems for operating our services and
processing our transactions, including billing and collections processing. We
must continually improve these systems in order to accommodate the level of use
of our Web sites. In addition, if we add new features and functionality to our
services, we could be required to develop or license additional technologies.
Our inability to add additional software and hardware or upgrade our technology,
transaction processing systems or network infrastructure could cause
unanticipated system disruptions, slower response times, degradation in levels
of customer support, impaired quality of the users' experience, delays in
accounts receivable collection or losses of recorded financial information. Our
failure to provide new features or functionality also could result in these
consequences. We may be unable to effectively upgrade and/or expand our systems
in a timely manner or to integrate smoothly any newly developed or purchased
technologies with our existing systems. These difficulties could harm or limit
our ability to expand our business.
RISKS RELATED TO OUR INDUSTRY
THE MARKET FOR INTERNET-BASED HOME IMPROVEMENT SERVICES IS NEW AND UNPROVEN AND,
IF IT DOES NOT DEVELOP SUFFICIENTLY, WE MAY NOT BE ABLE TO GENERATE SIGNIFICANT
REVENUES.
The market for Internet-based home improvement services is new and unproven,
so there is uncertainty whether demand for our services will develop and, if
developed, be sustained. If the market for our services does not develop or if
our services do not achieve market acceptance, we will not be able to generate
significant revenues.
IF THE HOME IMPROVEMENT INDUSTRY DECLINES, OUR REVENUES COULD DECLINE AND OUR
BUSINESS COULD BE HARMED.
Our business is dependent on the economic strength of the home improvement
industry. The home improvement industry is cyclical, with the number of home
improvement projects affected by national and global economic forces, primarily
fluctuations in interest rates and employment levels. We believe that our future
performance will be affected by the cyclical nature of the home improvement
industry and, as a result, be adversely affected from time to time by industry
downturns.
WE COULD BE HELD LIABLE FOR PRODUCTS AND SERVICES REFERRED BY MEANS OF OUR WEB
SITE.
We could be subject to claims relating to products and services that we
refer through our Web site. Our insurance may not cover potential claims or may
not adequately cover all costs incurred in defense of potential claims or may
not indemnify us for all liability that may be imposed. In addition, claims,
with or without merit, would result in diversion of our financial resources and
management resources, which could harm our business.
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<PAGE>
WE DEPEND ON THE INCREASING USE OF THE INTERNET. IF THE USE OF THE INTERNET DOES
NOT GROW, OUR REVENUES MAY NOT GROW AND COULD DECLINE AND OUR BUSINESS COULD BE
HARMED.
We depend on increased acceptance and use of the Internet. In particular,
our matching service depends upon service providers being willing to use the
Internet to find jobs through our service. We believe that service providers
generally have not traditionally used computers or the Internet to operate their
business. Demand and market acceptance for recently introduced products and
services over the Internet are subject to a high level of uncertainty. As a
result, acceptance and use of the Internet may not develop or a sufficiently
broad base of users may not adopt or continue to use the Internet as a medium of
commerce.
THE INTERNET IS CHARACTERIZED BY RAPIDLY CHANGING TECHNOLOGIES, FREQUENT NEW
PRODUCT AND SERVICE INTRODUCTIONS AND EVOLVING INDUSTRY STANDARDS.
To succeed, we will need to adapt effectively to rapidly changing
technologies and continually improve the performance features and reliability of
our services. We could incur substantial costs in modifying our products,
services or infrastructure to adapt to these changes, and we may also lose
customers and revenues if our services fail to adapt to the rapid changes
characteristic of the Internet.
Conversely, if the Internet experiences increased growth in number of users,
frequency of use and bandwidth requirements, the Internet infrastructure may be
unable to support the demands placed on it. The success of our business will
rely on the Internet providing a convenient means of interaction and commerce.
Our business depends on the ability of users to access information without
significant delays or aggravation.
POTENTIAL YEAR 2000 PROBLEMS WITH OUR SOFTWARE, THIRD-PARTY EQUIPMENT OR OUR
INTERNAL OPERATING SYSTEMS COULD REDUCE OUR FUTURE REVENUES AND INCREASE OUR
EXPENSES.
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field. Beginning in the year
2000, these code fields will need to accept four digit entries to distinguish
21st century dates from 20th century dates. A failure to do so could result in
the loss of revenues and would create the following risks:
- our products or services could fail due to processing errors caused by
unanticipated inaccurate calculations with respect to the year 2000;
- third-party hardware and software that we rely on to provide our services
could experience year 2000 compliance problems; and
- our customers, suppliers or other third parties upon which we rely could
experience year 2000 problems.
If any of these events occurs, it could cause all or a portion of our
services to be interrupted, which could reduce our future revenues and increase
our expenses.
FUTURE GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES PERTAINING TO THE INTERNET
COULD DECREASE THE DEMAND FOR OUR SERVICES OR INCREASE THE COST OF DOING
BUSINESS.
There is, and will likely continue to be, an increasing number of laws and
regulations pertaining to the Internet. These laws and regulations may relate to
liability for information retrieved from or transmitted over the Internet,
online content, user privacy, taxes or the quality of services. Any new law or
regulation pertaining to the Internet, or the adverse application or
interpretation of existing laws, could decrease the demand for our services or
increase our cost of doing business.
We are not certain how our business may be affected by the application of
existing laws governing issues such as property ownership, copyrights,
encryption and other intellectual property issues, taxation, libel, obscenity
and export or import matters. The vast majority of these laws was adopted
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<PAGE>
prior to the advent of the Internet. As a result, they do not contemplate or
address the unique issues created by the Internet and related technologies.
Changes in laws intended to address these issues could create uncertainty for or
adversely affect companies doing business on the Internet. This could reduce
demand for our services or increase the cost of doing business.
LEGISLATIVE AND REGULATORY INITIATIVES REGARDING THE COLLECTION AND USE OF OUR
USERS' PERSONAL INFORMATION MAY RESULT IN LIABILITY AND EXPENSES.
Current computing and Internet technology allows us to collect personal
information about our users. In the past, the Federal Trade Commission has
investigated companies that have sold personal information to third parties
without permission or in violation of a stated privacy policy. If we begin
collecting or selling personal information without permission or in violation of
our privacy policy, we could face potential liability for compiling and
providing information to third parties.
The European Union has adopted a directive that restricts the collection and
use of personal data. These restrictions are more stringent than current
Internet privacy laws in the United States. If these restrictions were applied
to us, we could be required to spend time and money researching and complying
with their requirements.
THE IMPOSITION OF ADDITIONAL STATE AND LOCAL TAXES ON INTERNET-BASED
TRANSACTIONS WOULD INCREASE OUR COST OF DOING BUSINESS AND HARM OUR ABILITY TO
BECOME PROFITABLE.
We file state tax returns as required by law based on principles applicable
to traditional businesses. However, one or more states could seek to impose
additional income tax obligations or sales and use tax collection obligations on
out-of-state companies such as ours that engage in or facilitate Internet-based
commerce. A number of proposals have been made at state and local levels that
could impose taxes on the sale of products and services through the Internet or
the income derived from those sales. These proposals, if adopted, could
substantially impair the growth of Internet-based commerce and harm our ability
to become profitable.
United States federal law limits the ability of the states to impose taxes
on Internet-based transactions. Until October 21, 2001, state and local taxes on
Internet-based commerce that are discriminatory against Internet access are
prohibited, unless the taxes were generally imposed and actually enforced before
October 1, 1998. It is possible that this tax moratorium will not be renewed by
October 21, 2001 or at all. Failure to renew this legislation would allow
various states to impose taxes on Internet-based commerce. The imposition of
state and local taxes could harm our ability to become profitable.
RISKS RELATED TO OUR OFFERING
SUBSTANTIAL SALES OF OUR COMMON STOCK BY OUR STOCKHOLDERS COULD DEPRESS OUR
STOCK PRICE.
If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
would likely fall. Based on shares outstanding as of December 14, 1999, upon
completion of this offering, we will have outstanding shares of common
stock. Upon completion of this offering, shares of common stock, including
the shares being sold in this offering, will be eligible for immediate
sale in the public market, unless purchased by our affiliates. Substantially all
of our stockholders will be subject to agreements with the underwriters that
restrict their ability to transfer their stock for 180 days after the date of
this prospectus without the prior written consent of Credit Suisse First Boston
Corporation. However, Credit Suisse First Boston Corporation may, in its sole
discretion, release all or any portion of the common stock from the restrictions
of these agreements. After these agreements expire, an additional 8,115,045
shares will be eligible for sale in the public market.
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<PAGE>
FAILURE TO RAISE ADDITIONAL CAPITAL OR GENERATE THE SIGNIFICANT CAPITAL
NECESSARY TO EXPAND OUR OPERATIONS AND INVEST IN NEW PRODUCTS AND SERVICES COULD
REDUCE OUR ABILITY TO COMPETE AND RESULT IN LOWER REVENUES.
We expect that the net proceeds from this offering, together with currently
available funds, will be sufficient to meet our working capital and capital
expenditure needs for at least the next 12 months. After that, we may need to
raise additional funds. We cannot be certain that we will be able to obtain
additional financing on favorable terms, or at all. If we need additional
capital and cannot raise it on acceptable terms, we may not be able, among other
things, to:
- develop or enhance our services;
- develop or acquire new technologies, products or businesses;
- acquire technologies, products or businesses;
- expand operations in the United States or internationally;
- hire, train and retain employees; or
- respond to competitive pressures or unanticipated capital requirements.
Our failure to do any of these things could result in lower revenues and
could harm our business.
In addition, we may seek to raise additional funds, finance acquisitions or
develop commercial relationships by issuing equity or convertible debt
securities, which would reduce the percentage ownership of existing
stockholders. Furthermore, any new securities could have rights, preferences or
privileges senior to those of our common stock.
NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.
The initial public offering price will be substantially higher than the book
value per share of our common stock. Investors purchasing common stock in this
offering will, therefore, incur immediate dilution of $ per share of common
stock in net tangible book value, based on an assumed initial public offering
price of $ per share. In addition, we have issued options and warrants to
acquire common stock at prices significantly below the assumed initial public
offering price. To the extent outstanding options or warrants are ultimately
exercised, there will be further dilution to investors in this offering. If we
issue additional equity securities, stockholders may experience dilution.
OUR STOCK PRICE MAY BE VOLATILE BECAUSE OF FACTORS BEYOND OUR CONTROL, AND YOU
MAY LOSE ALL OR A PART OF YOUR INVESTMENT.
The market prices of stock for Internet and other technology companies,
particularly following an initial public offering, frequently reach levels that
bear no relationship to the past or present operating performance of those
companies. These market prices may not be sustainable and may be subject to wide
variations. Following this offering, the market price of our common stock may
experience a substantial decline. The market price of our common stock may
fluctuate significantly in response to a number of factors, most of which are
beyond our control, including:
- variations in our quarterly operating results;
- changes in securities analysts' estimates of our financial performance;
- the discussion of our company or stock price in online investor
communities such as chat rooms;
- changes in market valuations of similar companies;
- announcements by us or our competitors of significant contracts, new
technologies, acquisitions, commercial relationships, joint ventures or
capital commitments;
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<PAGE>
- loss of a major customer or failure to complete significant license
transactions;
- additions to or subtraction from our service provider network;
- additions or departures of key personnel; and
- fluctuations in stock market prices and volumes, particularly among
securities of Internet-based companies.
WE ARE AT RISK OF SECURITIES CLASS ACTION LITIGATION DUE TO OUR EXPECTED STOCK
PRICE VOLATILITY.
In the past, securities class action litigation has often been brought
against a company following a decline in the market price of its securities.
This risk is especially acute for us because technology companies have
experienced greater than average stock price volatility in recent years and, as
a result, have been subject to, on average, a greater number of securities class
action claims than companies in other industries. We may in the future be the
target of litigation of this type. Securities litigation could result in
substantial costs and divert management's attention and resources, and could
harm our business.
WE HAVE IMPLEMENTED ANTI-TAKEOVER PROVISIONS THAT COULD DISCOURAGE OR PREVENT A
TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL IN THE OPINION OF OUR
STOCKHOLDERS.
Provisions of our amended and restated certificate of incorporation and
bylaws could make it more difficult for a third party to acquire us, even if
doing so would be beneficial in the opinion of our stockholders. These
provisions include:
- authorizing the issuance of "blank check" preferred stock that could be
issued by our board of directors to increase the number of outstanding
shares and thwart a takeover attempt;
- prohibiting cumulative voting in the election of directors, which would
allow less than a majority of stockholders to elect director candidates;
- limitations on the ability of stockholders to call special meetings of
stockholders;
- prohibiting stockholder action by written consent, thereby requiring all
stockholder actions to be taken at a meeting of our stockholders; and
- establishing advance notice requirements for nominations for election to
the board of directors or for proposing matters that can be acted upon by
stockholders at stockholder meetings.
In addition, section 203 of the Delaware General Corporations Law and the
terms of our stock option plans may discourage, delay or prevent a change in
control of ImproveNet.
EXISTING STOCKHOLDERS SIGNIFICANTLY INFLUENCE US AND COULD PREVENT NEW INVESTORS
FROM INFLUENCING SIGNIFICANT CORPORATE DECISIONS.
Upon completion of this offering, our executive officers, directors,
principal stockholders and their affiliates will beneficially own, in the
aggregate, approximately % of our outstanding common stock. As a result,
these stockholders will be able to control all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions, which could delay or prevent a change of control of
ImproveNet and will make some transactions difficult or impossible without the
support of these stockholders.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "anticipates,"
"believes," "continue," "could," "estimates," "expects," "intends," "may,"
"plans," "potential," "predicts," "should" or "will" or the negative of these
terms or other comparable terminology. These statements are only predictions and
involve known and unknown risks, uncertainties and other factors, including the
risks outlined under "Risk Factors," that may cause our, or our industry's,
actual results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements. We
are under no duty to update any of the forward-looking statements after the date
of this prospectus to conform these statements to actual results, unless
required by law.
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<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of shares
of common stock in this offering will be approximately $ million,
approximately $ million if the underwriters' over-allotment option is
exercised in full, at an assumed initial public offering price of $ per
share, after deducting the estimated underwriting discounts and commissions and
estimated offering expenses.
We intend to use the net proceeds from this offering for capital
expenditures and working capital and other general corporate purposes, including
expansion of our sales and marketing programs, product development and general
and administrative operations. We may also use a portion of the net proceeds to
invest in additional businesses, business development, products and
technologies, to lease additional facilities, or to establish joint ventures
that we believe will complement our current or future business. However, we have
no specific plans, agreements or commitments to do so and are not currently
engaged in any negotiations for any acquisition or joint venture. Pending these
uses, we will invest the net proceeds of this offering in short-term,
interest-bearing, investment-grade securities.
DIVIDEND POLICY
We have never paid or declared any cash dividends. We currently expect to
retain earnings for use in the operation and expansion of our business, and
therefore do not anticipate paying any cash dividends for the foreseeable
future.
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CAPITALIZATION
The table below presents the following information:
- our actual capitalization as of September 30, 1999;
- our pro forma capitalization giving effect to the sale of 2,597,135 shares
of series E convertible preferred stock in November and December 1999 for
net proceeds of approximately $35.0 million, to stock-based compensation
of approximately $11.3 million from the issuance of warrants to purchase
1,262,596 shares of common stock in November and December 1999 and to the
conversion of all outstanding shares of preferred stock into common stock
upon the closing of this offering; and
- our pro forma as adjusted capitalization reflecting the sale of
shares of common stock in this offering at an assumed initial public
offering price of $ per share, after deducting the estimated
underwriting discounts and commissions and estimated offering expenses.
The number of shares outstanding excludes the following shares:
- 1,760,197 shares of common stock subject to options outstanding as of
September 30, 1999, at a weighted average exercise price of $0.90 per
share;
- 524,576 shares subject to warrants outstanding as of September 30, 1999,
at a weighted average exercise price of $1.02 per share;
- 1,262,596 shares of common stock subject to warrants issued after
September 30, 1999, at a weighted average exercise price of $9.01 per
share;
- 2,017,314 additional shares of common stock that are available for grant
under our stock option plan;
- 300,000 shares of common stock that we could issue under our employee
stock purchase plan; and
- 48,592 shares of common stock to be issued in connection with the
acquisition of The J.L. Price Corporation.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
ACTUAL (UNAUDITED) (UNAUDITED)
-------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE AMOUNTS)
<S> <C> <C> <C>
Long-term obligations....................................... $ 104 $ 104 $ 104
Stockholders' equity:
Convertible preferred stock, $0.001 par value; 9,482,935
shares authorized and 8,785,559 shares issued and
outstanding, actual; 12,482,935 shares authorized and no
shares issued and outstanding, pro forma; 5,000,000
shares authorized and no shares issued and outstanding,
pro forma as adjusted................................... 9 -- --
Common stock, $0.001 par value; 31,000,000 shares
authorized and 1,596,528 shares issued and outstanding,
actual; 34,000,000 shares authorized and 12,979,222
shares issued and outstanding, pro forma; 100,000,000
shares authorized and shares issued and
outstanding, pro forma as adjusted...................... 2 13
Additional paid-in capital................................ 56,350 102,608
Notes receivable from stockholders........................ (2) (2)
Unearned stock-based compensation......................... (8,493) (19,792)
Accumulated deficit....................................... (24,611) (24,611)
-------- -------- --------
Total stockholders' equity.............................. 23,255 58,216
-------- -------- --------
Total capitalization.................................. $ 23,359 $ 58,320 $
======== ======== ========
</TABLE>
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DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $57.6 million, or approximately $4.44 per share. Net tangible book
value per share represents the amount of our total tangible assets less total
liabilities divided by the number of shares of common stock outstanding after
giving effect to the following transactions:
- the sale of 2,597,135 shares of series E convertible preferred stock in
November and December 1999 for net proceeds of approximately $35.0
million;
- the issuance of warrants to purchase 1,262,596 shares of common stock
after September 30, 1999; and
- the conversion of all outstanding shares of preferred stock into shares of
common stock upon completion of this offering.
Dilution in net tangible book value per share represents the difference
between the amount per share paid by new investors purchasing shares of common
stock in this offering and the net tangible book value per share immediately
after completion of this offering. Our net tangible book value as of
September 30, 1999 would have been approximately $ million or $ per
share, after giving effect to the sale of shares of our common stock in this
offering and after deducting estimated underwriting discounts and commissions
and estimated offering expenses. This amount represents an immediate increase in
net tangible book value of $ per share to existing stockholders and an
immediate dilution in net tangible book value of $ per share to new
investors purchasing shares of common stock in this offering, as illustrated in
the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of
September 30, 1999...................................... $ 4.44
Increase per share attributable to new investors..........
------
Pro forma net tangible book value per share after this
offering..................................................
------
Dilution per share to new investors......................... $
======
</TABLE>
The following table summarizes, on the pro forma basis described above, as
of September 30, 1999, the differences between the number of shares of common
stock purchased from us, the total consideration paid and the average price per
share paid by existing stockholders and by new investors purchasing shares in
this offering. We have assumed an initial public offering price of $
per share, before deducting estimated underwriting discounts and commissions and
estimated offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................... 12,979,222 % $79,705,769 % $6.14
New investors............................ % % $
---------- --- ----------- ---
Total................................ 100% $ 100%
========== === =========== ===
</TABLE>
As of September 30, 1999, there were outstanding options to purchase a total
of 1,760,197 shares of common stock at a weighted average exercise price of
$0.90 per share. After September 30, 1999, we issued options to purchase 772,000
shares of common stock at a weighted average exercise price of $5.17 per share.
As of September 30, 1999, there were outstanding warrants to purchase a total of
524,576 shares at a weighted average exercise price of $1.02 per share. After
September 30, 1999, we issued warrants to purchase 1,262,596 shares of common
stock at a weighted average exercise price of $9.01. To the extent these
outstanding options or warrants are exercised, there will be further dilution to
new investors.
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SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with our
financial statements and related notes and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included elsewhere in the
prospectus. The statement of operations data for the years ended December 31,
1996, 1997 and 1998 and the nine months ended September 30, 1998 and 1999, and
the balance sheet data as of December 31, 1997 and 1998 and September 30, 1999,
are derived from the audited financial statements included elsewhere in this
prospectus. The balance sheet data as of December 31, 1996 is derived from
audited financial statements not included elsewhere in this prospectus.
Historical results are not necessarily indicative of results to be expected for
future periods.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service revenues......................................... $ 2 $ 60 $ 238 $ 144 $ 719
Advertising revenues..................................... -- -- 20 -- 566
------ ------- ------- ------- --------
Total revenues......................................... 2 60 258 144 1,285
Cost of revenues:
Cost of service revenues................................. 8 59 767 517 1,091
Cost of advertising revenues............................. -- -- 49 -- 307
------ ------- ------- ------- --------
Total cost of revenues................................. 8 59 816 517 1,398
------ ------- ------- ------- --------
Gross profit (loss)........................................ (6) 1 (558) (373) (113)
Operating expenses:
Sales and marketing...................................... 38 414 1,669 1,002 14,363
Product development...................................... 65 288 504 388 417
General and administrative............................... 251 527 1,142 665 1,491
Stock-based compensation................................. -- 11 326 226 2,835
------ ------- ------- ------- --------
Total operating expenses............................... 354 1,240 3,641 2,281 19,106
------ ------- ------- ------- --------
Loss from operations....................................... (360) (1,239) (4,199) (2,654) (19,219)
Interest and other income (expense), net................... 1 (3) 84 68 324
------ ------- ------- ------- --------
Net loss................................................... (359) (1,242) (4,115) (2,586) (18,895)
Accretion of mandatorily redeemable convertible preferred
stock.................................................... -- (86) (717) (485) (239)
------ ------- ------- ------- --------
Net loss attributable to common stockholders............. $ (359) $(1,328) $(4,832) $(3,071) $(19,134)
====== ======= ======= ======= ========
Basic and diluted net loss per common share................ $(0.73) $ (1.08) $ (3.49) $ (2.22) $ (12.87)
====== ======= ======= ======= ========
Shares used in calculating basic and diluted net loss per
common share............................................. 493 1,228 1,383 1,382 1,487
====== ======= ======= ======= ========
Pro forma basic and diluted net loss per common share
(unaudited).............................................. $ (1.17) $ (2.66)
======= ========
Shares used in calculating pro forma basic and diluted net
loss per share (unaudited)............................... 4,124 7,183
======= ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ SEPTEMBER 30,
1996 1997 1998 1999
-------- -------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 20 $ 345 $ 1,676 $23,093
Working capital (deficit)................................... (11) (79) 697 20,648
Total assets................................................ 71 472 2,144 29,514
Long-term obligations and mandatorily redeemable convertible
preferred stock........................................... -- 1,252 6,843 104
Total stockholders' equity (deficit)........................ 40 (1,210) (5,714) 23,255
</TABLE>
See Note 2 of the notes to our financial statements for an explanation of
the determination of the number of shares used in computing per share data.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Our business started in January 1996 as a regional contractor matching
service, and we spent most of 1996 and 1997 building our service provider
database, developing new services and technology, recruiting personnel and
raising capital. We launched our Web site and homeowner/service provider
matching service on a national scale in August 1997. In December 1998, we began
selling Web site advertising and SmartLeads services. We introduced Powered by
ImproveNet for national suppliers of home improvement and repair products in
April 1999 and launched our customized Web site for service providers in
June 1999. We completed the acquisition of two regional contractor referral
companies, Contractor Referral Service, LLC and The J.L. Price Corporation, in
the fall of 1999. We expect these acquisitions will help us build our base of
service providers and establish new products and services for United States
residential real estate brokers.
REVENUES
We generate substantially all of our revenues from service provider referral
services and advertising placed on our Web site. From our inception in January
1996 through 1998, 94% of our total revenues were service revenues and 6% were
advertising revenues. For the first nine months of 1999, 56% of our total
revenues were service revenues and 44% were advertising revenues. We anticipate
that, in future periods, service revenues will represent a greater percentage of
total revenues than in the first nine months of 1999.
SERVICE REVENUES. We generate service revenues primarily in the form of
lead fees and win fees from our service providers and, to a much lesser extent,
in the form of enrollment fees from service providers and premium service fees
from homeowners. From inception through October 1999, we charged to our service
providers lead fees ranging from $6 to $10 per lead. In November 1999, we
standardized our lead fees at $10 per lead for all jobs. The win fees that we
charge to our service providers depend on project size and range from 1% to 10%
of the estimated cost of the job, up to a maximum of $995 per job. We charge
each new service provider an enrollment fee of $90 to join our national network;
however, in the past we have generally waived this fee. Our revenue from premium
services to homeowners has also been negligible in the past, but we expect
revenues from enrollment and premium services to homeowners to increase in
future periods.
Lead fee revenues are recognized at the time the service providers and the
homeowner are first matched, while win fee revenues are recognized at the time
the service provider or the homeowner notifies us that a job has been sold. For
both lead fees and win fees, the recognition of revenues coincides with the
service providers' obligation to pay the Company. Revenues from new service
provider enrollment fees are recognized at the time the revenue is collected.
Revenues from premium service fees to homeowners are recognized when the
services are provided. We establish revenue return reserves and allowances for
bad debts at the time the revenues are recognized. To date, the amounts of these
reserves and allowances have not been significant.
ADVERTISING REVENUES. We generate advertising revenues from the sale of
banner, button and other advertising on our Web sites, and from the sale to
suppliers of SmartLeads generated from the traffic of homeowners visiting our
Web sites. Our advertising revenues generally come from service providers and
suppliers of home improvement products. We first recognized revenues from banner
and other advertising in December 1998, from button advertising in April 1999
and from the sale of SmartLeads services in December 1998.
Advertisers pay us to display their banner, button and other advertisements
on the Web pages we serve when a user is visiting our Web sites. Our advertising
revenues historically have been derived
22
<PAGE>
from short-term advertising contracts based on either a guaranteed minimum
number of impressions or a fixed fee per thousand impressions. Revenues from
banner, button and other advertising are largely a function of:
- the number of Web pages that we serve;
- the percentage of those pages on which we are able to sell advertisements;
and
- the amount we charge per advertisement.
Banner, button and other Web site advertising revenues are recognized at the
lesser of the ratable amount of the order or the percentage of guaranteed
impressions delivered provided there are no significant obligations remaining
and the collection of the resulting receivable is probable.
Advertising revenues can also result from bartering. In barter transactions,
we make advertising space on our Web sites available to third parties in
exchange for advertising space on their Web sites. In the nine months ended
September 30, 1999, barter advertising revenues accounted for 12% of our total
revenues. We had no barter advertising revenues before 1999. We believe that
these barter transactions are a cost effective means of helping us establish the
ImproveNet brand, and we expect to continue to engage in these transactions in
the future.
Revenues from barter transactions are recorded as advertising revenues at
the estimated fair value of the advertisements received or delivered, whichever
is more reliably measurable. These revenues are recognized when the
advertisements are delivered on our Web site. Barter expenses are included as
sales and marketing expenses in the period in which the advertisements are
displayed which is generally in the same period in which we deliver the
advertisements on our Web site.
We have entered into a number of agreements with stockholders to provide,
for a fixed annual fee, an advertising package that includes a customized mix of
advertising buttons, banners, SmartLeads and other products, plus a guarantee of
continuous presence on our Web sites. These package agreements are for periods
ranging between 3 years and 12 years, including renewal options, and are priced
at a discount to our standard rates for each product. These agreements also
include cooperative marketing arrangements under which we are obligated to fund
co-branded advertisements on television and in the print media with, or on
behalf of, our advertiser. In the agreements to date, we have agreed to spend
50% to 100% of the advertising fees we expect to receive under the agreements on
these co-branded advertisements. In addition, these agreements give us access to
customer databases, direct mail inserts and marketing resources. Since we first
began offering these advertising packages in September 1999, it is difficult to
predict the size of this market, market demand, cancellation rates or renewal
rates. We believe these advertising agreements provide us with market benefits
we could not secure or otherwise afford in the normal course of business, such
as access to customer databases and marketing resources, and we expect to
continue to offer and sell these advertising packages for the foreseeable
future.
Net revenues, if any, from these advertising agreements are recognized over
the term of the agreement once we begin to provide advertising to the customer
and collection of the resulting receivable is deemed to be probable. We
recognize as net revenues the amount by which the amounts invoiced under the
advertising agreements exceed the amount of the obligations we incur under
cooperative advertising arrangements. We have also granted warrants to purchase
our stock to each of these advertising package customers. Accordingly, net
revenues are also reduced by the value of these warrants and, if the warrant
value exceeds the net revenues, no revenues are recorded and the excess is
charged to sales and marketing expense.
In December 1999, the Financial Accounting Standards Board, or FASB,
Emerging Issues Task Force, or EITF, released Issue #99-17 "Accounting for
Advertising Barter Transactions", which outlines their tentative conclusions
concerning the valuation of advertising barter agreements. This guidance, which
is not yet final, affects our accounting and reporting for revenues and expenses
associated with
23
<PAGE>
these advertising packages. To recognize revenues in the future, we must have
persuasive historical evidence of fair value, specific to us, of that
advertising or, alternatively, of the fair value of the co-branding and
cooperative marketing that these advertising packages obligate us to fund. The
interim guidance contained in EITF #99-17 assigns accounting fair value only
when persuasive evidence of fair value exists and persuasive evidence of fair
value is defined as a cash transaction. While we believe the benefits derived
from our advertising packages have substantial economic and commercial value, we
are abiding by the current guidance of FASB contained in EITF to recognize only
net revenues on our advertising packages until FASB reaches a final conclusion
in this area. In the meantime, we will pursue opportunities to enter into
advertising transactions for cash with appropriate customers and on similar
terms to establish persuasive evidence of fair value that will result in
recognition of revenue and the recording of marketing expenses on a gross basis
for future advertising packages.
We entered into the first of these advertising agreements in September 1999.
The amount invoiced under this agreement for the nine months ended
September 30, 1999 was $63,000, which was offset in full by the amount incurred
under the related cooperative advertising arrangement with the customer. We
expect that for future periods the amounts invoiced by us under these type of
agreements as well as the amounts incurred by us under the related cooperative
advertising arrangements with the customer will increase significantly as we
enter into more of these agreements.
NET LOSSES. We have incurred substantial losses and negative cash flows
from operations since inception as we have spent substantial amounts on
advertising and other marketing activities, funded the development of our
services and expanded our operations infrastructure. Our net losses were
$359,000 in 1996, approximately $1.2 million in 1997, approximately
$4.1 million in 1998 and approximately $18.9 million for the nine months ended
September 30, 1999. As of September 30, 1999, we had an accumulated deficit of
approximately $24.6 million. We intend to continue to invest heavily in sales
and marketing and in the development and acquisition of new content on our Web
site, new products and technologies. Thus, we will continue to lose money unless
we significantly increase our revenues, and we cannot predict when, if ever, we
will operate profitably.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
REVENUES
Revenues increased from $144,000 for the first nine months of 1998 to
approximately $1.3 million for the first nine months of 1999, an increase of
approximately $1.1 million.
Service revenues increased from $144,000 for the first nine months of 1998
to $719,000 for the first nine months of 1999, an increase of $575,000. The
increase in service revenues was primarily due to an increased number of
visitors to our Web sites and increased job submissions, which led to increased
lead and win fee revenues. Revenues from new service provider enrollment fees
and fees charged to homeowners for premium services were not significant in
either period.
Advertising revenues were $566,000 in the first nine months of 1999, of
which $152,000 constituted barter advertising revenue. We did not sell
advertising space on our Web site in the first nine months of 1998. Our
advertising revenues in the first nine months of 1999 include amounts invoiced
under advertising arrangements of $629,000 less $63,000 for amounts incurred
under cooperative advertising arrangements with related parties. There were no
adjustments to advertising revenues in the comparable 1998 period.
24
<PAGE>
Total revenues may be analyzed as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Service revenues............................................ $144 $ 719
Amounts invoiced under advertising agreements............... -- 629
---- ------
1,348
Amount incurred under cooperative advertising arrangement... -- (63)
---- ------
Total revenues.............................................. $144 $1,285
==== ======
</TABLE>
OPERATING EXPENSES
COST OF REVENUES. Cost of revenues increased from $517,000 for the first
nine months of 1998 to approximately $1.4 million for the first nine months in
1999, an increase of $881,000.
Our cost of service revenues consists of payroll and related costs and
occupancy, telecommunications and other administrative costs for our project
service group, which is responsible for all phases of the proprietary matching
services and includes our project advisors. In addition, cost of service
revenues includes an allocation of direct Web site operations costs, consisting
of payroll and related costs, data transmission costs and equipment
depreciation. Cost of service revenues increased from $517,000 for the first
nine months of 1998 to approximately $1.1 million for the first nine months in
1999, an increase of $574,000. The dollar increase in cost of service revenues
was attributable to direct Web site operations costs associated with the
increased volume of traffic and job submissions and accelerated expansion and
staffing of our project services infrastructure, primarily payroll and
recruiting expense of $363,000, in advance of our expanded marketing campaigns
and expected increases in visitors to our Web sites and in job submissions. Cost
of service revenues, expressed as a percentage of service revenues, improved
from 359% in the first nine months of 1998 to 152% in the first nine months of
1999. The percentage improvement was attributable to increased service revenues
and improved utilization of our project services group and Web site operations.
Cost of advertising revenues includes an allocation of direct Web site
operation costs consisting of payroll and related costs, data transmission costs
and equipment depreciation. Cost of advertising revenues was $307,000 in the
first nine months of 1999. There were no costs associated with advertising
revenues in the first nine months of 1998 as we did not begin recognizing
advertising revenue until December 1998.
SALES AND MARKETING. Our sales and marketing expenses include all of our
online and offline direct advertising, public relations and trade show expenses.
Sales and marketing expenses also include payroll and related costs, support
staff expenses, travel costs and other general expenses of our marketing,
professional services and partnership services departments. Sales and marketing
expenses increased from approximately $1.0 million in the first nine months of
1998 to approximately $14.4 million in the first nine months of 1999, an
increase of $13.4 million. The increase in sales and marketing expenses from
1998 to 1999 was attributable primarily to the increase in online and offline
direct advertising expenditures of approximately $8.9 million, an increase in
other marketing expenses of approximately $2.2 million, and an increase in
payroll and related costs of $689,000. We expect to increase our level of sales
and marketing expenditures significantly in 2000 and beyond in our effort to
build brand awareness, attract homeowners and service providers to our Web sites
and increase the number of new job submissions.
25
<PAGE>
PRODUCT DEVELOPMENT. Our product development costs include the payroll and
related costs of our editorial and technology staffs, fees for contract content
providers, and other costs of Web site design and new technologies required to
enhance the performance of our Web sites. Product development expenses increased
from $388,000 in the first nine months of 1998 to $417,000 in the first nine
months of 1999, an increase of $29,000. The increase in product development
expenses was primarily attributable to increased payroll and related costs
offset in part by reduced consulting fees for contract content providers. We
expect to continue to add to the size of our editorial and technology groups in
anticipation of planned new product introductions, and thus expect product
development expenses to increase in the future.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses include
payroll and related costs and travel, recruiting, professional and advisory
services and other general expenses for our executive, finance and human
resource departments. General and administrative expenses increased from
$665,000 in the first nine months of 1998 to approximately $1.5 million for the
first nine months of 1999, an increase of $826,000. The increase in general and
administrative expenses was attributable primarily to the increase in our
executive management and contract support administrative staff payroll costs of
$630,000 and increased lease and occupancy expenses of $88,000 related to our
relocation to larger office space. We expect general and administrative expenses
to increase in the future.
STOCK-BASED COMPENSATION. From our inception in January 1996 to
September 30, 1999, we have recorded unearned stock-based compensation of
approximately $11.6 million in connection with stock option and warrant grants.
Unearned stock-based compensation from option grants to employees is initially
calculated as the aggregate difference at the dates of grant between the
respective exercise prices of stock options and the deemed fair values of the
underlying stock. We amortize unearned stock-based compensation from option
grants using an accelerated method over the respective vesting periods of the
options, which are generally four years. This resulted in a charge of
approximately $2.8 million for the first nine months of 1999 and a charge of
$226,000 for the first nine months of 1998. The remaining unamortized, unearned
stock-based compensation for all option grants through September 30, 1999 will
be amortized as follows: approximately $1.2 million for the remainder of 1999,
approximately $2.8 million for 2000, approximately $1.4 million for 2001,
$554,000 for 2002 and $56,000 for 2003.
Unearned stock-based compensation from warrants granted is initially
calculated using the Black-Scholes pricing model. Unearned stock-based
compensation from warrants granted is amortized on a straight-line basis over
the term of the corresponding commercial agreements. Amortization of unearned
stock-based compensation from warrants was $79,000 for the first nine months of
1999. There was no warrant stock-based compensation for the first nine months of
1998. The remaining unamortized unearned stock-based compensation for all
warrants granted through September 30, 1999 will be amortized as follows:
$194,000 for the remainder of 1999; $771,000 for 2000; $771,000 for 2001 and
$729,000 for 2002. After September 30, 1999, we recorded stock-based
compensation of approximately $11.3 million from the issuance of warrants to
purchase 1,262,596 shares of common stock.
INTEREST AND OTHER INCOME (EXPENSE), NET
Net interest income increased from $68,000 in the first nine months of 1998
to $324,000 in the first nine months of 1999, an increase of $256,000. The
increase in net interest income is primarily due to higher average invested cash
balances in 1999 compared to 1998 as we received approximately $38.2 million in
cash from the sale of our preferred stock in March 1999 and September 1999.
26
<PAGE>
INCOME TAXES
We have recorded a 100% valuation allowance against our net deferred tax
assets, which arose primarily as a result of our aggregate operating losses. The
valuation allowance will remain at this level until such time as we believe that
the realization of the net deferred tax assets is more likely than not.
Accordingly, our results of operations do not reflect any tax benefits for our
reported losses. At September 30, 1999, we had approximately $21.2 million and
approximately $13.2 million of net operating loss carryforwards available to
reduce future operating income for federal and California state tax purposes,
which expire between 2005 and 2019 if not utilized.
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
REVENUES
Total revenues increased from $2,000 in 1996 to $60,000 in 1997 and to
$258,000 in 1998. Service revenues increased from $2,000 in 1996 to $60,000 in
1997 and to $238,000 in 1998. The increases in service revenues in 1997 and 1998
were primarily due to an increased number of visitors to our Web site, increased
job submissions and a corresponding increase in lead and win fee revenue.
Revenues from new service provider enrollment fees and fees charged to
homeowners for premium services were not significant.
Advertising revenues were $20,000 in 1998. We did not sell advertising space
on our Web site in 1996, 1997 or the first eleven months of 1998.
OPERATING EXPENSES
COST OF REVENUES. Cost of revenues increased from $8,000 in 1996 to $59,000
in 1997 and to $816,000 in 1998. Cost of service revenues increased from $8,000
in 1996 to $59,000 in 1997 and to $767,000 in 1998. The dollar increases in 1997
and 1998 in cost of service revenues were attributable to direct Web site
operations costs associated with the increased volume of traffic and job
submissions and expansion and staffing of our project services infrastructure,
primarily payroll and recruiting expenses, in advance of our expanded marketing
campaigns and expected increases in visitors to our Web sites and job
submissions. Cost of advertising revenues was not significant in any period.
SALES AND MARKETING. Sales and marketing expenses increased from $38,000 in
1996 to $414,000 in 1997 and to approximately $1.7 million in 1998. The increase
from 1996 to 1997 was due primarily to increased payroll and related expenses of
$219,000. The increase from 1997 to 1998 was primarily due to increased online
and offline advertising expenses of $733,000 and increased marketing expenses of
$185,000.
PRODUCT DEVELOPMENT. Product development expenses increased from $65,000 in
1996 to $288,000 in 1997 and to $504,000 in 1998. The increases from 1996 to
1997 and from 1997 to 1998 were primarily due to increases in payroll and
related costs and contract content provider costs of $183,000 and $205,000,
respectively.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
from $251,000 in 1996 to $527,000 in 1997 and to approximately $1.1 million in
1998. The increase from 1996 to 1997 was primarily due to an increase in payroll
and related costs of $153,000 and increased overhead costs of $79,000. The
increase from 1997 to 1998 was primarily due to an increase in our executive
management and full-time and contract support staff payroll and related costs of
$438,000 and increased lease and occupancy expenses of $126,000 related to the
relocation to a larger office space.
STOCK-BASED COMPENSATION. From our inception in January 1996 through
December 31, 1998, we recorded unearned stock-based compensation of
approximately $1.1 million in connection with stock option grants. We amortize
this unearned stock-based compensation using an accelerated method over
27
<PAGE>
the respective vesting periods of the options, which is generally four years.
This resulted in a charge of $11,000 in 1997 and $326,000 in 1998. There were no
stock-based compensation charges in 1996. There was no warrant-based stock
compensation in 1996, 1997 or 1998.
INTEREST AND OTHER INCOME (EXPENSE), NET
Net interest income (expense) was $1,000 in 1996, $(3,000) in 1997 and
$84,000 in 1998. The increase in net interest income from 1997 to 1998 was
primarily due to higher average invested cash balances, as we received
approximately $4.9 million in cash from the sale of convertible preferred stock
and issuance of convertible bridge loans in 1998.
QUARTERLY RESULTS OF OPERATIONS
The following table presents statement of operations data for each of the
four quarters of 1998 and the first three quarters of 1999. This information has
been derived from our unaudited financial statements. The unaudited financial
statements have been prepared on substantially the same basis as the audited
financial statements included elsewhere in this prospectus and include all
adjustments, consisting only of normal recurring adjustments, that we consider
necessary for a fair presentation of this information. You should read this
information in conjunction with our audited financial statements and related
notes included elsewhere in this prospectus. We expect our quarterly operating
results to vary significantly from quarter to quarter and you should not draw
any conclusions about our future results from the results of operations for any
quarter.
<TABLE>
<CAPTION>
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1998 1998 1998 1998 1999 1999 1999
-------- -------- --------- -------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service revenues................................. $ 31 $ 27 $ 86 $ 94 $ 156 $ 251 $ 312
Advertising revenues............................. -- -- -- 20 123 175 268
----- ------- ----- ------- ------- ------- --------
Total revenues................................. 31 27 86 114 279 426 580
----- ------- ----- ------- ------- ------- --------
Cost of revenues:
Cost of service revenues......................... 155 155 207 250 192 261 638
Cost of advertising revenues..................... -- -- -- 49 61 88 158
----- ------- ----- ------- ------- ------- --------
Total cost of revenues......................... 155 155 207 299 253 349 796
----- ------- ----- ------- ------- ------- --------
Gross profit (loss)................................ (124) (128) (121) (185) 26 77 (216)
Operating expenses:
Sales and marketing.............................. 266 413 323 667 1,745 3,748 8,870
Product development.............................. 43 229 116 116 146 120 151
General and administrative....................... 181 200 284 477 297 475 719
Stock-based compensation......................... -- 109 117 100 466 909 1,460
----- ------- ----- ------- ------- ------- --------
Total operating expenses....................... 490 951 840 1,360 2,654 5,252 11,200
----- ------- ----- ------- ------- ------- --------
Loss from operations............................... (614) (1,079) (961) (1,545) (2,628) (5,175) (11,416)
Interest and other income (expense), net........... (3) 41 30 16 2 184 138
----- ------- ----- ------- ------- ------- --------
Net loss......................................... $(617) $(1,038) $(931) $(1,529) $(2,626) $(4,991) $(11,278)
===== ======= ===== ======= ======= ======= ========
</TABLE>
Our revenues increased sequentially each quarter after the second quarter of
1998. Sales and marketing, product development and general and administrative
expenses increased steadily in each quarter presented, except for sales and
marketing expenses in the second quarter of 1998, product development expenses
in the second quarter of 1998 and first quarter of 1999, and general and
administrative expenses in the fourth quarter of 1998. The increase in sales and
marketing expenses in the second quarter of 1998 related to increased spending
on marketing and advertising activities of $123,000. The increase in product
development costs in the second quarter of 1998 related primarily to database
expenses of approximately $125,000. The increase in product development expenses
in the first quarter of 1999 related to an increase in consulting and other
professional services expense of
28
<PAGE>
$23,000. The increase in general and administrative expenses in the fourth
quarter of 1998 related primarily to executive recruiting costs.
Factors that could affect our quarterly operating results in the future
include:
- the number of new service providers we add to our network;
- the amount of service fees we generate and our ability to collect this
revenue;
- the amount and timing of our operating expenses and capital expenditures;
- the cost of commercial relationships;
- the amount and timing of noncash stock-based compensation expenses;
- costs and charges related to acquisitions of businesses or technologies;
and
- seasonality of home improvement projects.
Our limited operating history and rapid growth make it difficult for us to
assess the impact of seasonal factors on our business. However, because our
business depends on the home improvement market, we expect that our revenues may
be higher during the second and third quarters of each calendar year as
homeowners commit to home improvement projects for the spring and summer months.
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital needs have been to fund our operating losses, prepay our
large media purchases and make capital expenditures. From our inception on
January 6, 1996 through September 30, 1999, we have financed our operations
through private sales of our preferred and common stock aggregating
approximately $44.5 million.
Operating activities used cash of approximately $14.0 million in the first
nine months of 1999. This amount resulted from a net loss of approximately
$15.9 million after adding back noncash stock-based compensation and other
charges of approximately $3.0 million, offset by an approximately $1.9 million
increase in net current liabilities, primarily increases in accounts payable and
accrued liabilities. Net cash used in operating activities was $328,000 in 1996,
approximately $1.2 million in 1997 and approximately $3.2 million in 1998,
primarily to fund net losses of $359,000 in 1996, approximately $1.2 million in
1997 and approximately $4.1 million in 1998. In 1998, our net loss was partially
offset by a $618,000 increase in accounts payable and accrued liabilities, and
noncash stock-based compensation charges of $326,000.
Investing activities used cash of $51,000, $85,000 and $273,000 in the years
ended December 31, 1996, 1997 and 1998, respectively, substantially all of which
was used to acquire property and equipment. Investing activities used cash of
approximately $2.4 million in the first nine months in 1999. In addition to
purchases of property and equipment, in the first nine months in 1999, investing
activities included an acquisition, a loan to our president and chief executive
officer and a lease security deposit. Financing activities generated cash of
approximately $44.7 million from inception through September 30, 1999 including
approximately $37.9 million in the first nine months of 1999, primarily
consisting of net proceeds from the issuance of preferred and common stock.
At September 30, 1999, we had approximately $23.1 million in cash and cash
equivalents excluding restricted cash balances of $449,000 related to security
deposits on our leases, approximately $20.6 million in working capital and no
outstanding debt. In November and December 1999, we raised an additional
approximately $35.0 million from the private sale of our preferred stock. At
September 30, 1999, we had non-cancelable commitments aggregating approximately
$4.6 million in minimum future lease payments consisting primarily of a
seven-year lease for our administrative
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headquarters. We expect capital expenditures to increase commensurately with the
growth of our employee base, expansion of our professional services
infrastructure into local markets and, to a lesser extent, increased traffic to
our Web sites and numbers of job submissions. Capital expenditures for the next
12 months are currently estimated to approximate $3-$4 million, with no current
material commitments for capital expenditures.
Our limited operating history and operating losses have limited our ability
to obtain vendor credit or extended payment terms and bank financing on
favorable terms; accordingly, we depend on our cash and cash equivalent balances
to fund our operations.
We expect to experience significant growth in our operating expenses for the
foreseeable future. Accordingly, we currently anticipate that our operating
expenses, primarily advertising and other marketing expenditures, and payroll
and related costs will constitute a material use of future cash resources. We
anticipate that our current cash and cash equivalent balances, together with
expected net proceeds from this offering, will be adequate to meet our
foreseeable working capital and operating expense requirements for at least the
next twelve months. Thereafter, however, we may require additional funds to
continue to execute our business plan and to support our ongoing capital
expenditures, working capital and operating expense requirements or for other
corporate purposes. We may seek to raise these additional funds through private
or public debt or equity financings. Additional capital may not be available or,
if available, may not be on terms we deem reasonable. Any future financings may
be dilutive in ownership, preferences, rights or privileges to our stockholders.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. We do not
currently hold any derivative instruments and do not engage in hedging
activities. We will be required to adopt SFAS No. 133 for the year ending
December 31, 2001. We expect the adoption of SFAS No. 133 will not have a
material impact on our financial position, results of operations or cash flow.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily
to increases or decreases in the amount of interest income we can earn on our
investment portfolio and on increases or decreases in the amount of interest
expense we must pay with respect to any outstanding debt instruments. We had no
debt instruments outstanding as of September 30, 1999. The risk associated with
fluctuating interest expense is limited, however, to those debt instruments and
credit facilities that are tied to market rates. We do not plan to use
derivative financial instruments in our investment portfolio. We plan to ensure
the safety and preservation of our invested principal funds by limiting default
risk, market risk and reinvestment risk. We plan to mitigate default risk by
investing in high-credit quality securities.
YEAR 2000 READINESS
The "year 2000 issue" refers generally to the problems that some software
may have in determining the correct century for the year. For example, software
with date-sensitive functions that is not year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000, which may result in failures or the
creation of erroneous results.
We designed our services to be year 2000 compliant when configured and used
in accordance with the related documentation, and provided that the underlying
operating system of the host machine and any other software used with or in the
host machine, our services are year 2000 compliant. However,
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we have not exhaustively tested our services for year 2000 compliance. We
respond to customer questions on a case-by-case basis.
We have sought assurances from our vendors that licensed software is year
2000 compliant. To date, we have received assurances from most vendors through
their Web sites as to their year 2000 compliance. Despite testing by us and
current and potential customers, and assurances from developers of products
incorporated into our products, our products may contain undetected errors or
defects associated with year 2000 date functions. Known or unknown errors or
defects could result in delay or loss of revenues, diversion of development
resources, damage to our reputation, increased service and warranty costs, or
liability from our customers, any of which could harm our business.
Some commentators have predicted significant litigation regarding year 2000
compliance issues, and we are aware of these lawsuits against software vendors.
Because of the unprecedented nature of this litigation, it is uncertain whether
or to what extent we may be affected by it. Congress recently passed a law that
is intended to limit liability for some failures to achieve year 2000
compliance. There can be no assurance that this bill will provide us with any
protection.
We have initiated an assessment of our material internal information
technology systems, including both our own software products and third-party
software and hardware technology. We are in the process of assessing our non-
information technology systems. We expect to complete our assessment and testing
and perform any needed remediation of these systems in late December 1999. To
the extent that we are not able to test the technology provided by third-party
vendors, we are seeking assurances from these vendors that their systems are
year 2000 compliant. We are not currently aware of any material operational
issues or costs associated with preparing our internal information technology
and non-information technology systems for the year 2000. However, we may
experience material unanticipated problems and costs caused by undetected errors
or defects in the technology used in our internal information technology and
non-information technology systems.
We do not currently have any information concerning the year 2000 compliance
status of our customers. Our current or future customers may incur significant
expenses to achieve year 2000 compliance. If our customers are not year 2000
compliant, they may experience material costs to remedy problems, or they may
face litigation costs. In either case, year 2000 issues could reduce or
eliminate the budgets that current or potential customers could have for or
delay purchases of our product and services. As a result, our business could be
harmed.
We have funded our year 2000 plan from operating cash flows and have not
separately accounted for these costs in the past. To date, these costs have not
been material. We will incur additional costs related to the year 2000 plan for
administrative personnel, outside contractor assistance, technical support,
engineering and customer satisfaction. In addition, we may experience material
problems and costs with year 2000 compliance that could harm our business.
We do not have a contingency plan to address situations that may result if
our critical operations are not year 2000 ready, and we do not anticipate the
need to do so. Finally, we are also subject to external forces that might
generally affect industry and commerce, including utility or transportation
company year 2000 compliance failure interruptions.
Year 2000 issues affecting our business, if not adequately addressed by us,
our third party vendors or suppliers or our customers, could have a number of
"worst case" consequences. These include:
- claims from our customers asserting liability, including liability for
breach of warranties related to the failure of our product and services to
function properly, and any resulting settlements or judgments; and
- our inability to manage our own business.
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BUSINESS
OVERVIEW
We are a leading source on the Internet for home improvement information and
services. Through our ImproveNet.com and ImproveNetPro.com Web sites, matching
services and targeted advertising, we are creating a national marketplace for
home improvement products and services in which homeowners, service providers
and suppliers of home improvement products benefit from an organized and
efficient online flow of information and communication.
We generate quality job leads for service providers from highly interested
homeowners within their geographic area using our proprietary matching service.
We have processed approximately 123,000 job submissions, in total, and have
processed job submissions valued at approximately $3.4 billion, in total, since
our national launch in August 1997. We have designed our services to deliver a
satisfying home improvement experience to homeowners and assist them through the
four phases of the home improvement process: dream and design, plan and budget,
hire and build and fix and maintain. We generate revenues from three sources:
- service providers pay us lead fees and win fees for our matching service;
- suppliers of home improvement products and services as well as other
advertisers purchase advertising space on our Web site; and
- homeowners pay us fees, which to date have not been significant, for our
premium home improvement services.
INDUSTRY BACKGROUND
THE HOME IMPROVEMENT INDUSTRY
The home improvement industry is large and fragmented. According to the
United States Department of Commerce, total expenditures for residential home
improvements for 1998 were $120.7 billion. According to the United States Census
Bureau, there are currently 70.5 million owner-occupied homes out of a total of
120 million housing units.
The participants in the home improvement industry can be grouped into three
categories: homeowners, service providers and suppliers of home improvement
products. These participants face distinct challenges in meeting their
individual objectives.
HOMEOWNERS
The appearance, care, maintenance and general working condition of a home is
highly important to a homeowner. Maintaining and improving the home involve an
ongoing financial and emotional investment in the homeowner's core asset. To
manage a home improvement project, a homeowner needs to design the project, find
service providers, establish a budget for the project and guide it to its
completion. To a large extent, homeowners currently must rely upon word-of-mouth
recommendations, Yellow Pages and local newspaper advertisements, and magazines
and books to accomplish these tasks. None of these resources provides immediate,
objective, reliable and customized information. As a result, homeowners are
generally poorly informed and uncertain about how best to identify and locate a
reputable, experienced and competitively priced service provider and to design
and budget for their projects. Further, homeowners seldom have the time to
manage their home improvement projects or have access to an experienced home
improvement advisor. Because of all these factors, they often pay a high
emotional and financial cost to complete a home improvement project and are not
always satisfied with the results.
SERVICE PROVIDERS
Based upon a compilation of industry sources, we believe there are up to
900,000 service providers in the United States. The home improvement industry is
characterized by a high rate of turnover among local contractors. These service
providers have few channels to communicate effectively with
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homeowners or with one another. There is neither an industry-wide certification
based on work quality nor a code of conduct and ethics for contractors as there
is for architects and designers. As a result, reputable contractors are often
unable to differentiate themselves based on reliability, adequate capitalization
and areas of specialization. Service providers currently rely on word-of-mouth
recommendations, the Yellow Pages and other traditional mass media advertising
that require them to pay upfront fixed costs. Therefore, service providers must
allocate significant time, money and energy to qualifying and verifying the
leads they receive. Typically, small independent contractors experience
difficulty in predicting lead flow, managing staffing and working capital
requirements and, most importantly, systematically building a stable business.
SUPPLIERS OF HOME IMPROVEMENT PRODUCTS
According to REMODELING'S 1998-1999 Buyers Guide, there are approximately
3,000 suppliers of home improvement products in the United States. Although
there are some well-known brand names supplying a wide array of home improvement
products, the broader industry is comprised of local and regional firms with
limited means to distribute and market their products effectively to homeowners.
According to ADVERTISING AGE, approximately $950 million was spent in 1998 on
advertising in the home improvement industry. Currently, the majority of
supplier advertising dollars is spent on co-marketing and co-branding
advertising and print and broadcast advertising. These traditional media lack a
centralized database of information that can be searched based on specified
terms, and the ability to conduct two-way communications. Although suppliers
have often used traditional media effectively to build brand recognition, they
have difficulty using traditional media to target homeowners who are in the
process of making time-critical purchasing decisions regarding home improvement
products.
THE INTERNET HOME IMPROVEMENT OPPORTUNITY
The Internet has fundamentally changed the way that individuals and
businesses communicate, obtain information, advertise, purchase goods and
services and transact business. International Data Corporation estimates that
the number of Internet users will grow to 177.0 million in the United States by
the end of 2003 and projects that commerce revenue on the Internet in the United
States will increase from approximately $37.2 billion in 1998 to $707.9 billion
in 2003. Forrester Research projects that advertising spending on the Internet
in the United States will exceed $2.8 billion in 1999 and grow to more than
$17.2 billion by 2003.
We believe that an opportunity exists for an online home improvement
marketplace that provides a central repository of information for the benefit of
homeowners, service providers and suppliers. This marketplace would enable
homeowners to access design and planning tools, find service providers and
obtain other project management services. This marketplace would also enable
service providers to access job leads, differentiate themselves from competitors
and communicate with fellow professionals. Finally, this marketplace would
enable suppliers to market their products to a targeted audience of homeowners
at the time they are making time-critical purchasing decisions.
THE IMPROVENET SOLUTION
We are a leading source on the Internet of home improvement information and
services. We aggregate and organize information and design tools for homeowners,
generate job leads for service providers and provide home improvement project
information to suppliers. We independently screen and monitor contractors,
designers and architects nationwide to ensure that our homeowners' qualified job
leads are matched with pre-screened service providers. We offer suppliers
coordinated advertising to homeowners and service providers while they are
making home improvement purchasing decisions. Through our Web sites, matching
and advisory services and targeted advertising, we are creating a national
online marketplace for home improvement information and services.
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Our solution offers the following benefits:
FOR HOMEOWNERS:
- ACCESS TO QUALITY SERVICE PROVIDERS. We believe our network of service
providers includes the leaders in quality and service in each of our local
markets. Our screening criteria include credit and legal history,
contractor licensing information, possession of appropriate insurance and
recommendations by customers and other service providers. By creating a
national database of screened service providers, we improve the likelihood
that homeowners who contact us will hire a qualified, experienced and
reputable service provider.
- COST-EFFECTIVE AND CONVENIENT SERVICES. For projects greater than $500,
our matching process solicits between two and four service providers on
behalf of homeowners who might otherwise settle for a single bid, creating
a competitive marketplace for their home improvement project. Our goal is
to have interested service providers contact the homeowner directly to
discuss the job in detail within 48 hours of when we solicit bids. In
addition, we offer homeowners the ability to search for home improvement
services and to manage their current projects from home or work 24 hours a
day, seven days a week. We assign a personal project advisor to each home
improvement project who is available to guide and advise the homeowner and
the selected service provider throughout the project.
- ONLINE PROJECT ASSISTANCE. We believe our array of online services,
including our product showcase, our design gallery and our planning and
estimating tools, provides answers to homeowners' diverse questions and
needs regarding home improvement and repairs. Our Web site allows each
homeowner to generate ideas from the product showcase and design gallery
and access the personal project folder, an archive of previous project
ideas and communications. For an additional fee, we can provide premium
services such as screening non-ImproveNet service providers and conducting
advocacy reviews of project contracts.
FOR SERVICE PROVIDERS:
- QUALITY JOB LEADS. Service providers who receive leads through our
proprietary matching service benefit from a process designed to ensure
that the homeowner's interest is real and the potential project is
correctly characterized and meets the service provider's preferences and
expertise. In the future, we intend to communicate job leads in near
real-time to the appropriate service providers through ImproveNetPro.com.
- COMPETITIVE DIFFERENTIATION. We believe service providers can
differentiate themselves from their competitors by successfully completing
our proprietary screening process and joining our network. Approximately
one-third of the service providers who we have identified, and roughly 50%
of those we have screened have met our selection standards of
professionalism and reliability. Furthermore, through our SmartLeads
program, service providers in our network are able to gain efficient and
timely access to the most recent product information available. In
addition, service providers often gain access to special product discounts
not available to their competitors.
- BUSINESS AND FINANCIAL EFFICIENCIES. Service providers who participate in
our matching service pay only for job leads that they accept and for jobs
that they win, allowing them to reduce their upfront marketing costs. New
job leads from our matching service supplement the flow of work that
contractors, architects and designers receive from their traditional
sources, which allows them to plan and operate their businesses more
efficiently.
FOR SUPPLIERS OF HOME IMPROVEMENT PRODUCTS:
- TARGETED ADVERTISING TO HOMEOWNERS. ImproveNet.com is designed to attract
visitors who are focused on remodeling, repairing and maintaining their
homes. We believe that this audience is
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a valuable target for suppliers of home improvement products and services.
Banners, buttons and other forms of advertising allow these suppliers to
target their message more efficiently and cost-effectively to a highly
responsive and focused audience. Moreover, through our SmartLeads program,
suppliers are able to reach registered users through direct email
messages.
- TARGETED ADVERTISING TO SERVICE PROVIDERS. Through our SmartLeads program,
we offer our suppliers the opportunity to run highly targeted promotions
to our network of service providers based on detailed attributes including
project type, cost, timing and location. This focused advertising offers
suppliers an effective method of selling entire lines and specific
products to highly interested service providers at the time of purchase.
- CO-BRANDED WEB SITES. We offer suppliers the opportunity to place our
content and services on their own Web sites or link to co-branded Web
sites, without having to expend development time or resources. These
co-branded Web sites allow suppliers to offer our content and services to
their customers. In many of these arrangements, the suppliers may share in
the revenues from jobs referred through their site or the co-branded Web
site.
THE IMPROVENET STRATEGY
Our strategy is to become America's home improvement resource on the
Internet. The key elements of our strategy are:
DELIVERING A SATISFYING HOME IMPROVEMENT EXPERIENCE FOR HOMEOWNERS, SERVICE
PROVIDERS AND SUPPLIERS. The core of our strategy is to make it easy for
homeowners, service providers and suppliers to work together on a home
improvement project. We believe that achieving this goal will improve the
perception of the home improvement industry in general and improve the level of
professionalism and reliability among service providers, in particular. The
independence of our matching service allows us to maintain a neutral role in the
home improvement process. In addition, our focus on quick and easy access to
information, improved project and market efficiencies and the creation of a
central marketplace for home improvement products and services allows us to
change the current approach and execution of a home improvement project.
Our online and offline services, including our Web sites, personal advisory
service and SmartLeads program, provide increased communication between all
parties to a home improvement project and create new efficiencies for the
project itself. Access to this marketplace allows service providers in our
network to increase their own business and financial efficiencies and
differentiate themselves from their competitors. Similarly, this access allows
suppliers to market their home improvement products and services within a cost
effective advertising medium. We believe that the execution of our ongoing
strategy requires us to:
- expand and strengthen the pool of high quality information and content on
our Web sites;
- expand and strengthen our network of qualified and interested service
providers;
- improve our personal assistance to homeowners through our advisory
services;
- strengthen our communication with our network of service providers through
ImproveNetPro.com and an enhanced, highly knowledgeable team of local
service personnel; and
- strengthen our relationships with suppliers through enhanced co-branded
opportunities and highly targeted advertising products such as our
SmartLeads program.
INCREASE THE NUMBER OF JOBS SUBMITTED TO US AND THE PERCENTAGE OF JOBS WON
BY SERVICE PROVIDERS IN OUR NETWORK. We define our win rate as the number of
jobs won by service providers in our network divided by the total number of jobs
that we submit to our network on behalf of homeowners. We intend to continue to
increase our number of jobs and our job win rate by:
- extending the breadth and depth of our content to create better quality
jobs;
- increasing participation of interested, responsive high-quality service
providers;
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- building a local presence in major markets to work with our service
providers; and
- developing tracking systems and procedures to identify wins that are not
reported to us by either the service provider or the homeowner.
We have invested heavily in the development of content design tools and
services and have refined our submission process to increase the quality of the
homeowner experience and the quality and number of jobs submitted. We intend to
use the service provider databases from suppliers of home improvement products
to augment our service provider base. Our locally based professional services
group recruits service providers, monitors their interest and participation and
oversees their performance. We have embarked on an aggressive hiring program to
expand our professional services group with a goal of increasing our local
presence within the service provider community to 70 major population areas by
the end of 2000.
CREATE NEW COMMERCIAL RELATIONSHIPS AND EXPAND EXISTING ONES WITH SUPPLIERS
OF HOME IMPROVEMENT PRODUCTS AND SERVICES AND RELATED HOME SERVICES. Our
recently-formed commercial relationships with Armstrong Worldwide Industries,
Cendant Corporation, The Dow Chemical Company, E.I. du Pont de Nemours and
Company, General Electric Company, Microsoft Corporation and Owens Corning have
provided these national suppliers of home improvement products and services with
a new advertising and marketing opportunity with the following benefits:
- highly targeted, cost-efficient advertising to service providers and
homeowners;
- an immediate and enhanced Internet presence in the home improvement
market; and
- a focused Internet strategy including co-branding relationships and shared
content.
In turn, we realize the following benefits from these commercial
relationships:
- access to supplier's databases and co-branding opportunities;
- assistance in attracting homeowners to ImproveNet.com;
- increased number of job submissions, leads and wins;
- assistance in building stronger relationships with our network of service
providers; and
- additional highly targeted, fully developed content for our Web sites.
Based on the initial financial and strategic success of our existing
commercial relationships, we are aggressively pursuing additional recognized
leaders in various categories of home improvement products and services.
Specifically, we plan to target providers of related home services such as real
estate brokers and homeowner finance and insurance companies and have entered
into relationships with Cendant's Complete Home, Intuit, Inc.'s Quicken.com and
Microsoft's Home Advisor.
CONTINUE TO BUILD THE IMPROVENET BRAND. To enhance public awareness of our
home improvement services, we are implementing a brand development program using
mass market and targeted advertising, direct mail, word-of-mouth, promotions and
public relations. Existing and future commercial relationships with recognized
and trusted home improvement brands provide us with new opportunities to promote
our brand through promotions and co-branding initiatives such as Powered by
ImproveNet. In addition, these relationships provide us with the opportunity to
utilize the consumer sales and marketing infrastructure, expertise and consumer
information of these organizations which we could not otherwise access or afford
in our normal course of business. We are also focused on systematically
extending relationships with high traffic Web sites. We believe in focusing our
advertising and promotions on homeowners during the home improvement planning
cycle, the time when we believe homeowners and service providers are most
receptive to brand association.
PRODUCTS AND SERVICES
We offer several products and services including ImproveNet.com, our
matching services, ImproveNetPro.com, SmartLeads and Powered by ImproveNet
co-branded services.
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This space will contain two graphics.
The first graphic depicts ImproveNet's relationship to its three principal
constituents: homeowners, service providers and suppliers.
The second graphic depicts the ImproveNet matching process from job submission
to job completion.
IMPROVENET.COM
Our consumer Web site, ImproveNet.com, enables homeowners to browse, free of
charge, our 30,000 pages of ideas for use in their home improvement projects and
to use our project tools to help them better understand their home improvement
project. Our design gallery on ImproveNet.com features color images of the work
of leading architects and designers. For most designs, we provide images,
comments from both the designer and our editors and a detailed list of products
used in the design. Our product showcase on ImproveNet.com contains images of a
full range of more than 5,000 distinct home improvement products and includes
brands such as Armstrong, DuPont, General Electric, Owens Corning, Price-Pfister
and Masco's Kraft Maid and Merrillat.
We recently introduced our kitchen estimator, the first product in our
project estimator service, which is designed to assist homeowners through the
planning and budgeting stage of the home improvement process. This is an
interactive application that allows homeowners to calculate prices for a project
based on parameters such as physical dimensions, styles and the homeowner's zip
code.
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Homeowners can register as members, without charge, which entitles them
access to additional products and services. As part of the on-site registration
process, we create a customized interface for each registered member, known as
the personal project folder. The personal project folder permanently stores all
information related to that homeowner's project and allows us to present
custom-tailored information to that homeowner. Homeowners can store ideas they
get from our design gallery, product showcase and product estimator, in addition
to their own thoughts, as they plan and design their home improvement project.
In addition, we offer premium services to homeowners for a fee. Our premium
services include screening non-ImproveNet service providers and conducting
advocacy reviews of project contracts.
Our Web site gives homeowners access to a community of fellow Web site
visitors and to service providers and industry professionals who can respond to
home improvement questions. Visitors may read the more than 6,000 postings
currently on our message boards, and registered members may join in the
discussions or post a new question. This feature gives homeowners who are now in
the home improvement process a friendly environment in which to educate
themselves further and to reduce their anxiety related to home improvement.
Guiding homeowners through every stage of the home improvement process is
central to our strategy of imparting information and personal assistance. Our
project advisors are available to guide and advise the homeowner throughout the
job. By personalizing both our Web site and our interactive communications to
homeowners, we provide homeowners a user-friendly and highly productive
environment in which to manage their projects. Furthermore, we believe that this
personalization increases the likelihood that homeowners will return to us for
all their home improvement needs.
IMPROVENET'S MATCHING SERVICES
We offer homeowners the opportunity to submit to us a home improvement job
that we match with contractors, architects or designers who want to bid on the
job. We currently match approximately half of the jobs submitted to us with
interested service providers. Homeowners who are starting a home improvement
project begin the process by clicking on our homepage links to "Find a
Contractor" or "Find a Designer" and are then asked to complete a detailed
project request form that specifies the type of job the homeowner desires. Based
on the homeowner's project description, the homeowner's job request is then
categorized by size as follows:
- a large project, greater than $5,000 in value;
- a small project, between $5,000 and $500 in value; and
- a micro project, less than $500 in value.
Once a fully qualified job has been submitted to us, we assign a project
advisor to guide the homeowner through the entire home improvement process. We
also notify the homeowner immediately that we will begin our search to match
their project with potential service providers interested in bidding on the
project. Our proprietary matching service uses the homeowner's project
description to select the ImproveNet service providers in the homeowner's
geographic area who do the type of work required. We then contact those service
providers by fax or on ImproveNetPro.com. The interested service providers who
first contact us get the opportunity to bid on the project. We currently allow
up to four service providers to bid on a large project, up to two service
providers on a small project and one service provider on a micro project. We
then forward the selected names to the homeowner via e-mail. The service
providers who we refer to the homeowner pay us a fee for the job lead or
referral.
Service providers contact the homeowner directly by telephone to discuss the
job in detail, ideally within 48 hours of our e-mail. If a job does not receive
a bid within 48 hours of submission, the project advisor works on behalf of the
homeowner to locate available and interested service providers. The project
advisor sends a series of messages to the homeowner that provide project
management advice, offer premium services and market supplier product offerings.
The homeowner is free to contact his or
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her project advisor as many times as needed. Following the completion of the
project, we solicit a quality-assurance survey to determine the outcome of the
matching process and the level of homeowner satisfaction. We invoice service
providers for a win fee based on a predetermined percentage of the job's value
for every job they win through our matching service. These win fees range from
1% to 10% of the estimated cost of the job, up to a maximum of $995 per job. We
ask our service providers not to charge the win fee in the bid quote to the
homeowner. We currently collect our win fees directly from service providers
once the service provider or the homeowner informs us that the homeowner has
hired a service provider through our matching service.
IMPROVENETPRO.COM
Our recently introduced commercial Web site, ImproveNetPro.com, provides new
or enhanced services to our service providers. ImproveNetPro.com allows us to
communicate in near real-time with participating service providers who are
online. ImproveNetPro.com provides our contractors, architects and designers
with immediate access to new job postings. Once a service provider enters the
password-protected section of ImproveNetPro.com, he or she is immediately
presented with the status of new jobs available to the service provider that
match their location, preferences and expertise. We believe that
ImproveNetPro.com will assist us to enhance the loyalty of our contractors,
architects and designers.
SMARTLEADS
In the course of helping homeowners manage home improvement projects, we
obtain timely and specific information from them regarding the nature of their
home improvement projects. With SmartLeads, we offer our suppliers of home
improvement products the opportunity to send direct e-mail messages about their
products to registered users who are making purchasing decisions during the home
improvement process. We charge suppliers a fee for each message sent. We believe
this is a targeted and cost-effective means for suppliers to reach homeowners
and service providers near the time of purchase.
POWERED BY IMPROVENET
We provide a customized product superimposing ImproveNet.com content
including our matching services on third-party Web sites so that the content
looks like the third party's own content but is Powered by ImproveNet. This
customized product allows our logo and our products and services to be placed
across a broad spectrum of third-party Web sites related to home improvement,
from online versions of traditional media properties to Web sites related to
manufacturing, finance, real estate and local and regional guides. If a customer
of these third parties uses our matching services, we pay the supplier a portion
of any service revenue from that match.
SALES AND MARKETING
We believe that building awareness of the ImproveNet brand is critical to
our effort to be the leading home improvement destination on the Internet. Our
primary means of increasing the number of homeowners who visit ImproveNet.com
and building a broad-based awareness of our brand among homeowners has been
through online advertising arrangements. We have entered into these
arrangements, which are generally one year in length or cancelable with
reasonable notice that obligate us to pay a fixed monthly fee, with:
- frequently visited portals, such as AltaVista, America Online,
Excite@Home, Lycos, Quicken.com and Yahoo!; and
- Web sites related to home improvements, such as Better Homes and Garden,
This Old House, and Microsoft HomeAdvisor.
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In addition, starting in the second half of 1999, we began supplementing our
online advertising with offline advertising in Yellow Pages, printed-based media
and national radio and through customary public relations initiatives. We have
faced and will continue to face increased renewal charges for our advertising
arrangements.
Our partnership services group focuses on creating commercial relationships
with companies serving the home improvement industry, including suppliers of
home improvement products and related services. Since August 1999, we have sold
these companies advertising including a continuous presence on our Web sites for
a fixed annual fee. To date, we have entered into relationships with third
parties including Armstrong, Cendant, Dow Chemical, DuPont, General Electric and
Owens Corning.
Our professional services group also focuses on adding new service providers
to our network and decreasing turnover of active service providers in our
network. We believe that a local professional services presence will allow us to
build and maintain a strong network of service providers in each geographic area
that is responsive to our job leads. As of September 30, 1999, we had 40 local
professional advisors on our professional services team.
Our five largest advertisers in the first nine months of 1999 have been
Armstrong, General Electric, Masco's Merrillat, Owens Corning and Whirlpool. No
single advertiser accounted for more than 10% of our total revenues for any
period.
PRODUCT DEVELOPMENT
We seek to maintain and advance our market position by continually enhancing
the performance of our Web sites and expanding the features that we offer
homeowners, service providers and suppliers. We expect that enhancements to our
Web sites and services will come from both internally and externally developed
technologies.
Our new product development ideas are stimulated by input from our bulletin
boards, commercial relationships, market surveys and market focus groups. Our
current development efforts focus primarily on identifying, designing and
building proprietary products, features and systems to manage the collection and
organization of information for homeowners, our network of service providers and
suppliers of home improvement products. Additionally, our product development
group is responsible for the ongoing activities related to development of
content for our Web sites and the ability of our systems to handle larger
numbers of visitors, more available pages and our Powered by ImproveNet
interfaces. Future delays or unforeseen problems in these development efforts
could delay the introduction of new products, services or features on our Web
sites.
TECHNOLOGY INFRASTRUCTURE
Our Web sites are designed to provide fast, reliable, high quality access to
our online services. Our hardware and software systems must assimilate and
process large volumes of visitor traffic and store, process and disseminate
large amounts of user data, and process interactive applications.
We have implemented a broad array of site management, customer interaction
and processing systems using our own proprietary technologies and, where
appropriate, commercially available licensed technologies. Our systems use
Windows NT and are designed for a high level of automation and performance. We
have redundant power supplies, fail-over machines and fully clustered databases
and Web servers to optimize up-time and user experience. We monitor our network
and machines 24 hours a day for reliability.
Our Web sites are operated using Microsoft tools supplemented by
ImproveNet-specific enhancements and tools to support rapid database/Web
application development. Our ability to successfully receive homeowner job
submissions online, provide high-quality homeowner service, and serve a high
volume of advertisements largely depends on the efficient and uninterrupted
operation of our computer and communications hardware systems. Our Web sites and
databases are hosted by
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Exodus Communications in Santa Clara, California. All of our computer,
communications systems and database back-ups are located in our administrative
headquarters in Redwood City. Spikes in visitor traffic and user demand can
affect expected performance of our Web sites and could cause outages. Since we
have been keeping logs on our Web sites, our ImproveNet.com Web site has been
unintentionally interrupted for periods ranging from two minutes to one hour,
except that on one occasion, some users experienced interruptions in part of our
service for a period of 48 hours. We have had no interruptions or outages of our
ImproveNetPro.com Web site since its inception in December 1999.
COMPETITION
We believe that the critical competitive factors in the online home
improvement industry include:
- the number of visitors to the Web sites, the number of home improvement
jobs submitted by those visitors, the time spent by those visitors at
those Web sites and the resultant loyalty created among those visitors,
the degree to which Web site content and loyalty create allegiance to the
service provider referral service at the Web site, and, ultimately, the
ability to generate repeat customers;
- the ability to recruit and retain a network of quality service providers
that have broad trade and geographical coverage so that a large number of
jobs can be matched with service providers;
- the ability to maintain loyalty of service providers and capture their
capacity for jobs; and
- the ability to generate significant traffic from online homeowners and
qualify their projects so that they can be efficiently handled by service
providers and so that suppliers can effectively market to them.
We believe that our ability to compete depends on many different factors,
both within and outside our control, including:
- the geographical coverage and completeness of our network of service
providers and the performance of the service providers referred from that
network;
- the strength of our commercial relationships with suppliers of home
improvement products and services and their interest in entering similar
relationships with our competitors;
- the quality of our Web site content and the tools offered to both
homeowners and service providers; and
- the effectiveness of our marketing strategy and its impact on the number
of high quality home improvement projects we are able to generate from
visits to our Web site and through other means.
Our current competitors include:
- LOCAL, PRIMARILY PHONE-BASED, CONTRACTOR REFERRAL BUSINESSES. These are
generally small operations that take phone requests from homeowners that
they attract through Yellow Page advertising or direct marketing
initiatives and that refer projects to contractors with whom they often
have a personal relationship.
- ONLINE REFERRAL COMPANIES. Some of our competitors such as Wisen.com,
iMandi, iCastle, therepairnet, HomesSpud and Our House offer a publicly
accessible online database and other companies such as Handyman Online,
BidExpress, and Contractor.com have matching services but do not have
national coverage. Remodel.com, which was recently launched by
HomeStore.com, also offers a matching service.
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- SUPPLIERS OF HOME IMPROVEMENT PRODUCTS. We expect the number of our
competitors to increase in the future. For example, retailers of home
improvement products such as The Home Depot, Lowe's and Sears Roebuck &
Co. could develop competing home improvement Web sites.
In addition, parties with which we have commercial relationships and other
suppliers of home improvement products could choose to develop their own
Internet strategies or competing home improvement Web sites. Many of our
existing and potential competitors have longer operating histories, greater name
recognition, larger homeowner bases and significantly greater financial,
technical and marketing resources than we do. We believe that we and any
competitor seeking to establish home improvement services on the Internet
confront significant challenges, including the need to:
- cost-effectively build a comprehensive network of service providers;
- possess an effective process for handling a large volume of homeowner
requests and delivering a high level of customer service;
- develop and offer project modeling tools;
- develop a communication channel between homeowners and service providers;
and
- develop relationships or alliances with suppliers of home improvement
products and services that have strong brand names and databases of
service providers.
GOVERNMENT REGULATION
Our business is subject to rapidly changing laws and regulations. Although
our operations are currently based in California, the United States government
and the governments of other states and foreign countries have attempted to
regulate activities on the Internet. The following are some of the evolving
areas of law that are relevant to our business:
- PRIVACY LAW. Current and proposed federal, state and foreign privacy
regulations and other laws restricting the collection, use and disclosure
of personal information could limit our ability to leverage our databases
to generate revenues.
- SALES AND USE TAX. We do not currently collect sales, use or other taxes
on the sale of goods and services on our Web sites other than on sales in
states where we have a physical presence. However, states or foreign
jurisdictions may seek to impose tax collection obligations on companies
like us that engage in online commerce. If they do, these obligations
could limit the growth of electronic commerce in general and limit our
ability to profit from the sale of goods and services over the Internet.
- BUILDING REQUIREMENTS. The activities of our service providers are subject
to various federal, state and local laws, regulations and ordinances
relating to, among other things, the licensing of home improvement
contractors, OSHA standards, building and zoning regulations and
environmental laws and regulations relating to the disposal of demolition
debris and other solid wastes. In addition, many jurisdictions require the
service provider to obtain a building permit for each home improvement
project.
Because of this rapidly evolving and uncertain regulatory environment, we
cannot predict how these laws and regulations might affect our business. In
addition, these uncertainties make it difficult to ensure compliance with the
laws and regulations governing the Internet. These laws and regulations could
harm us by subjecting us to liability or forcing us to change how we do
business.
INTELLECTUAL PROPERTY RIGHTS
Our success is dependent upon our ability to develop and protect our
proprietary technology and intellectual proprietary rights. We rely primarily on
a combination of contractual provisions, confidentiality procedures, trade
secrets, and copyright and trademark laws to accomplish these goals.
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In addition, we seek to avoid disclosure of our trade secrets by requiring
employees, customers and others with access to our proprietary information to
execute confidentiality agreements. We also seek to protect our software,
documentation and other written materials under trade secret and copyright laws.
Despite our efforts to protect our proprietary rights, existing laws afford
only limited protection. Attempts may be made to copy or reverse engineer
aspects of our product or to obtain and use information that we regard as
proprietary. Accordingly, there can be no assurance that we will be able to
protect our proprietary rights against unauthorized third-party copying or use.
Use by others of our proprietary rights could materially harm our business.
Furthermore, policing the authorized use of our product is difficult and
expensive litigation may be necessary in the future to enforce our intellectual
property rights.
It is also possible that third parties will claim that we have infringed
their current or future products. Any claims, with or without merit, could be
time-consuming, result in costly litigation, cause delays or require us to enter
into royalty or licensing agreements, any of which could harm our business.
Patent litigation in particular has complex technical issues and inherent
uncertainties. In the event an infringement claim against us was successful and
we could not obtain a license on acceptable terms or license a substitute
technology or redesign to avoid infringement, our business would be harmed.
FACILITIES
Our principal administrative offices and systems operations are located in
Redwood City, California in approximately 16,200 square feet of office space
under a lease that expires in 2006. We also lease approximately 5,300 square
feet of office space in Redwood City, California under a lease that expires in
2002. We operate our project services activities out of approximately 8,000
square feet of office space in Ft. Lauderdale, Florida under a lease that
expires in 2004. In addition, we have entered into leases for regional
professional support offices in Irving, Texas and Livonia, Michigan. We expect
to enter into new leases for office space for additional professional support
offices in six other regions generally on the same terms and conditions as our
current regional office leases. We also anticipate opening an office in the
western United States for our project advisor group. We believe our current
office space including the contemplated lease of the six regional support
offices and our project advisor office is adequate of our current operations and
that additional office space, if required, can be readily obtained.
EMPLOYEES
As of September 30, 1999, we had 127 employees, including 18 in sales and
marketing, 42 in project services, 40 in professional services, 18 in product
development and technology, and 9 in general administration. We consider our
relations with our employees to be good. We have never had a work stoppage, and
no employees are represented under collective bargaining agreements. We believe
that our future success will depend in part on our continued ability to attract,
integrate, retain and motivate highly qualified personnel, and upon the
continued service of our senior management and key technical personnel.
Competition for qualified personnel in our industry and geographical location is
intense, and we cannot assure you that we will be successful in attracting,
integrating, retaining and motivating a sufficient number of qualified personnel
to conduct our business in the future.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations. As of the date of this prospectus, we are not
engaged in any material legal proceedings.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information about our directors and
executive officers as of December 14, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ----------------------- ------------------------------------------
<S> <C> <C>
Ronald B. Cooper.......................... 45 President, Chief Executive Officer and
Director
Dennis R. Galloway........................ 52 Senior Vice President, Partnership
Services
Don Gaspar................................ 36 Senior Vice President, Engineering and
Development, and Chief Technology
Officer
William A. Phillips, Jr................... 41 Senior Vice President, Professional
Services
Richard G. Reece.......................... 51 Senior Vice President and Chief Financial
Officer
Richard A. Roof........................... 46 Senior Vice President, Project Services
William E. Crosby......................... 43 Vice President, Editorial and Product
Development
Sonia Solanki............................. 35 Vice President, Human Resources
Robert L. Stevens......................... 52 Chairman of the Board of Directors
Andrew Anker(1)........................... 34 Director
Domenico Cecere(2)........................ 50 Director
Stuart Gannes(2).......................... 50 Director
Brian Graff(2)............................ 34 Director
Garrett Gruener(1)........................ 45 Director
Alex Knight(1)............................ 35 Director
</TABLE>
- ------------------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
RONALD B. COOPER has served as our president and chief executive officer
since March 1999. From July 1996 to March 1999, Mr. Cooper was president of
Price Pfister, Black and Decker's plumbing products division. From August 1992
to July 1996, Mr. Cooper was president of three other Black and Decker
divisions: Power Tool Accessories, PRC Realty Systems and PRC Commercial Systems
Group.
DENNIS R. GALLOWAY has served as our senior vice president, partnership
services since November 1999. From July 1999 to November 1999, Mr. Galloway was
our senior vice president, professional services. From February 1996 to June
1999, Mr. Galloway owned Galloway Consulting, an Internet consulting firm. From
February 1994 to January 1996, he was president and chief executive officer of
DialOne, a national network of franchised home services contractors.
DON GASPAR has served as our senior vice president, engineering and
development and chief technology officer since September 1999. From June 1997 to
September 1999, he was vice president of engineering and chief technology
officer at TelePost, an internet telecommunications company. From March 1995 to
June 1997, he was the sole owner of Gigantor Software Development, Inc., a
consulting company, and he is currently Chairman of the Board of that company.
From April 1994 to March 1995, he was project leader and manager of engineering
at Netcom, an online services company.
WILLIAM A. PHILLIPS, JR. has served as our senior vice president,
professional services since October 1999. From May 1995 to October 1999,
Mr. Phillips was a vice president at Price Pfister. From December 1994 to
May 1995, he was vice president of sales at DAP, Inc., a caulk and sealant
manufacturer.
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RICHARD G. REECE has served as our senior vice president and chief financial
officer since September 1999. From April 1996 to September 1999, Mr. Reece was
the vice president and chief financial officer of Diamond Home Services, Inc., a
home improvement products and services company. From August 1994 to April 1996,
Mr. Reece was vice president and chief financial officer of Globe Building
Materials, Inc., a manufacturer and distributor of roofing products.
RICHARD A. ROOF has served as our senior vice president, project services
since May 1999. From September 1998 to May 1999, Mr. Roof was senior vice
president of operations at QEP/Roberts, a manufacturer of home improvement
tools. From June 1997 to June 1998, he was senior vice president of operations
at Continental Datagraphics, a technical data management and publishing company.
From 1981 to June 1997, Mr. Roof served in a variety of positions, most recently
senior vice president of operations, at Interealty Corp/PRC Realty Systems, a
supplier of information systems to the real estate industry.
WILLIAM E. CROSBY has served as our vice president, editorial and product
development since June 1997. From September 1977, to August 1996, Mr. Crosby
served in a variety of positions at Sunset Magazine, most recently senior
writer.
SONIA SOLANKI has served as our vice president, human resources since July
1999. From May 1996 to January 1999, Ms. Solanki was a human resources manager
and from January 1999, to July 1999, she was a director of product development
at Price Pfister. From January 1995 to January 1996, she was a human resources
team leader at Colgate-Palmolive's Pet Nutrition division.
ROBERT L. STEVENS is one of our co-founders and has served as chairman of
the board of directors since January 1996. Mr. Stevens served as our president
and chief executive officer from January 1996 to March 1999. From January 1990
to April 1995, Mr. Stevens was president and chief executive officer of
MagicQuest, Inc., an educational software company.
ANDREW ANKER has served as a director of ImproveNet since March 1999.
Mr. Anker has been at August Capital, a venture capital company, since April
1998 and has been a partner since March 1999. From 1994 to February 1998,
Mr. Anker served as chief executive officer of Wired Digital, Inc., an
Internet-based news and media company.
STUART GANNES has served as a director of ImproveNet since August 1997.
Mr. Gannes has been employed as vice president, internet applications
organization for AT&T Corp., a telecommunications company, since January 1998.
From June 1992 to July 1997, he was chief executive officer of Books That Work,
a consumer software company.
BRIAN GRAFF has served as a director of ImproveNet since September 1999.
Mr. Graff has been a vice president of GE Capital Equity, Inc., a financial
subsidiary of General Electric, since August 1997. From September 1995 to August
1997, he was a director of corporate development of Automatic Data Processing,
Inc., an information processing company. From August 1992 to September 1995, he
was a senior associate of corporate finance at Coopers & Lybrand, a public
accounting firm.
GARRETT GRUENER has served as a director of ImproveNet since March 1997.
Mr. Gruener has been a general partner of Alta Partners, a venture capital
company, since 1996. Since 1992, Mr. Gruener has been a partner at Burr, Egan,
Deleage & Co., a venture capital company. Mr. Gruener is on the board of
directors of Be, Inc., Ask Jeeves, Inc., CyberGold, Inc. and ImageX.com, Inc.
ALEX KNIGHT has served as a director of ImproveNet since February 1999.
Mr. Knight has been at ARCH Venture Partners, a venture capital company, since
February 1997, and has been a managing director of ARCH Venture Fund IV, LLC
since its formation in February 1999. From March 1996 to February 1997,
Mr. Knight was a consultant to several Internet companies. From May 1995 to
March 1996, Mr. Knight was executive vice president of News/MCI Internet
Ventures, an Internet services
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company. From September 1993 to May 1995, Mr. Knight was director of business
development and creative affairs at Microsoft Corporation, a software company.
DOMENICO CECERE has served as a director of ImproveNet since December 1999.
Mr. Cecere has been senior vice president and president of Owens Corning North
America Building Materials Systems division since January 1999. From January
1998 to December 1998, Mr. Cecere served as Chief Financial Officer of that
division. From January 1996 to December 1997, Mr. Cecere was president of Owens
Corning Roofing Systems division. From January 1994 to December 1995,
Mr. Cecere was Controller of Owens Corning.
BOARD COMMITTEES
AUDIT COMMITTEE. Our audit committee currently consists of Messrs. Cecere,
Gannes and Graff. The audit committee reviews our internal accounting procedures
and consults with and reviews the services provided by our independent
accountants.
COMPENSATION COMMITTEE. Our compensation committee currently consists of
Messrs. Anker, Gruener and Knight. The compensation committee administers our
stock option plans, reviews and approves the compensation and benefits of all
our officers and establishes and reviews general policies relating to employee
compensation and benefits.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation from us for their services
as members of the board or for attendance at committee meetings. Members of the
board are reimbursed for some expenses in connection with attendance at board
and committee meetings.
In October 1997, Mr. Gannes received an option to purchase 20,000 shares of
our common stock at an exercise price per share of $0.10. The exercise price was
equal to the fair market value of the common stock on the date of grant as
determined by our board of directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
Messrs. Anker, Gruener and Knight serve as members of the compensation
committee. Investment entities affiliated with Messrs. Anker, Gruener and Knight
have purchased shares of common stock and preferred stock. See "Related Party
Transactions."
BOARD COMPOSITION
Our bylaws currently provide for a board of directors consisting of eight
members. Following the closing of this offering, the directors will be divided
into three classes, each serving a staggered three-year term: class I, whose
term will expire at the first annual meeting of stockholders following this
offering; class II, whose term will expire at the second annual meeting of
stockholders following this offering; and class III, whose term will expire at
the third annual meeting of stockholders following this offering. As a result,
only one class of directors will be elected at each of our annual meetings of
stockholders, with the other classes continuing for the remainder of their
respective terms. Mr. Stevens, Mr. Anker and Mr. Knight have been designated as
class I directors; Mr. Gruener, Mr. Graff and Mr. Gannes have been designated as
class II directors; and Mr. Cooper and Mr. Cecere have been designated as
class III directors. Mr. Cecere was elected to the board of directors pursuant
to a voting agreement that will continue, following this offering, to allow
Owens Corning to designate one nominee to the board provided that it owns at
least 500,000 shares of our common stock and does not terminate the current
Internet-based services agreement with us.
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<PAGE>
EXECUTIVE COMPENSATION
The following table shows summary information concerning the compensation
paid to our former president and chief executive officer for services during the
year ended December 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#)
- --------------------------- ------------ ------------
<S> <C> <C>
Robert L. Stevens, chairman of the board and former
president and chief executive officer..................... $143,750 --
</TABLE>
The following table shows each grant of stock options during the fiscal year
ended December 31, 1998 to the individual listed on the previous table.
The exercise price of each option was equal to the fair market value of our
common stock as valued by the board of directors on the date of grant. The
exercise price may be paid in cash, by promissory notes, in shares of our common
stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange Commission
and does not represent our prediction of our stock price performance. The
potential realizable values at 5% and 10% appreciation are calculated by
- multiplying the number of shares of common stock subject to a given option
by the assumed initial public offering price of $ per share;
- assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
- subtracting from that result the total option exercise price.
The shares listed in the following table under "Number of Securities
Underlying Options Granted" are immediately exercisable at the discretion of our
board of directors. The option has a ten-year term, subject to earlier
termination if the optionee's service with us ceases.
Percentages shown under "Percent of Total Options Granted to Employees in
Fiscal 1998" are based on a total of 643,000 options granted to our employees
under our stock option plans during 1998.
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------------------
NAME GRANTED (#) FISCAL 1998 SHARE DATE 0%($) 5%($) 10%($)
- ---- ----------- ------------- --------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert L. Stevens.............. -- -- -- -- -- --
</TABLE>
The following table shows the number and value of securities underlying
unvested options that are held by the named executive officer as of
December 31, 1998.
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<PAGE>
Amounts shown under the column "Value of Unvested In-the-Money Options at
December 31, 1998" are based on the deemed fair market value of the underlying
securities on December 31, 1998 per share of $0.25, minus the weighted-average
exercise price of approximately $0.142, without taking into account any taxes
that may be payable in connection with the transaction, multiplied by the number
of shares underlying the option, less the exercise price payable for these
shares. Our stock option plan allows for the early exercise of options at the
discretion of our board of directors. All options exercised early are subject to
repurchase by us at the original exercise price, upon the optionee's cessation
of service before the shares vest.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
SECURITIES UNDERLYING VALUE OF UNVESTED
UNVESTED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED DECEMBER 31, 1998 DECEMBER 31, 1998
UPON EXERCISE VALUE REALIZED --------------------- -----------------------
NAME (#) ($) VESTED UNVESTED VESTED UNVESTED
- ---- --------------- -------------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert L. Stevens.... -- -- 71,250 0 $ 7,688 0
</TABLE>
EMPLOYEE BENEFIT PLANS
1996 STOCK OPTION PLAN
Our 1996 Stock Option Plan provides for the granting to employees of
incentive stock options within the meaning of section 422 of the Internal
Revenue Code of 1986 and for the granting to employees and consultants of
nonstatutory stock options. As of December 14, 1999, there were outstanding
options to purchase 2,269,900 shares of common stock and 50,106 shares available
for future grant. This plan provides that, if we merge with or into another
corporation or sell substantially all of our assets, each outstanding option
must be assumed or substituted for by the successor corporation. If the
successor corporation refuses to assume or substitute for the ImproveNet
options, the ImproveNet options will accelerate as of the closing of the merger
or sale of assets. Options under this plan are subject to terms substantially
similar to those described below with respect to options to be granted under the
1999 Equity Incentive Plan. The 1996 Stock Option Plan does not provide for
issuance of restricted stock or stock bonus awards.
1999 EQUITY INCENTIVE PLAN
We adopted the 1999 Equity Incentive Plan in December 1999, subject to
stockholder consent.
SHARE RESERVE. A total of 1,300,000 shares have been reserved for issuance
under this plan. Each year, beginning January 1, 2001, the number of shares
reserved for issuance under this plan will automatically be increased by the
lesser of (i) 5% of the total number of common stock then outstanding or
(ii) 1,300,000 shares. However, our board may designate a smaller number of
shares of common stock to be added to the share reserve as of a particular
January 1.
ADMINISTRATION. Our board administers the incentive plan unless it has
delegated administration to a committee. Our board has the authority to
construe, interpret and amend the incentive plan as well as to determine:
- the grant recipients;
- the grant dates;
- the number of shares subject to the award;
- the exercisability of the award;
- the exercise price;
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- the type of consideration; and
- the other terms of the award.
ELIGIBILITY. Our board may grant incentive stock options that qualify under
section 422 of the Internal Revenue Code to our employees, officers and
affiliates. The board may grant nonstatutory stock options, stock bonuses and
restricted stock purchase awards to our employees, officers, directors,
consultants or affiliates. A restricted stock purchase award is an offer to
purchase our shares at a price either at or near the fair market value of the
shares. A stock bonus, on the other hand, is a grant of our shares at no cost to
the recipient in consideration for past services rendered. We may reacquire the
shares under either type of award at the original purchase price, which is zero
in the case of a stock bonus, if the recipient's service to us or an affiliate
of ours is terminated before the shares vest.
Section 162(m) of the Internal Revenue Code, among other things, denies a
deduction to publicly held corporations for compensation paid to specific
employees in a taxable year to the extent that the compensation is more than
$1,000,000. When we become subject to section 162(m), the board may not grant
options under the incentive plan to an employee covering a total of more than
700,000 shares in any calendar year.
OPTIONS. The board may grant incentive stock options with an exercise price
of 100% or more of the fair market value of a share of our common stock on the
grant date. The board may not grant an incentive stock option to any person who,
at the time of the grant, owns, or is deemed to own, stock possessing more than
10% of the total combined voting power of ImproveNet or any affiliate of
ImproveNet, unless the exercise price is at least 110% of the fair market value
of the stock on the grant date. In addition, the total fair market value,
determined at the grant date, of incentive stock option shares that are
exercisable for the first time during a calendar year, under the incentive plan
and all other stock plans of ImproveNet and its affiliates, may not exceed
$100,000 for any person. It may grant nonstatutory stock options with an
exercise price as low as 85% of the fair market value of a share on the grant
date. The options may, but need not, contain provisions for early exercise.
OPTION TERMS. The maximum option term is 10 years. The option term for any
person who, at the time of grant, owns, or is deemed to own, stock possessing
more than 10% of the total combined voting power of ImproveNet or any affiliate
of ImproveNet, is a maximum of five years. The board may provide for exercise
periods of any length in individual option grants, subject to limitations.
However, generally an option terminates three months after the optionholder's
service terminates. If the termination is due to the optionholder's disability,
the exercise period generally is extended to 12 months. If the termination is
due to the optionholder's death or if the optionholder dies within three months
after his or her service terminates, the exercise period generally is extended
to 18 months following death.
OTHER PROVISIONS. The optionholder may designate a beneficiary to exercise
the option following the optionholder's death. Nonstatutory stock options may be
transferable. Otherwise, the option exercise rights will pass by the
optionholder's will or by the laws of descent and distribution.
The board determines the purchase price of other stock awards, but the
purchase price may not be less than 85% of the fair market value of our common
stock on the grant date. However, the board may award stock bonuses in
consideration of past services without a purchase payment. Shares sold or
awarded under the incentive plan may, but need not be, restricted and subject to
a repurchase option in our favor in accordance with a vesting schedule that the
board determines.
Transactions not involving receipt of consideration by ImproveNet, including
a merger, consolidation, reorganization, stock dividend or stock split, may
change the class and number of shares subject to the incentive plan and to
outstanding awards. In that event, the board will appropriately adjust the
incentive plan as to the class and the maximum number of shares subject to the
incentive
49
<PAGE>
plan, to the incentive stock option limitation and to the section 162(m)
limitation. It also will adjust outstanding awards as to the class, number of
shares and price per share subject to the awards.
Upon a change in control of ImproveNet, the surviving entity will either
assume or substitute outstanding awards under the incentive plan. Otherwise, the
vesting and exercisability of awards generally will accelerate in full and
terminate if not exercised, if applicable, at or before the event.
This plan will terminate in December 2009 unless the board terminates it
sooner.
1999 EMPLOYEE STOCK PURCHASE PLAN
We adopted the our employee stock purchase plan in December 1999.
SHARE RESERVE. We authorized the issuance of 300,000 shares of our common
stock under purchase rights granted to our employees and to employees of our
designated affiliates subject to stockholder approval. On January 1 of each
year, beginning on January 1, 2001, the number of shares in the reserve
automatically will be increased by the lesser of (i) 1% of the total number of
common stock outstanding on such January 1 or (ii) 300,000 shares. However, the
board may designate a smaller number of shares to be added to the share reserve
as of a particular January 1.
ELIGIBILITY. The purchase plan is intended to qualify as an employee stock
purchase plan within the meaning of section 423 of the Internal Revenue Code.
The purchase plan provides a means by which employees may purchase our common
stock through payroll deductions. We implement this purchase plan by offerings
of purchase rights to eligible employees. Generally, all of our employees and
the employees of any United States affiliate of ours may participate in the
purchase plan, excluding part-time and seasonal employees. However, no employee
may participate in the purchase plan if, immediately after we grant the employee
a purchase right, the employee has voting power over 5% or more of our
outstanding capital stock. As of the date of this prospectus, no shares of
common stock have been purchased under the purchase plan.
ADMINISTRATION. Under the purchase plan, the board may specify offerings of
up to 27 months. The first offering will begin on the effective date of this
initial public offering. Unless the board otherwise determines, our common stock
is purchased for accounts of participating employees at a price per share equal
to the lower of:
- 85% of the fair market value of a share on the first day of the offering,
or
- 85% of the fair market value of a share on the purchase date.
The board may provide that employees who become eligible to participate
after the offering period begins nevertheless may enroll in the offering. These
employees will purchase our stock at the lower of:
- 85% of the fair market value of a share on the day they began
participating in the purchase plan, or
- 85% of the fair market value of a share on the purchase date.
Under the offering that will begin on the effective date of this prospectus,
employees may authorize payroll deductions of up to 15% of their base
compensation, not including sales commissions or bonuses, for the purchase of
stock under the purchase plan and may end their participation in the offering at
any time up to 10 days before a purchase date. Participation ends automatically
on termination of employment with us or our affiliates.
OTHER PROVISIONS. The board may grant eligible employees purchase rights
under the purchase plan only if the purchase rights together with any other
purchase rights granted under other employee stock purchase plans established by
us or our affiliates, if any, do not permit the employee's rights to purchase
our stock to accrue at a rate that exceeds $25,000 of the fair market value of
our stock for
50
<PAGE>
each calendar year in which the purchase rights are outstanding. The board also
may limit the number of shares that an employee may purchase on any purchase
date.
Upon a change of control of ImproveNet, the board may provide that the
successor corporation will assume or substitute outstanding purchase rights.
Alternatively, the board may shorten the offering and provide that shares will
be purchased for participants immediately before the change in control.
The employee stock purchase plan will terminate in December 2009 unless the
board terminates it sooner.
401(k) PLAN
Effective January 1, 1999, we adopted a 401(k) plan to provide eligible
employees with a tax preferential savings and investment program. Employees
become eligible to participate in the 401(k) plan on the first day they perform
an hour of service for us, at which point we classify them as participants. They
may elect to reduce their current compensation by up to the lesser of 20% of
eligible compensation or the statutorily prescribed annual limit, $10,500 in
2000, and have this reduction contributed to the 401(k) plan. At the direction
of each participant, the trustee of the 401(k) plan invests the assets of the
401(k) plan in selected investment options. Contributions by participants or by
us to the 401(k) plan, and income earned on plan contributions, are generally
not taxable to the participants until withdrawn.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation and bylaws contain provisions permitted
under Delaware law relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in circumstances involving wrongful acts,
including:
- for any breach of the director's duty of loyalty to ImproveNet or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for any acts under section 174 of the Delaware General Corporation Law; or
- for any transaction from which the director derives an improper personal
benefit.
These provisions do not limit or eliminate our rights or any stockholder's
rights to seek non-monetary relief, including an injunction or rescission, in
the event of a breach of the director's fiduciary duty. These provisions will
not alter a director's liability under federal securities laws. In addition, we
intend to enter into separate indemnification agreements with our directors and
executive officers that provide each of them indemnification protection in the
event the amended and restated certificate of incorporation and amended and
restated bylaws are subsequently amended. We believe that these provisions and
agreements will assist us in attracting and retaining qualified individuals to
serve as directors and officers.
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<PAGE>
RELATED PARTY TRANSACTIONS
The following executive officers, directors or holders of more than 5% of
our voting securities purchased securities in the amounts and on the dates set
forth below.
<TABLE>
<CAPTION>
SHARES OF PREFERRED STOCK COMMON
---------------------------------------------------------------- STOCK SERIES A
SERIES A SERIES B SERIES C SERIES D SERIES E WARRANTS WARRANTS
------------ -------- --------- --------- -------------- --------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND
DIRECTORS
Alex Knight (1)......... 9,921 7,657 2,597 1,850
Stuart Gannes........... 10,000 3,829 800
5% STOCKHOLDERS
Entities affiliated with
Alta Partners......... 1,000,000 555,556 421,134 259,740 80,000
ARCH Venture Fund III,
L.P................... 813,492 612,558 215,192 74,074
Allstate Insurance
Company............... 496,032 306,278
August Capital II,
L.P................... 1,378,255 205,137
Owens Corning........... 740,741 150,000
Entities affiliated with
GE Capital Equity
Investments, Inc...... 1,298,701(2)
Microsoft Corporation... 555,556 683,333
PRICE PER SHARE......... $1.00 $2.52 $6.53 $7.70 $13.50 $0.01 to $13.50 $1.00
DATE(S) OF PURCHASE..... 6/97 to 7/97 3/98 3/99 9/99 11/99 to 12/99 9/99 to 12/99 6/97 to 7/97
<CAPTION>
SERIES B SERIES C SERIES D
WARRANTS WARRANTS WARRANTS
--------- --------- ---------
<S> <C> <C> <C>
EXECUTIVE OFFICERS AND
DIRECTORS
Alex Knight (1)......... 241
Stuart Gannes...........
5% STOCKHOLDERS
Entities affiliated with
Alta Partners......... 13,500
ARCH Venture Fund III,
L.P................... 19,768
Allstate Insurance
Company............... 12,054
August Capital II,
L.P...................
Owens Corning...........
Entities affiliated with
GE Capital Equity
Investments, Inc...... 326,000 (2)
Microsoft Corporation...
PRICE PER SHARE......... $2.52 $6.53 $0.01
DATE(S) OF PURCHASE..... 3/98 3/99 9/99
</TABLE>
- ----------------------------------
(1) Alex Knight, one of our directors, is a managing director of ARCH Venture
Fund IV, LLC, the general partner of ARCH Venture Fund IV, L.P., which does
not own any of our shares. Mr Knight does not have voting control or
investment power over shares held by ARCH Venture Fund III, L.P. and
therefore disclaims beneficial ownership of those shares.
(2) GE Capital Equity Investments, Inc., shares beneficial ownership of these
securities to purchase shares with General Electric Company.
All of the securities sold in these transactions were purchased at prices
equal to the fair market value of the securities, as determined by our board of
directors, on the date of issuance.
FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT. We have entered into
an agreement with the preferred stockholders described above that grants these
and other preferred stockholders registration rights with respect to their
shares of common stock following this offering. Upon the completion of this
offering, all shares of our outstanding preferred stock will be automatically
converted into an equal number of shares of common stock.
FOURTH AMENDED AND RESTATED VOTING AGREEMENT. We have entered into a voting
agreement with the preferred stockholders that terminates upon the closing of a
firmly underwritten public offering. However, the agreement provides that, as
long as Owens Corning owns at least 500,000 shares of our common stock, we will
nominate one designee of Owens Corning for election to our board of directors.
The Owens Corning designee is currently Domenico Cecere. The voting agreement
will expire upon the termination of the Internet-based Services Agreement that
we have with Owens Corning.
INDEMNIFICATION AGREEMENTS. We intend to enter into indemnification
agreements with our directors and executive officers for the indemnification of
and advancement of expenses to these persons to the full extent permitted by
law. We also intend to execute these agreements with our future directors and
officers.
EMPLOYMENT AGREEMENTS. On February 16, 1999, we entered into a letter
agreement with Ronald B. Cooper, our president and chief executive officer. It
provides for an annual base salary of $300,000 and for an annual performance
bonus of up to $100,000.
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<PAGE>
In March 1999, Mr. Cooper received an option to purchase 577,102 shares of
our common stock at an exercise price per share of $0.25. The exercise price was
equal to the fair market value of the common stock on the date of grant as
determined by the board of directors. 144,275 of the shares subject to the
options vest on the first anniversary of the date of grant with the remaining
shares vesting in equal monthly installments over the following three years. In
August 1999, we loaned Mr. Cooper $500,000. The interest on the loan is 5.25%
per year and all principal and accrued interest will become due and payable on
the earlier of the first day of the month following the one-year anniversary of
the closing of a firm commitment underwritten public offering of the Company's
common stock or within 90 days after the voluntary termination of the officer's
employment or the termination of the officer's employment for cause. If we
terminate Mr. Cooper's employment without cause before March 29, 2000, 50% of
the loan will be forgiven. If we terminate Mr. Cooper's employment without cause
after March 29, 2000 and before the first anniversary of the closing of this
offering, 75% of the loan will be forgiven.
TRANSACTIONS WITH 5% OR GREATER STOCKHOLDERS. In connection with our sale
of preferred stock to GE Capital Equity Investments, Inc., we entered into an
Internet Development, Marketing and Distribution Agreement with the General
Electric Company.
In connection with our sale of preferred stock to Owens Corning, we entered
into an Internet-based Services Agreement with Owens Corning.
In connection with our sale of preferred stock to Microsoft Corporation, we
entered into a Microsoft HomeAdvisor/ImproveNet Relationship Agreement and a
Warrant Purchase Agreement with Microsoft.
TRANSACTIONS WITH PROMOTERS. From January 1996 through March 1998, we
leased office space from 125 University, a California limited partnership and
101 University, a California limited partnership, in each of which Robert L.
Stevens held an approximately 13% interest. The total rent paid was $30,000 in
1996, $78,000 in 1997 and $23,000 in 1998.
In January 1996, we issued Robert L. Stevens, our former president and chief
executive officer, 200,000 shares of our common stock at a purchase price of
$0.01 per share. The purchase price was less than the fair market value of our
common stock of $0.25 as determined by our board on the date of issuance. In
October 1996 we issued to Robert L. Stevens and Karen L. Stevens, trustees under
the Revocable Trust Agreement dated 8/9/78 as amended, FBO Robert L. Stevens and
Karen L. Stevens, 225,835 shares of our common stock at a purchase price of
$0.25 per share. The purchase price was equal to the fair market value of our
common stock as determined by our board on the date of issuance. In January 1996
we granted Mr. Stevens an option to purchase 20,000 shares of common stock with
an exercise price of $0.25 per share. In June 1997, we granted Mr. Stevens an
option to purchase 51,250 shares of common stock with an exercise price of $0.10
per share. The exercise price for each option was equal to the fair market value
of our common stock as determined by our board on the date of the grant.
In January 1996, we issued Jan Sherman, our former senior vice president,
strategic planning, 200,000 shares of our common stock at a purchase price of
$0.01 per share. The purchase price of $0.01 per share was less than the fair
market value of our common stock of $0.25 as determined by our board on the date
of issuance. In January 1996 we also granted Mr. Sherman an option to purchase
20,000 shares of common stock with an exercise price of $0.25 per share. In June
1997 we granted Mr. Sherman an option to purchase 24,500 shares of common stock
with an exercise price of $0.10 per share. The exercise price was equal to the
fair market value of our common stock as determined by our board on the date of
the grant.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table presents certain information regarding the beneficial
ownership of our common stock as of December 14, 1999, and as adjusted to
reflect the sale of our common stock offered by this prospectus, by:
- each named executive officer;
- each of our directors;
- each person, or group of affiliated persons, who is known by us to own
beneficially five percent or more of our common stock; and
- all current directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently vested or will vest within 60 days of December 14, 1999 are deemed
outstanding. These shares, however, are not deemed outstanding for the purposes
of computing the percentage ownership of any other person.
Except as indicated in the footnotes to this table and under community
property laws, each stockholder named in the table has sole voting and
investment power with respect to the shares shown as beneficially owned by them.
Percentage of ownership is based on 13,136,727 shares of common stock
outstanding on December 14, 1999 and shares of common stock
outstanding after completion of this offering. This table assumes no exercise of
the underwriters' over-allotment option. Unless otherwise indicated, the address
of each of the individuals named below is: c/o ImproveNet, Inc., 720 Bay Road,
Suite 200, Redwood City, CA 94063.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT BENEFICIALLY OWNED
BENEFICIALLY --------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
- ------------------------------------ ---------------- --------------- --------------
<S> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Ronald B. Cooper................................... -- --
Garrett Gruener (1)................................ 2,329,930 17.6%
Andrew Anker (2)................................... 1,583,392 12.1
Robert L. Stevens (3).............................. 537,338 4.1
Alex Knight (4).................................... 22,266 *
Stuart Gannes (5).................................. 21,851 *
Brian Graff (6).................................... -- --
Domenico Cecere (7)................................ -- --
5% STOCKHOLDERS
Alta California Partners, L.P. (8)................. 2,329,930 17.6
ARCH Venture Fund III, L.P. (9).................... 1,735,084 13.4
GE Capital Equity Investments, Inc. (10)........... 1,624,701 12.1
August Capital II, L.P............................. 1,583,392 12.1
Microsoft Corporation (11)......................... 1,238,889 9.0
Owens Corning (12)................................. 890,741 6.7
Allstate Insurance Company (13).................... 814,364 6.2
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(14 PERSONS) (14)................................ 4,676,277 35.2
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1%.
(1) Represents 2,186,473 shares held by Alta California Partners, L.P., 49,957
shares held by Alta Embarcadero Partners, L.P., 91,411 shares issuable to
Alta California Partners, L.P. pursuant to warrants which vest within 60
days of December 14, 1999, and 2,089 shares issuable to Alta
54
<PAGE>
Embarcadero Partners, L.P. pursuant to warrants that vest within 60 days of
December 14, 1999. Mr. Gruener is a partner of the general partner of these
entities and disclaims beneficial ownership of the shares held by these
entities except to the extent of his pecuniary interest therein.
(2) Mr. Anker is a partner of August Capital and disclaims beneficial ownership
of the shares held by August Capital II, L.P. except to the extent of his
pecuniary interest therein.
(3) Includes 297,338 shares held pursuant to the Revocable Trust Agreement
dated 8/9/78, of which Robert L. Stevens and Karen L. Stevens are trustees,
15,000 shares held by Karen L. Stevens, Trustee of the Karen L. Stevens
1999 Annuity Trust, 15,000 shares held by Robert L. Stevens, Trustee of the
Robert L. Stevens 1999 Annuity Trust. Does not include 5,000 shares held by
Jason C. Stevens and 5,000 shares held by Kevin M. Stevens, adult children
of Mr. Stevens. Does not include 25,000 shares held by G. Bickley
Stevens II and Sara J. Emerson, 110,000 shares held by G. Bickley
Stevens II, 5,000 shares issuable to G. Bickley Stevens II pursuant to
warrants that vest within 60 days of December 14, 1999, and 1,500 shares
issuable to G. Bickley Stevens II pursuant to options that vest within
60 days of December 14, 1999. Mr. Stevens disclaims beneficial ownership of
the shares held by Jason C. Stevens, Kevin M. Stevens and G. Bickley
Stevens II. G. Bickley Stevens II is the brother of Mr. Stevens.
(4) Includes 241 shares issuable pursuant to warrants that vest within 60 days
of December 14, 1999. Does not include 1,735,084 shares held by entities
affiliated with ARCH Venture Fund III, L.P. Alex Knight, one of our
directors, is a managing director of ARCH Venture Fund IV, LLC, the general
partner of ARCH Venture Fund IV, L.P., which does not own any of our
shares. Mr. Knight does not have voting control or investment power over
shares held by ARCH Venture Fund III, L.P. and therefore disclaims
beneficial ownership of those shares.
(5) Includes 800 shares issuable pursuant to warrants that vest within 60 days
of December 14, 1999 and 7,222 shares issuable pursuant to options that
vest within 60 days of December 14, 1999.
(6) Mr. Graff is a vice president of GE Capital Equity Investments, Inc. and
disclaims beneficial ownership of the shares held by GE Capital Equity
Investments, Inc., General Electric Appliances and General Electric
Company.
(7) Mr. Cecere is a vice president of Owens Corning and disclaims beneficial
ownership of the shares held by Owens Corning.
(8) Includes 91,411 shares issuable upon exercise of warrants that vest within
60 days of December 14, 1999, 49,957 shares held by Alta Embarcadero
Partners and 2,089 shares issuable upon exercise of warrants that vest
within 60 days of December 14, 1999.
(9) Includes 19,768 shares issuable pursuant to warrants that vest within
60 days of December 14, 1999.
(10) Represents 1,298,701 shares held by GE Capital Equity Investments, Inc.,
117,000 shares issuable to GE Capital Equity Investments, Inc. pursuant to
warrants that vest within 60 days of December 14, 1999 and 209,000 shares
issuable to General Electric Appliances pursuant to warrants that vest
within 60 days of December 14, 1999. General Electric Company shares
beneficial ownership of these shares.
(11) Includes 683,333 shares issuable to Microsoft pursuant to warrants that
vest within 60 days of December 14, 1999.
(12) Includes 150,000 shares issuable pursuant to warrants that vest within
60 days of December 14, 1999.
(13) Includes 12,054 shares issuable pursuant to warrants that vest within
60 days of December 14, 1999.
(14) Includes 101,041 shares issuable pursuant to warrants that vest within
60 days of December 14, 1999, 7,222 shares issuable pursuant to options
that vest within 60 days of December 14, 1999 and 4,147,160 shares held by
related entities.
55
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares of
preferred stock, $0.001 par value.
COMMON STOCK
As of December 14, 1999, after giving effect to the conversion of all
outstanding preferred stock into common stock, there were 13,136,727 shares of
common stock outstanding that were held of record by approximately 115
stockholders after giving effect to the conversion of our preferred stock into
common stock at a one-to-one ratio. There will be shares of common
stock outstanding, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options or warrants, after giving effect
to the sale of the shares of common stock in this offering.
The holders of common stock are entitled to one vote per share on all
matters submitted to a vote of our stockholders. Subject to preferences that may
apply to any preferred stock outstanding at the time, the holders of outstanding
shares of common stock are entitled to receive any dividends out of assets
legally available as our board of directors may determine. Upon liquidation,
dissolution or winding up of ImproveNet, holders of our common stock are
entitled to share in all assets remaining after payment of liabilities and the
liquidation preference of any then outstanding shares of preferred stock.
Holders of common stock have no preemptive or conversion rights or other
subscription rights. No redemption or sinking fund provisions apply to the
common stock. All outstanding shares of common stock are fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, each outstanding share of preferred stock
will be converted into one share of common stock. Following the offering, our
certificate of incorporation provides that our board of directors will have the
authority, without further action by the stockholders, to issue up to 5,000,000
shares of preferred stock in one or more series. The board will be able to fix
the rights, preferences, privileges and restrictions of the preferred stock,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of this series. The issuance of
preferred stock could adversely affect the voting power of holders of common
stock, and the likelihood that holders of preferred stock will receive dividend
payments and payments upon liquidation may have the effect of delaying,
deferring or preventing a change in control of ImproveNet, which could depress
the market price of our common stock. We have no present plan to issue any
shares of preferred stock.
WARRANTS
As of December 14, 1999, after giving effect to the conversion of all
outstanding preferred stock into common stock, warrants to purchase a total of
746,000 shares of our common stock were outstanding at an exercise price of
$0.01 per share, warrants to purchase a total of 104,400 shares of our common
stock were outstanding at an exercise price of $1.00 per share, warrants to
purchase a total of 47,009 shares of our common stock were outstanding at an
exercise price of $2.52 per share, warrants to purchase 47,167 shares of our
common stock were outstanding at an exercise price of $6.53 per share and
warrants to purchase a total of 842,596 shares of our common stock were
outstanding at an exercise price of $13.50 per share. Each warrant contains
provisions for the adjustment of the exercise price and the number of shares
issuable upon the exercise of the warrant in the event of stock dividends, stock
splits, reorganizations and reclassifications and consolidations.
56
<PAGE>
REGISTRATION RIGHTS OF STOCKHOLDERS
On the date 180 days after the completion of this offering, the holders of
11,382,694 shares of common stock and the holders of warrants exercisable for up
to 1,787,172 shares of common stock, or their transferees, will be entitled to
rights to register these shares under the Securities Act of 1933. If we propose
to register any of our securities under the Securities Act, either for our own
account or for the account of other securityholders, the holders of these shares
of common stock and warrants to purchase common stock will be entitled to notice
of the registration and will be entitled to include, at our expense, their
shares of common stock. In addition, the holders of these shares of common stock
may require us, at our expense and on not more than two occasions at any time
beginning approximately six months from the date of the closing of this
offering, to file a registration statement under the Securities Act with respect
to their shares of common stock, and we will be required to use our best efforts
to effect the registration. Further, the holders of these shares of common stock
may require us at our expense to register their shares on Form S-3 when we
become eligible to use this form. The rights of these holders terminate on the
earlier of six years after the effective date of this offering or when the
holder is able to sell its shares pursuant to Rule 144 under the Securities Act
in any 90-day period.
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW AND CHARTER PROVISIONS
We are subject to section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a publicly held Delaware corporation from
engaging in any business combination with any interested stockholder for a
period of three years following the date that the stockholder became an
interested stockholder unless:
- before the date, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the
stockholder's becoming an interested stockholder;
- upon completion of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who are
directors and also officers, and employee stock plans in which employee
participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange
offer; or
- on or after the date, the business combination is approved by the board of
directors and authorized at a meeting of stockholders, and not by written
consent, by the affirmative vote of at least two-thirds of the outstanding
voting stock that is not owned by the interested stockholder.
Section 203 defines "business combination" to include:
- any merger or consolidation involving the corporation and the interested
stockholder;
- any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
- subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; and
- the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
57
<PAGE>
Our bylaws provide that candidates for director may be nominated only by the
board of directors or by a stockholder who gives written notice to us at least
90 days but not more than 120 days before the first anniversary of the last
annual meeting of stockholders. Stockholders must give similar advance notice to
raise other business at stockholders' meetings. The board may consist of one or
more members. Between stockholders' meetings, the board may appoint new
directors to fill vacancies or newly created directorships. Our bylaws also
limit the ability of stockholders to call special meetings.
Our certificate of incorporation requires that upon completion of the
offering, any action required or permitted to be taken by our stockholders must
be taken at a duly called annual or special meeting of stockholders and may not
be effected by a consent in writing. Our certificate of incorporation also
provides that the authorized number of directors may be changed only by
resolution of the board of directors. Delaware law and these charter provisions
may have the effect of deterring hostile takeovers or delaying changes in
control of our management, which could depress the market price of our common
stock.
TRANSFER AGENT
The transfer agent and registrar for our common stock is .
NASDAQ NATIONAL MARKET
We have applied to list our common stock on the Nasdaq National Market under
the trading symbol "IMPV."
58
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect prevailing market prices and our ability to raise
equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options and warrants. Of
these shares, all of the shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
these shares are purchased by affiliates. The remaining 13,136,727 shares of
common stock held by existing stockholders are restricted securities. Restricted
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration described below under Rules 144,
144(k) or 701 promulgated under the Securities Act.
As a result of the contractual restrictions described below and the
provisions of Rules 144, 144(k) and 701, the restricted shares will be available
for sale in the public market as follows:
- 156,093 shares will be eligible for immediate sale on the date of this
prospectus;
- 30,832 shares will be eligible for sale 90 days from the date of this
prospectus;
- 8,115,045 shares will be eligible for sale upon the expiration of the
lock-up agreements, described below, 180 days after the date of this
prospectus; and
- 4,834,757 shares will be eligible for sale at various times after the
180-day lock-up period.
LOCK-UP AGREEMENTS. All of our officers, directors, stockholders and
optionholders have agreed not to transfer or dispose of, directly or indirectly,
any shares of our common stock or any securities convertible into or exercisable
or exchangeable for shares of our common stock, for a period of 180 days after
the date of this prospectus. Transfers or dispositions can be made sooner with
the prior written consent of Credit Suisse First Boston Corporation.
RULE 144. In general, under Rule 144 as currently in effect, beginning
90 days after the date of this prospectus, a person or persons whose shares are
aggregated, who has beneficially owned restricted securities for at least one
year, including the holding period of any prior owner except an affiliate, would
be entitled to sell within any three-month period a number of shares that does
not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding, which
will equal approximately shares immediately after this
offering; or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
RULE 144(K). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner except an affiliate, is entitled
to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
RULE 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors, other than affiliates,
who purchases or receives shares from us in connection with a compensatory stock
purchase plan or option plan or other written agreement will be
59
<PAGE>
eligible to resell their shares beginning 90 days after the date of this
prospectus, subject only to the manner of sale provisions of Rule 144, and by
affiliates under Rule 144 without compliance with its holding period
requirements.
REGISTRATION RIGHTS. On the date 180 days after the date of this
prospectus, the holders of 11,382,694 shares and the holders of warrants
exercisable for up to an aggregate of 1,787,172 shares, or their transferees,
will be entitled to rights with respect to the registration of their shares
under the Securities Act. Registration of their shares under the Securities Act
would result in the shares becoming freely tradable without restriction under
the Securities Act, except for shares purchased by affiliates, immediately upon
the effectiveness of this registration.
STOCK OPTIONS. We intend to file a registration statement under the
Securities Act covering the 3,620,006 shares reserved for issuance under our
stock option plans and 300,000 shares reserved for issuance under our employee
stock purchase plan. The registration statement is expected to be filed and
become effective as soon as practicable after the closing of this offering.
Accordingly, shares registered under the registration statements will, subject
to Rule 144 volume limitations applicable to affiliates, be available for sale
in the open market, beginning 180 days after the date of this prospectus.
WARRANTS. We have outstanding warrants to purchase 1,787,172 shares. All
the shares issuable upon the exercise of the warrants will be eligible for sale
at various times after the 180-day lock-up period, subject to Rule 144 volume
limitations applicable to affiliates.
60
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , 2000, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, FleetBoston
Robertson Stephens Inc. and E*OFFERING Corp. are acting as representatives, the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ------------
<S> <C>
Credit Suisse First Boston Corporation......................
FleetBoston Robertson Stephens Inc..........................
E*OFFERING Corp.............................................
-------
Total.....................................................
=======
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that, if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and the selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and expenses we will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
paid by us............................ $ $ $ $
Expenses payable by us.................. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We and our directors, officers, stockholders, optionholders and
warrantholders have agreed that we and they will not offer, sell, contract to
sell, pledge or otherwise dispose of, directly or indirectly, or file with the
Securities and Exchange Commission a registration statement under the Securities
Act relating to, any additional shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock, or
publicly disclose the intention to make any offer, sale, pledge, disposition or
filing, without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus, except
in our case for issuances resulting from the exercise of employee stock options
granted under our 1996 Stock Option Plan or our 1999 Equity Incentive Plan or
issuances under our 1999 Employee Stock Purchase Plan.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and
other persons associated with us who have
61
<PAGE>
expressed an interest in purchasing common stock in the offering. The number of
shares available for sale to the general public in the offering will be reduced
to the extent these persons purchase these reserved shares. Any reserved shares
not so purchased will be offered by the underwriters to the general public on
the same terms as the other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or to contribute to payments that the underwriters may be
required to make in that respect.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the symbol "IMPV."
Before this offering, there has been no public market for our common stock.
The initial public offering price will be determined by negotiation between us
and the representatives. The principal factors to be considered in determining
the public offering price include:
- the information in this prospectus or available to the representatives;
- the history of and the prospects for the industry in which we will
compete;
- the ability of our management;
- our prospects for future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in compliance with
Regulation M under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of common stock in the
open market after the distribution has been completed to cover syndicate
short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by the
syndicate member is purchased in a syndicate covering transaction to cover
syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would be in the
absence of these transactions. These transactions may be effected on The Nasdaq
Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.
In March 1999, two affiliates of Credit Suisse First Boston Corporation each
purchased 1,914 shares of our series C preferred stock for a total purchase
price of $24,996.
In November 1999, an affiliate of Credit Suisse First Boston Corporation
purchased 74,074 shares of our series E preferred stock for a total purchase
price of $999,999.
A copy of the prospectus in electronic format will be made available on the
Web sites hosted by E*OFFERING Corp. and E*TRADE Securities, Inc.
62
<PAGE>
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. As a result, any resale of the common stock
in Canada must comply with applicable securities laws, which will vary depending
on the relevant jurisdiction, and which may require resales to be made under
available statutory exemptions or under a discretionary exemption granted by the
applicable Canadian securities regulatory authority. Purchasers are advised to
seek legal advice before any resale of the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be considered to represent to us and the dealer from which the
purchase confirmation is received (A) that the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under those securities laws, (B) that, where
required by law, the purchaser is purchasing as principal and not as agent and
(C) that the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within 10 days of the sale of any common
stock acquired by the purchaser in this offering. The report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from us. Only one report must be filed for common
stock acquired on the same date and under the same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
63
<PAGE>
LEGAL MATTERS
Cooley Godward LLP, Palo Alto, California will pass upon the validity of the
shares of common stock offered by this prospectus. As of the date of this
prospectus, members and associates of Cooley Godward LLP beneficially own an
aggregate of 21,600 shares of common stock through an investment partnership.
Fenwick & West LLP, Palo Alto, California will pass upon the validity of the
shares of common stock offered by this prospectus for the underwriters.
EXPERTS
The financial statements for ImproveNet, Inc. as of December 31, 1997 and
1998 and September 30, 1999 and for each of the three years in the period ended
December 31, 1998 and the nine months ended September 30, 1998 and 1999,
included in this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on their authority as
experts in accounting and auditing.
The financial statements for Contractor Referral Service, LLC as of
December 31, 1998 and for the year ended December 31, 1998, included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on their authority as
experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act of 1933 with respect to the
shares of common stock offered by our company. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information set forth in the registration statement, some items of which are
contained in exhibits to the registration statement as permitted by the rules
and regulations of the Commission. For further information with respect to
ImproveNet and the common stock offered, reference is made to the registration
statement, including the exhibits and the financial statements and notes filed
as a part of the registration statement. A copy of the registration statement,
including the exhibits and the financial statements and notes filed as a part of
it, may be inspected without charge at the public reference facilities
maintained by the Commission in Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part of the registration statement may be
obtained from the Commission upon the payment of fees prescribed by it. You may
call the Commission at 1-800-SEC-0330 for more information on the operation of
the public reference facilities. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding companies that file electronically with it.
As a result of this offering, we will become subject to the information and
reporting requirements of the Exchange Act and, in accordance with this law,
will file periodic reports, proxy statements and other information with the
Commission. These periodic reports, proxy statements and other information will
be available for inspection and copying at the Commission's public reference
room and the Web site of the SEC referred to above.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
IMPROVENET, INC.
Report of Independent Accountants........................... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit) and Mandatorily
Redeemable Convertible Preferred Stock.................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
CONTRACTOR REFERRAL SERVICE, LLC
Report of Independent Accountants........................... F-27
Balance Sheets.............................................. F-28
Statements of Operations.................................... F-29
Statements of Members' Deficit.............................. F-30
Statements of Cash Flows.................................... F-31
Notes to Financial Statements............................... F-32
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Combined Financial Information.......... F-35
Unaudited Pro Forma Combined Statements of Operations for
the year ended December 31, 1998.......................... F-36
Unaudited Pro Forma Combined Statements of Operations for
the nine months ended September 30, 1999.................. F-37
Notes to Unaudited Pro Forma Combined Statements of
Operations................................................ F-38
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
ImproveNet, Inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity (deficit) and mandatorily redeemable
convertible preferred stock, and of cash flows present fairly, in all material
respects, the financial position of ImproveNet, Inc. at December 31, 1997 and
1998 and at September 30, 1999 and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998 and the
nine months ended September 30, 1998 and 1999, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
November 16, 1999, except for Note 15
for which the date is December 13, 1999
F-2
<PAGE>
IMPROVENET, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY (DEFICIT)
------------------- SEPTEMBER 30, SEPTEMBER 30,
1997 1998 1999 1999
-------- -------- -------------- ----------------
(SEE NOTE 12)
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 345 $ 1,676 $ 23,093
Accounts receivable, net of allowance for doubtful
accounts of $3, $8 and $48 in 1997, 1998 and 1999,
respectively............................................ 5 33 628
Prepaid expenses and other current assets................. 1 3 3,082
------- ------- --------
Total current assets.................................... 351 1,712 26,803
Property and equipment, net................................. 109 281 1,188
Goodwill, net............................................... -- -- 404
Restricted cash............................................. -- 49 449
Other assets................................................ 12 102 670
------- ------- --------
Total assets............................................ $ 472 $ 2,144 $ 29,514
======= ======= ========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 69 $ 478 $ 3,963
Accrued liabilities....................................... 11 221 2,071
Deferred revenue.......................................... -- -- 121
Lines of credit........................................... 350 316 --
------- ------- --------
Total current liabilities............................... 430 1,015 6,155
Lines of credit, net of current portion..................... -- 19 --
Other long-term liabilities................................. -- -- 104
------- ------- --------
Total liabilities....................................... 430 1,034 6,259
------- ------- --------
Commitments and contingencies (Note 6)
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
Mandatorily redeemable convertible preferred stock, $0.001
par value:
Authorized: 5,000,000 shares
Issued and outstanding: 1,205,000 and 3,139,526 shares in
1997 and 1998, respectively, and none in 1999........... 1,252 6,824 --
------- ------- --------
STOCKHOLDERS' EQUITY (DEFICIT)
Convertible preferred stock, $0.001 par value:
Authorized: 9,482,935 shares
Issued and outstanding: none in 1997 and 1998, 8,785,559
shares in 1999 and none pro forma (unaudited)
(liquidation value: $46,740)............................ -- -- 9
Common stock, $0.001 par value:
Authorized: 31,000,000 shares
Issued and outstanding: 1,379,039 shares in 1997,
1,406,289 shares in 1998, 1,596,528 shares in 1999 and
12,979,222 shares pro forma (unaudited)................. 1 1 2 $ 13
Additional paid-in capital.................................. 394 734 56,350 102,608
Notes receivable from stockholders.......................... (4) (4) (2) (2)
Unearned stock-based compensation........................... -- (729) (8,493) (19,792)
Accumulated deficit......................................... (1,601) (5,716) (24,611) (24,611)
------- ------- -------- --------
Total stockholders' equity (deficit).................... (1,210) (5,714) 23,255 $ 58,216
------- ------- -------- ========
Total liabilities, mandatorily redeemable convertible
preferred stock and stockholders' equity (deficit).... $ 472 $ 2,144 $ 29,514
======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
IMPROVENET, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ --------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Service revenues........................... $ 2 $ 60 $ 238 $ 144 $ 719
Advertising revenues....................... -- -- 20 -- 566
------- -------- -------- -------- ---------
Total revenues........................... 2 60 258 144 1,285
Cost of revenues:
Cost of service revenues................... 8 59 767 517 1,091
Cost of advertising revenues............... -- -- 49 -- 307
------- -------- -------- -------- ---------
Total cost of revenues................... 8 59 816 517 1,398
------- -------- -------- -------- ---------
Gross profit (loss).......................... (6) 1 (558) (373) (113)
Operating expenses:
Sales and marketing........................ 38 414 1,669 1,002 14,363
Product development........................ 65 288 504 388 417
General and administrative................. 251 527 1,142 665 1,491
Stock-based compensation................... -- 11 326 226 2,835
------- -------- -------- -------- ---------
Total operating expenses................. 354 1,240 3,641 2,281 19,106
------- -------- -------- -------- ---------
Loss from operations......................... (360) (1,239) (4,199) (2,654) (19,219)
Interest and other income (expense), net..... 1 (3) 84 68 324
------- -------- -------- -------- ---------
Net loss..................................... (359) (1,242) (4,115) (2,586) (18,895)
Accretion of mandatorily redeemable
convertible preferred stock................ -- (86) (717) (485) (239)
------- -------- -------- -------- ---------
Net loss attributable to common
stockholders............................. $ (359) $ (1,328) $ (4,832) $ (3,071) $ (19,134)
======= ======== ======== ======== =========
Basic and diluted net loss per common
share...................................... $ (0.73) $ (1.08) $ (3.49) $ (2.22) $ (12.87)
======= ======== ======== ======== =========
Shares used in calculating basic and diluted
net loss per common share.................. 493 1,228 1,383 1,382 1,487
======= ======== ======== ======== =========
Pro forma basic and diluted net loss per
common share (Note 12) (unaudited)......... $ (1.17) $ (2.66)
======== =========
Shares used in calculating pro forma basic
and diluted net loss per common share
(unaudited)................................ 4,124 7,183
======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
IMPROVENET, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND MANDATORILY REDEEMABLE
CONVERTIBLE PREFERRED STOCK
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MANDATORILY
REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED PREFERRED NOTES
STOCK STOCK COMMON STOCK ADDITIONAL RECEIVABLE
------------------- ------------------- ------------------- PAID-IN FROM
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS
-------- -------- -------- -------- -------- -------- --------- -----------
Issuance of common stock in
exchange for notes receivable
from stockholder................. -- $ -- -- $-- 420 $-- $ 4 $ (4)
Issuance of common stock........... -- -- -- -- 482 1 342 --
Common stock subscription.......... -- -- -- -- 98 -- 56 --
Net loss........................... -- -- -- -- -- -- -- --
------ ------- ----- --- ----- --- ------- ----
BALANCES, DECEMBER 31, 1996........ -- -- -- -- 1,000 1 402 (4)
Issuance of common stock in
exchange for services rendered... -- -- -- -- 112 -- 11 --
Issuance of common stock
subscribed....................... -- -- -- -- 128 -- -- --
Issuance of common stock upon
conversion of bridge notes
payable.......................... -- -- -- -- 134 -- 67 --
Exercise of common stock options... -- -- -- -- 5 -- -- --
Issuance of Series A mandatorily
redeemable convertible preferred
stock net of issuance costs of
$38.............................. 1,205 1,166 -- -- -- -- -- --
Accretion of Series A mandatorily
redeemable convertible preferred
stock............................ -- 86 -- -- -- -- (86) --
Net loss........................... -- -- -- -- -- -- -- --
------ ------- ----- --- ----- --- ------- ----
BALANCES, DECEMBER 31, 1997........ 1,205 1,252 -- -- 1,379 1 394 (4)
Exercise of common stock options... -- -- -- -- 27 -- 2 --
Issuance of Series B mandatorily
redeemable convertible preferred
stock for net of issuance costs
of $20........................... 1,935 4,855 -- -- -- -- -- --
Accretion of Series A mandatorily
redeemable convertible preferred
stock............................ -- 192 -- -- -- -- (192) --
Accretion of Series B mandatorily
redeemable convertible preferred
stock............................ -- 525 -- -- -- -- (525) --
Unearned stock-based compensation
for service providers............ -- -- -- -- -- -- 120 --
Amortization of stock-based
compensation for service
providers........................ -- -- -- -- -- -- -- --
Unearned employee stock-based
compensation..................... -- -- -- -- -- -- 935 --
Amortization of unearned employee
stock-based compensation......... -- -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- -- --
------ ------- ----- --- ----- --- ------- ----
BALANCES, DECEMBER 31, 1998........ 3,140 6,824 -- -- 1,406 1 734 (4)
Exercise of common stock options... -- -- -- -- 191 1 30 --
Exercise of Series A convertible
preferred stock warrant.......... -- -- 2 -- -- -- 2 --
Accretion of Series A mandatorily
redeemable convertible preferred
stock............................ -- 52 -- -- -- -- (52) --
Accretion of Series B mandatorily
redeemable convertible preferred
stock............................ -- 187 -- -- -- -- (187) --
Conversion of Series A mandatorily
redeemable convertible preferred
stock into Series A convertible
preferred stock.................. (1,205) (1,496) 1,205 1 -- -- 1,495 --
Conversion of Series B mandatorily
redeemable convertible preferred
stock into Series B convertible
preferred stock.................. (1,935) (5,567) 1,935 2 -- -- 5,565 --
Issuance of Series C convertible
preferred stock, net of issuance
costs of $1,049.................. -- -- 3,538 4 -- -- 22,046 --
Issuance of Series D convertible
preferred stock, net of issuance
costs of $57..................... -- -- 2,101 2 -- -- 16,118 --
Issuance of Series C convertible
preferred stock for services..... -- -- 5 -- -- -- 37 --
Payment received in settlement of
stockholder notes receivable..... -- -- -- -- -- -- -- 2
Issuance of Series D convertible
preferred stock warrant.......... -- -- -- -- -- -- 2,507 --
Amortization of stock-based
compensation from warrants
granted to service providers..... -- -- -- -- -- -- -- --
Unearned stock-based compensation
for service providers............ -- -- -- -- -- -- 19 --
Amortization of stock-based
compensation from options granted
to service providers............. -- -- -- -- -- -- -- --
Unearned employee stock-based
compensation..................... -- -- -- -- -- -- 8,036 --
Amortization of unearned employee
stock-based compensation......... -- -- -- -- -- -- -- --
Net loss........................... -- -- -- -- -- -- -- --
------ ------- ----- --- ----- --- ------- ----
BALANCES, SEPTEMBER 30, 1999....... -- $ -- 8,786 $ 9 1,597 $ 2 $56,350 $ (2)
====== ======= ===== === ===== === ======= ====
<CAPTION>
<S> <C> <C> <C>
UNEARNED
STOCK-BASED ACCUMULATED
COMPENSATION DEFICIT TOTAL
------------ ----------- --------
Issuance of common stock in
exchange for notes receivable
from stockholder................. $ -- $ -- $ --
Issuance of common stock........... -- -- 343
Common stock subscription.......... -- -- 56
Net loss........................... -- (359) (359)
------- -------- -------
BALANCES, DECEMBER 31, 1996........ -- (359) 40
Issuance of common stock in
exchange for services rendered... -- -- 11
Issuance of common stock
subscribed....................... -- -- --
Issuance of common stock upon
conversion of bridge notes
payable.......................... -- -- 67
Exercise of common stock options... -- -- --
Issuance of Series A mandatorily
redeemable convertible preferred
stock net of issuance costs of
$38.............................. -- -- --
Accretion of Series A mandatorily
redeemable convertible preferred
stock............................ -- -- (86)
Net loss........................... -- (1,242) (1,242)
------- -------- -------
BALANCES, DECEMBER 31, 1997........ -- (1,601) (1,210)
Exercise of common stock options... -- -- 2
Issuance of Series B mandatorily
redeemable convertible preferred
stock for net of issuance costs
of $20........................... -- -- --
Accretion of Series A mandatorily
redeemable convertible preferred
stock............................ -- -- (192)
Accretion of Series B mandatorily
redeemable convertible preferred
stock............................ -- -- (525)
Unearned stock-based compensation
for service providers............ (120) -- --
Amortization of stock-based
compensation for service
providers........................ 100 -- 100
Unearned employee stock-based
compensation..................... (935) -- --
Amortization of unearned employee
stock-based compensation......... 226 -- 226
Net loss........................... -- (4,115) (4,115)
------- -------- -------
BALANCES, DECEMBER 31, 1998........ (729) (5,716) (5,714)
Exercise of common stock options... -- -- 31
Exercise of Series A convertible
preferred stock warrant.......... -- -- 2
Accretion of Series A mandatorily
redeemable convertible preferred
stock............................ -- -- (52)
Accretion of Series B mandatorily
redeemable convertible preferred
stock............................ -- -- (187)
Conversion of Series A mandatorily
redeemable convertible preferred
stock into Series A convertible
preferred stock.................. -- -- 1,496
Conversion of Series B mandatorily
redeemable convertible preferred
stock into Series B convertible
preferred stock.................. -- -- 5,567
Issuance of Series C convertible
preferred stock, net of issuance
costs of $1,049.................. -- -- 22,050
Issuance of Series D convertible
preferred stock, net of issuance
costs of $57..................... -- -- 16,120
Issuance of Series C convertible
preferred stock for services..... -- -- 37
Payment received in settlement of
stockholder notes receivable..... -- -- 2
Issuance of Series D convertible
preferred stock warrant.......... (2,507) -- --
Amortization of stock-based
compensation from warrants
granted to service providers..... 42 -- 42
Unearned stock-based compensation
for service providers............ (19) -- --
Amortization of stock-based
compensation from options granted
to service providers............. 39 -- 39
Unearned employee stock-based
compensation..................... (8,036) -- --
Amortization of unearned employee
stock-based compensation......... 2,717 -- 2,717
Net loss........................... -- (18,895) (18,895)
------- -------- -------
BALANCES, SEPTEMBER 30, 1999....... $(8,493) $(24,611) $23,255
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
IMPROVENET, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $(359) $(1,242) $(4,115) $(2,586) $(18,895)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization......................... 7 20 52 35 79
Allowance for doubtful accounts....................... -- 3 5 12 40
Stock-based compensation for options and common stock
granted............................................. -- 11 326 226 2,756
Series C convertible preferred stock issued for
services............................................ -- -- -- -- 37
Amortization of stock-based compensation for Series D
warrants granted to service provider................ -- -- -- -- 42
Other................................................. -- 2 3 2 9
Changes in operating assets and liabilities:
Accounts receivable................................... -- (8) (33) (43) (569)
Prepaid expenses and other current assets............. -- (1) (94) (14) (3,060)
Other assets.......................................... (7) (5) -- (7) (27)
Accounts payable...................................... 18 51 409 94 3,485
Accrued liabilities................................... 13 (2) 209 115 1,850
Deferred revenue...................................... -- -- -- -- 121
Other long-term liabilities........................... -- -- -- -- 104
----- ------- ------- ------- --------
Net cash used in operating activities............... (328) (1,171) (3,238) (2,166) (14,028)
----- ------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................... (51) (85) (224) (183) (979)
Increase in restricted cash............................. -- (49) (49) (400)
Issuance of note receivable to related party............ -- -- -- -- (500)
Payments for acquisition of CRS......................... -- -- -- -- (546)
----- ------- ------- ------- --------
Net cash used in investing activities............... (51) (85) (273) (232) (2,425)
----- ------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock.............. 343 -- 2 1 31
Proceeds from the issuance of preferred stock, net...... -- 1,166 4,705 4,705 38,172
Proceeds from common stock subscription................. 56 -- -- -- --
Repayment of stockholder note receivable................ -- -- -- -- 2
Proceeds from the issuance of convertible bridge
notes................................................. -- 65 150 150 --
Borrowings under lines of credit........................ -- 350 298 -- --
Principal payments under lines of credit................ -- -- (313) (308) (335)
----- ------- ------- ------- --------
Net cash provided by financing activities........... 399 1,581 4,842 4,548 37,870
----- ------- ------- ------- --------
Net increase in cash and cash equivalents................. 20 325 1,331 2,150 21,417
Cash and cash equivalents, beginning of period............ -- 20 345 345 1,676
----- ------- ------- ------- --------
Cash and cash equivalents, end of period.................. $ 20 $ 345 $ 1,676 $ 2,495 $ 23,093
===== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - FORMATION AND BUSINESS OF THE COMPANY AND BASIS OF PRESENTATION
ImproveNet, Inc. (the "Company") (formerly Netelligence, Inc.) was
incorporated in California in January 1996 and reincorporated in Delaware in
June 1998. The Company is a leading destination on the Internet for residential
home improvement market making activities between (1) homeowners,
(2) contractors, architects and designers, and (3) material suppliers. The
Company operates primarily in the United States. The Company aggregates and
organizes information online and ensures that the content is immediately
accessible, easy-to-use and efficient for home improvement and services and
product buyers and sellers. The Company has a proprietary matching service that
electronically and impartially screens and monitors contractors, architects and
designers to facilitate access by homeowners to reputable, pre-screened service
providers.
During 1998, the Company emerged from the development stage. Although no
longer in the development stage, the Company continues to be subject to risks
and challenges similar to other companies in a comparable stage of development.
These risks include, but are not limited to, dependence on key individuals,
successful development and marketing of products, the ability to obtain adequate
financing to support growth, competition from substitute service providers and
larger companies with greater financial, technical, management and marketing
resources.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
CERTAIN RISKS AND UNCERTAINTIES
The Company's services are concentrated in a single segment of the Internet
commerce industry, which is characterized by rapid technological advances,
changes in customer requirements and evolving regulatory requirements and
industry standards. The success of the Company depends on management's ability
to anticipate or to respond quickly and adequately to technological developments
in the industry, changes in customer requirements and changes in regulatory
requirements or industry standards. Any significant delays in the development or
introduction of services could have a material and adverse effect on the
Company's business and operating results.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
or remaining maturities of three months or less to be cash equivalents.
RESTRICTED CASH
At December 31, 1998 and September 30, 1999, cash balances of approximately
$49,000 and $449,000, respectively, were restricted from withdrawal and held by
a bank in the form of certificates of deposit. These certificates of deposit
serve as collateral supporting letters of credit issued to the
F-7
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company's landlords as security deposits and will not be available until the
leases for the Company's facilities expire.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported amounts of certain of the Company's financial instruments,
including cash and cash equivalents, restricted cash, accounts receivable,
accounts payable and other accrued liabilities, approximate fair value due to
their short maturities. Based on borrowing rates currently available to the
Company for loans with similar terms, the carrying values of the lines of credit
approximate fair value.
LONG-LIVED ASSETS
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of three to seven years. Amortization of leasehold improvements is
computed on a straight-line basis over the shorter of the facility lease term or
the estimated useful lives of the improvements. Major additions and improvements
are capitalized, while replacements, maintenance and repairs that do not improve
or extend the life of the assets are charged to operations. In the period assets
are retired or otherwise disposed of, the costs and related accumulated
depreciation and amortization are removed from the accounts, and any gain or
loss on disposal is included in results of operations.
The Company periodically evaluates the carrying value of property and
equipment to be held and used when events and circumstances warrant such a
review. The carrying value of property and equipment is considered impaired when
the anticipated undiscounted cash flows from the asset are separately
identifiable and are less than its carrying value. In that event, a loss is
recognized based on the amount by which the carrying value exceeds the fair
value of the asset. Fair value is determined primarily using the anticipated
cash flows discounted at a rate commensurate with the risk involved. Losses on
assets to be disposed of are determined in a similar manner, except that fair
values are reduced by the estimated disposal costs.
GOODWILL
Goodwill is amortized from the date of acquisition using the straight-line
method over the expected period to be benefited, estimated at five years. At
September 30, 1999, the total value assigned to goodwill of $411,000 was offset
by accumulated amortization of $7,000. The Company assesses the recoverability
of goodwill, as well as other long-lived assets, in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which
requires the Company to review the carrying value of an asset for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset might not be recoverable. When such an event occurs, the Company
estimates the future undiscounted cash flows expected to result from the use of
the asset and its eventual disposition. If the undiscounted expected future cash
flows are less than the carrying amount of the asset, an impairment loss is
recognized.
F-8
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues are primarily derived from service provider referral fees and
advertising placed on the Company's Web sites. Service provider revenues include
lead and win fees. Lead fees are recognized at the time a homeowner and
contractor are matched by the Company and the service provider becomes obligated
to pay such fee. Win fees are recognized at the time the service provider or the
homeowner notifies us that a job has been sold and the service provider becomes
obligated to pay such fee. Payments received in advance of providing services
are deferred until the period the services are provided, this deferred revenue
is included in current liabilities. The Company establishes a sales reserve at
the time of revenue recognition based on the Company's historical experience.
Beginning in December 1998, the Company also derived advertising revenues
from the sale of banner and other Web site advertisements. Advertising revenues
generally are derived from short-term advertising contracts in which the Company
typically guarantees that a minimum number of impressions will be delivered to
its Web site visitors over a specified period of time for a fixed fee.
Advertising revenues are typically recognized as the lesser of the amounts
recorded ratably over the period in which the advertising is delivered or the
percentage of guaranteed impressions delivered. However, if the percentage of
time elapsed exceeds the percentage of guaranteed impressions delivered, revenue
is recognized at the lower percentage. During the nine months ended
September 30, 1999, advertising revenues represented 44% of total revenues.
Advertising revenues include barter revenues, which result from the exchange
by the Company of advertising space on the Company's Web sites for reciprocal
advertising space on the Web sites of third parties. Revenues from these barter
transactions are recorded as advertising revenues at the estimated fair value of
the advertisements received or delivered, whichever is more reliably measurable.
Advertising barter revenues are recognized at the lesser of the amount recorded
ratably over the period in which the advertising is delivered or the percentage
of guaranteed impressions delivered. Barter expenses are recorded as sales and
marketing expenses in the statements of operations when the Company's
advertisements are delivered on the reciprocal Web sites, which is typically in
the same period as when advertisements are delivered on the Company's Web sites.
Advertising barter revenues represented $152,000 or 12% of total revenues for
the nine months ended September 30, 1999. There were no barter revenues in 1997
and 1998.
In September 1999, the Company entered into a three-year agreement with a
related party stockholder to provide, for a fixed annual fee, an advertising
package that includes a mix of buttons, banners and other advertising products,
plus a guarantee of a continuous presence on the Company's Web sites. The
package represents a discount to the standard rate for each product sold
individually. The agreement requires that the advertising customer refer new
home improvement job submissions that they become aware of to the Company. The
agreement also includes cooperative marketing terms under which the Company is
obligated to fund a variety of co-branded advertisements on television and in
print media with, or on behalf, of the advertising customer.
For agreements of this type, the Company measures as net revenues the
amount, if any, by which the total fees payable to it under the advertising
agreement exceed their obligation to pay the customer for cooperative marketing
activities. The net revenues are also reduced by the estimated fair value of
warrants granted to the advertising customer in connection with the advertising
package agreement as measured using the Black Scholes option pricing model. Any
remaining net revenues, from these agreements are recognized over the term of
the agreement once advertising is delivered to the
F-9
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
customer and collection of the resulting receivable is deemed to be probable. If
the Company's cooperative advertising obligations under arrangement, together
with the fair value of any warrants granted in connection with the agreement,
exceed the total fees payable to the Company under the agreement, the excess is
recorded as sales and marketing expense.
Total revenues may be analyzed as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31 SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Service revenues........................................... $2 $60 $238 $144 $ 719
Amounts invoiced under contractual advertising
arrangements............................................. -- -- 20 -- 629
-- --- ---- ---- ------
2 60 258 144 1,348
Amounts incurred under co-operative advertising
arrangements with related parties........................ -- -- -- -- (63)
-- --- ---- ---- ------
Total revenues............................................. $2 $60 $258 $144 $1,285
== === ==== ==== ======
</TABLE>
Total revenues are reported in the statement of operations net of the
amounts incurred under the cooperative advertising arrangements with related
parties as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Service revenues........................................... $2 $60 $238 $144 $ 719
Advertising revenues....................................... -- -- 20 -- 566
-- --- ---- ---- ------
Total revenues............................................. $2 $60 $258 $144 $1,285
== === ==== ==== ======
</TABLE>
PRODUCT DEVELOPMENT COSTS
Product development costs include expenses incurred by the Company to
develop and enhance the Company's Web sites. Product development costs are
expensed as incurred.
ADVERTISING
The Company expenses advertising costs as they are incurred. Advertising
expenses for each of the years in the three year period ended December 31, 1998
and the nine months ended September 30, 1998 and 1999 were none, $28,000,
$761,000, $342,000 and $9,286,000, respectively. Of these total expenses, barter
advertising costs represented $152,000 for the nine months ended September 30,
1999 and zero for all other periods presented.
STOCK-BASED COMPENSATION
The Company follows the disclosure provisions of Financial Accounting
Standards Board ("FASB") SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company has elected to continue accounting for stock-based
compensation issued to employees using Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly,
pro forma disclosures required under SFAS No. 123 have been presented (see Note
9). Under APB No. 25, compensation expense is based on the difference, if any,
on the date of the grant, between the fair
F-10
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
value of the Company's stock and the exercise price of the option. Stock issued
to non-employees has been accounted for in accordance with the provisions of
SFAS No. 123 and Emerging Issues Task Force Issue No. 96-18, "Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services."
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to affect taxable income. Valuation allowances are
established when management believes there is uncertainty regarding the recovery
of deferred tax assets.
CONCENTRATION OF CREDIT RISK
The Company's cash and cash equivalents are held with a major bank in the
United States. The Company's customers consist of contractors, homeowners and
manufacturers within the United States. The Company performs ongoing credit
evaluations of its customers' financial condition. The Company does not require
collateral. Two customers accounted for 11% and 10% of aggregate accounts
receivable as of September 30, 1999. There was no customer with a balance that
accounted for greater than 10% of aggregate accounts receivable as of
December 31, 1997 or 1998. There was no customer that accounted for greater than
10% of total revenues for any of the periods presented in the accompanying
statements of operations.
BUSINESS SEGMENTS
The Company follows SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." SFAS No. 131 requires publicly held
companies to report financial and other information about key revenue segments
of the entity for which this information is available and is utilized by the
chief operating decision maker. The Company conducts its business within one
business segment primarily within the United States. Revenues from customers
outside of the United States were insignificant for all periods presented in the
accompanying statements of operations.
COMPREHENSIVE INCOME
The Company follows SFAS No. 130, "Reporting Comprehensive Income" ("FAS
130"). FAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
There was no difference between the Company's net loss and its comprehensive
loss for any of the periods presented in the accompanying statement of
operations.
NET LOSS PER COMMON SHARE
Basic net loss per common share is computed by dividing the net loss
attributable to common stockholders for the period by the weighted average
number of common shares outstanding during the period. Diluted net loss per
common share is computed by dividing the net loss attributable to common
stockholders for the period by the weighted average number of common and common
equivalent shares outstanding during the period. Common equivalent shares,
composed of common shares issuable upon
F-11
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the exercise of stock options and warrants and upon conversion of convertible
preferred stock, are included in the diluted net loss per common share
calculation to the extent these shares are dilutive. A reconciliation of the
numerator and denominator used in the calculation of basic and diluted net loss
per common share follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Numerator
Net loss attributable to common
stockholders................................ $ (359) $(1,328) $(4,832) $(3,071) $(19,134)
====== ======= ======= ======= ========
Denominator
Weighted average common shares................ 694 1,233 1,383 1,382 1,487
Weighted average unvested common shares
subject to repurchase....................... (201) (5) -- -- --
------ ------- ------- ------- --------
Denominator for basic and diluted
calculation................................. 493 1,228 1,383 1,382 1,487
====== ======= ======= ======= ========
Basic and diluted net loss per common share... $(0.73) $ (1.08) $ (3.49) $ (2.22) $ (12.87)
====== ======= ======= ======= ========
</TABLE>
F-12
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES (CONTINUED)
The following table summarizes common stock equivalents that are not
included in the denominator used in the diluted net loss per common share
calculation because to do so would be antidilutive for the periods indicated (in
thousands):
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Weighted average effect of common stock equivalents:
Series A convertible preferred stock...................... -- 609 1,205 1,205 1,205
Series B convertible preferred stock...................... -- -- 1,536 1,401 1,935
Series C convertible preferred stock...................... -- -- -- -- 2,402
Series D convertible preferred stock...................... -- -- -- -- 154
Options to purchase common stock.......................... -- 167 429 406 1,147
Warrants to purchase convertible preferred and common
stock................................................... -- 51 122 138 192
Common stock subject to repurchase........................ 201 5 -- -- --
--- --- ----- ----- -----
201 832 3,292 3,150 7,035
=== === ===== ===== =====
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative financial instruments and hedging activities
related to those instruments, as well as other hedging activities. The Company
does not currently hold any derivative instruments and does not engage in
hedging activities. The Company expects the adoption of SFAS No. 133 will not
have a material impact on its financial position, results of operations or cash
flow. The Company will be required to adopt SFAS No. 133 for the year ending
December 31, 2001.
NOTE 3 - ACQUISITION
On September 9, 1999, the Company completed the acquisition of all the
assets and business of Contractor Referral Services, LLC ("CRS"), which operated
a toll-free telephone contractor referral service. The total acquisition cost
was $650,000 and consisted of a cash payment of $550,000 and a holdback of
$100,000 retained by the Company. The acquisition was accounted for using the
purchase method. Accordingly, the results of operations for CRS have been
included in the Company's statement of operations only from the date of
acquisition. At September 30, 1999, the $100,000 holdback was included in other
long-term liabilities as it is not payable until 2001.
The purchase price was allocated to the acquired assets based on fair values
as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable and other assets....................... $ 64
Licensing right............................................ 125
Non-competition agreement.................................. 50
Goodwill................................................... 411
----
Total.................................................... $650
====
</TABLE>
F-13
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - ACQUISITION (CONTINUED)
The following unaudited pro forma financial information presents the
combined results of operations of the Company and CRS as if the acquisition had
occurred on January 1, 1998, after giving effect to certain adjustments,
principally amortization of goodwill. This unaudited pro forma financial
information does not necessarily reflect the results of operations that would
have occurred had the acquisition been completed on January 1, 1998 (in
thousands, except per share amounts).
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues.................................................... $ 529 $ 1,500
Net loss attributable to common stockholders................ (4,958) (19,316)
Basic and diluted net loss per common share................. (3.58) (12.99)
</TABLE>
NOTE 4 - BALANCE SHEET COMPONENTS
PREPAID EXPENSES AND OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1997 1998 1999
----------- ----------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Prepaid advertising expenses............................... $ -- $ -- $2,925
Prepaid expenses and other current assets.................. 1 3 157
----------- ----------- ------
$ 1 $ 3 $3,082
=========== =========== ======
</TABLE>
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer equipment......................................... $ 93 $188 $ 431
Software................................................... 10 15 26
Furniture, fixtures and other equipment.................... 31 47 647
Leasehold improvements..................................... -- 108 233
---- ---- ------
134 358 1,337
Less: accumulated depreciation and amortization............ (25) (77) (149)
---- ---- ------
$109 $281 $1,188
==== ==== ======
</TABLE>
Depreciation and amortization expenses for the years ended December 31,
1996, 1997 and 1998 and the nine months ended September 30, 1998 and 1999 were
$7,000, $20,000, $52,000, $35,000 and $72,000, respectively.
F-14
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - BALANCE SHEET COMPONENTS (CONTINUED)
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued advertising expense........................ $ -- $130 $1,677
Accrued payroll costs.............................. -- 27 151
Other.............................................. 11 64 243
---- ---- ------
$ 11 $221 $2,071
==== ==== ======
</TABLE>
NOTE 5 - LINES OF CREDIT
During July 1997, the Company entered into a revolving line of credit with a
financial institution under which the Company could borrow up to $350,000.
During March 1998, the Company converted approximately $50,000 of this facility
into an equipment line of credit. Borrowings for equipment purchases under the
equipment line of credit were collateralized by the equipment purchased, accrued
interest at the rate of prime plus 1.25% (9% at December 31, 1998) and were due
in 36 equal monthly installments commencing on February 29, 1998. Borrowings
under the revolving line of credit accrued interest at the rate of prime plus
1.25%. The lines of credit were paid in full and terminated on January 29, 1999.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases a facility under an operating lease agreement expiring
February 2002. In June 1999, the Company entered into a seven-year lease
agreement for another office facility in Redwood City, California. Total future
minimum lease payments for the new facility totaled $3,871,000 at the date the
agreement was signed. Under the terms of the leases, the Company provided
letters of credit as security deposits. In September 1999, the Company assumed
the lease obligation of an office facility in Santa Ana, California in
connection with the purchase of CRS. The remaining term of the lease is two
years. Total future minimum lease payments totaled $54,000 at the date the lease
obligation was assumed. In September 1999, the Company entered into a five-year
lease agreement for an office facility in Fort Lauderdale, Florida. Total future
minimum lease payments totaled $556,000 at the date the agreement was signed.
Future minimum lease payments under operating leases as of September 30,
1999 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1999........................................................ $ 178
2000........................................................ 723
2001........................................................ 724
2002........................................................ 667
2003........................................................ 673
2004........................................................ 653
Thereafter.................................................. 994
------
$4,612
======
</TABLE>
F-15
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense charged to operations for the years ended December 31, 1996,
1997 and 1998 and for the nine months ended September 30, 1998 and 1999 was
$30,000, $78,000, $80,000, $62,000 and $142,000, respectively.
MARKETING AGREEMENTS
The Company has entered into a number of agreements with Internet media
companies to purchase online advertising and linkages. The Company expenses the
amounts as sales and marketing expenses ratably over the respective terms of the
agreements. The agreements require minimum future payments over the terms of the
agreements as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31,
1999........................................................ $119
2000........................................................ 85
----
$204
====
</TABLE>
ADVERTISING PACKAGE AGREEMENTS
In September 1999, the Company entered into an advertising package agreement
under which the Company will exchange advertising services for advertising
services with an investor in Series D convertible preferred stock. The minimum
future payments under the advertising agreement are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year Ending December 31,
1999........................................................ $ 312
2000........................................................ 854
2001........................................................ 1,104
2002........................................................ 730
------
$3,000
======
</TABLE>
401(K) PLAN
Effective January 1, 1999, the Company adopted a 401(k) savings plan under
which eligible employees may contribute the lesser of 20% of their eligible
compensation or the annual limit of $10,000 in 1999. In addition, the Company
may make discretionary contributions to the plan, although none has been made in
any of the periods presented.
NOTE 7 - CONVERTIBLE BRIDGE NOTES
During February 1997, the Company raised $65,000 through the issuance of
convertible bridge notes bearing interest at the rate of 1% per month. Total
principal plus accrued interest was converted into 133,604 shares of common
stock during June and July 1997 at a conversion rate of $0.50 per share.
During January 1998, the Company raised $150,000 through the issuance of
convertible bridge notes bearing interest at the rate of 6% per year. Total
principal plus accrued interest was converted into 59,524 shares of Series B
preferred stock in 1998 at a conversion rate of $2.52 per share, which was equal
to the issuance price.
F-16
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - CONVERTIBLE PREFERRED STOCK
Under the Company's Certificate of Incorporation, as amended in
September 1999, the Company is authorized to issue 9,482,935 shares of preferred
stock, of which 1,301,400 shares have been designated as Series A preferred
stock, 1,981,535 shares have been designated as Series B preferred stock,
3,700,000 shares have been designated as Series C preferred stock, and 2,500,000
shares have been designated as Series D preferred stock. From inception through
September 30, 1999, the Company issued preferred stock as follows (in thousands,
except share and per share amounts):
<TABLE>
<CAPTION>
AMOUNT LIQUIDATION
ORIGINAL NET OF ISSUED PREFERENCE AT
ISSUE ISSUANCE CUMULATIVE TOTAL SHARES AND PAR VALUE SEPTEMBER 30,
PRICE COST ACCRETION AMOUNT AUTHORIZED OUTSTANDING AMOUNT 1999
-------- -------- ------------ -------- ---------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series A.............. $1.00 $ 1,166 $ 330 $ 1,496 1,301,400 1,207,000 $ 1 $ 1,377
Series B.............. $2.52 4,855 712 5,567 1,981,535 1,934,526 2 5,336
Series C.............. $6.53 22,087 -- 22,087 3,700,000 3,543,190 4 23,808
Series D.............. $7.70 16,120 -- 16,120 2,500,000 2,100,843 2 16,219
------- ------ ------- --------- --------- --- -------
Total................. $44,228 $1,042 $45,270 9,482,935 8,785,559 $ 9 $46,740
======= ====== ======= ========= ========= === =======
</TABLE>
DIVIDENDS
All holders of preferred stock are entitled to receive, when and if declared
by the Board of Directors, non-cumulative cash dividends at the rate of 6% of
the original issue price per annum on each outstanding share of preferred stock.
As of September 30, 1999, no dividends had been declared.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
all holders of preferred stock are entitled to receive, prior and in preference
to any distribution of any of the assets of the Company to the holders of common
stock, an amount per share equal to the original issue price, plus the greater
of (i) all declared and unpaid dividends on the shares of preferred stock or
(ii) an amount equal to 6%, compounded annually, of the original issue price per
annum from the date that the first share of the series of preferred stock was
issued until the date of payment, less the per share amount of any dividends
previously paid on such shares, for each share of preferred stock held by them.
If the funds available for distribution were insufficient to cover the
liquidation preferences of all the preferred stock, then the entire assets and
funds of the Company legally available for distribution would be distributed
ratably among the preferred stockholders in proportion to the full amounts to
which they would otherwise be entitled.
After payment of the full liquidation preferences of the preferred stock,
the common stockholders would receive, on a pro rata basis, proceeds up to a
total amount per share equal to the preference of the Series B preferred
stockholders.
After the payment of the full liquidation preferences to the preferred and
required payments to the common stockholders, as described above, the assets of
the Company legally available for distribution, if any, would be distributed
ratably to the holders of the common stock and preferred stock on an as-if
converted to common stock basis.
CONVERSION
Each share of preferred stock is convertible, at the option of the holder,
into the number of fully paid and non-assessable shares of common stock
determined by dividing the preferred stock issue price by its conversion price
in effect at the time. The initial conversion prices of Series A, Series B,
Series C and Series D preferred stock are $1.00, $2.52, $6.53 and $7.70,
respectively, and are subject to
F-17
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - CONVERTIBLE PREFERRED STOCK (CONTINUED)
adjustment in accordance with anti-dilution provisions contained in the
Company's Certificate of Incorporation. Conversion is automatic immediately upon
the closing of a firm commitment underwritten initial public offering ("IPO") in
which the per share public offering price is at least $9.80 and the aggregate
proceeds raised exceed $20,000,000.
REDEMPTION
The holders of Series A and Series B preferred stock were entitled to
certain rights of redemption until the March 29, 1999 amendment of the Company's
Certificate of Incorporation. At this time, the redemption feature was removed
and accretion to the redemption value ceased.
VOTING RIGHTS
Each holder of preferred stock is entitled to one vote for each share of
common stock into which each share of preferred stock could be converted. The
holders of Series A, B, C and D preferred stock are each entitled to elect one
member of the Board of Directors.
NOTE 9 - COMMON STOCK
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 31,000,000 shares of common stock. Each share of common stock
has the right to one vote. The holders of common stock are also entitled to
receive dividends whenever funds are legally available and when declared by the
Board of Directors, subject to the prior rights of holders of preferred stock at
the time outstanding.
At September 30, 1999, the Company had reserved shares of common stock for
future issuance as follows:
<TABLE>
<CAPTION>
<S> <C>
Conversion of Series A convertible preferred stock.......... 1,207,000
Conversion of Series B convertible preferred stock.......... 1,934,526
Conversion of Series C convertible preferred stock.......... 3,543,190
Conversion of Series D convertible preferred stock.......... 2,100,843
Exercise of options......................................... 1,877,511
Warrants.................................................... 524,576
-----------
11,187,646
===========
</TABLE>
Holders of more than a majority of registrable securities may demand that
the Company file a registration statement having a net aggregate offering price
to the public in excess of $5,000,000, subject to certain limitations.
The Company had not declared or paid cash dividends as of September 30,
1999.
STOCK OPTION PLAN
Under the Company's 1996 Stock Option Plan, as amended (the "Plan"), the
Company may issue incentive stock options or non-statutory stock options to
purchase up to 2,100,000 shares of common stock. Incentive stock options may be
granted to employees at exercise prices not lower than fair market value at the
date of grant, as determined by the Board of Directors. Non-statutory stock
options may be granted to employees, directors and consultants, at exercise
prices not lower than 85% of fair market value at the date of grant, as
determined by the Board of Directors. The Board also has the authority to set
the term of the options up to a maximum of ten years. Options granted generally
vest over four years. Unexercised options expire three months after termination
of employment with the Company.
F-18
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK (CONTINUED)
Activity under the Plan is as follows (in thousands, except share and per
share amounts):
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER EXERCISE AGGREGATE EXERCISE
FOR GRANT OF SHARES PRICE PRICE PRICE
---------- --------- ------------- --------- --------
<S> <C> <C> <C> <C> <C>
Shares reserved at plan
inception................... 80,000
Options granted............... (78,500) 78,500 $0.25-$1.00 $ 33 $0.43
---------- --------- ------ -----
Balances, December 31, 1996... 1,500 78,500 $0.25-$1.00 $ 33 $0.43
Additional shares
authorized.................. 520,000
Options granted............... (458,433) 458,433 $ 0.10 46 $0.10
Options exercised............. -- (5,000) $ 0.10 -- $0.10
Options canceled.............. 87,778 (87,778) $0.10-$1.00 (27) $0.31
---------- --------- ------
Balances, December 31, 1997... 150,845 444,155 $0.10-$1.00 52 $0.12
Additional shares
authorized.................. 400,000
Options granted............... (643,000) 643,000 $ 0.25 161 $0.25
Options exercised............. -- (27,250) $ 0.10 (2) $0.10
Options canceled.............. 295,937 (295,937) $0.10-$0.25 (50) $0.17
---------- --------- ------
Balances, December 31, 1998... 203,782 763,968 $0.10-$1.00 161 $0.21
Additional shares
authorized.................. 1,100,000
Options granted............... (1,422,052) 1,422,052 $0.25-$4.00 1,517 $1.07
Options exercised............. -- (190,239) $0.10-$0.25 (31) $0.17
Options canceled.............. (235,584) (235,584) $0.25-$1.50 (60) $0.26
---------- --------- ------
Balances, September 30,
1999........................ 117,314 1,760,197 $0.10-$4.00 $1,587 $0.90
========== ========= ======
</TABLE>
The following table summarizes information with respect to stock options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ----------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.10 108,569 7.81 $0.10 60,756 $0.10
$ 0.25 908,678 9.30 $0.25 78,845 $0.25
$ 1.00 1,500 7.75 $1.00 1,500 $1.00
$ 1.50 648,250 9.78 $1.50 875 $1.50
$ 4.00 93,200 9.94 $4.00 -- $4.00
--------- ---- ----- ------- -----
$0.10-4.00 1,760,197 9.42 $0.90 141,976 $0.20
========= ==== ===== ======= =====
</TABLE>
F-19
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK (CONTINUED)
As of December 31, 1996, 1997 and 1998, the number of options exercisable
was 75,166, 168,181 and 248,386, respectively, at weighted average exercise
prices of $0.43, $0.14 and $0.17, respectively.
FAIR VALUE DISCLOSURES
The fair value of each option grant has been estimated on the date of grant
using the minimum value method with the following assumptions:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------- ------------------------
1996 1997 1998 1998 1999
-------- ------------ ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Weighted average fair
values................ $0.08 $ 0.21 $ 2.06 $ 2.07 $ 6.16
Assumptions:
Risk-free interest
rates............... 6.12% 6.12% 4.30-5.59% 5.30-5.59% 4.30-5.99%
Expected lives........ 4 years 4 years 4 years 4 years 4 years
Dividend yield........ -- -- -- -- --
</TABLE>
Had compensation cost for the Company's stock option plan been determined
based on the fair market values of these stock options at the grant dates
consistent with the provisions of SFAS No. 123, the Company's net loss would
have changed to the pro forma amounts as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net loss attributable to common
stockholders............................... $ (359) $(1,328) $(4,832) $(3,071) $(19,134)
Net loss attributable to common
stockholders--pro forma.................... $ (359) $(1,328) $(4,837) $(3,074) $(19,166)
Basic and diluted net loss per common
share...................................... $(0.73) $ (1.08) $ (3.49) $ (2.22) $ (12.87)
Basic and diluted net loss per common share--
pro forma.................................. $(0.73) $ (1.08) $ (3.50) $ (2.22) $ (12.89)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure may not be
indicative of future amounts. Additional awards in future years are anticipated.
UNEARNED STOCK-BASED COMPENSATION
In connection with certain employee and non-employee stock option grants
during 1998 and 1999, the Company recorded unearned stock-based compensation
totaling $9.1 million, which is being amortized over the vesting periods of the
related options, generally four years using the method set out in FASB
Interpretation No. 28 ("FIN 28"). Under the FIN 28 method, each vested tranche
of options is accounted for as a separate option grant awarded for past
services. Accordingly, the compensation expense is recognized over the period
during which the services have been provided. This method results in higher
compensation expense in the earlier vesting periods of the related options.
Amortization of this stock-based compensation recognized during the year ended
December 31, 1998 and the nine months ended September 1999 totaled approximately
$326,000 and $2.8 million, respectively.
F-20
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - COMMON STOCK (CONTINUED)
The total unearned stock-based compensation recorded to date will be
amortized as follows: $1.2 million for the remainder of 1999; $2.8 million in
2000; $1.4 million in 2001; $554,000 in 2002 and $56,000 in 2003.
NOTE 10 - WARRANTS
In June 1997, the Company issued warrants to purchase 10,000 shares of
common stock, at $1.00 per share, to members of the Board of Directors. In June
1997, the Company also issued warrants to purchase 95,600 shares of series A
convertible preferred stock to non-employees and warrants to purchase 800 shares
of series A convertible preferred stock to a member of the Board of Directors,
at $1.00 per share, in connection with the series A financing. Warrants to
purchase 2000 shares of series A preferred stock will be exercised in the nine
months ending September 30, 1999.
In March 1998, the Company issued warrants to purchase 47,009 shares of
series B convertible preferred stock to holders of series B convertible
preferred stock, in connection with the series B financing.
In connection with the series C convertible preferred stock financing in
March 1999, the Company issued a warrant to purchase 47,167 shares of series C
convertible preferred stock as consideration for stock issuance costs. In
September 1999, the Company granted a customer and its affiliate warrants to
purchase 209,000 and 117,000 shares of series D convertible preferred stock,
respectively, as consideration for sales and marketing expense.
In 1999, warrants to purchase 2,000 shares of Series A convertible preferred
stock were exercised for cash proceeds of $2,000.
The following summarizes the warrants outstanding at September 30, 1999:
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE
SHARES PRICE EXPIRATION DATE
-------- -------- -----------------
<S> <C> <C> <C>
Series A convertible preferred stock......... 94,400 $1.00 June 30, 2001
Series B convertible preferred stock......... 47,009 $2.52 March 28, 2004
Series C convertible preferred stock......... 47,167 $6.53 March 28, 2004
Series D convertible preferred stock......... 326,000 $0.01 September 9, 2003
Common stock................................. 10,000 $1.00 June 16, 2007
</TABLE>
Upon an IPO, the warrants to purchase convertible preferred stock will
automatically convert to warrants to purchase common stock of the Company under
the same terms.
The Company has determined the estimated fair market value of the warrants
issued in the years ended December 31, 1997 and 1998 and the nine months ended
September 30, 1999 to be $48,000, $80,000 and $2,507,000, respectively. The fair
value of the grants was estimated using the Black-Scholes model and was charged
to operating expenses and stock issuance costs in 1997 and 1998. The fair value
of the warrants for series C convertible preferred stock granted in 1999 is
charged to stock issue costs. The fair value of warrants for series D
convertible preferred stock granted in 1999 is being charged to sales and
marketing expense over the period of the related co-marketing agreement, which
expires in 2002, as follows: $194,000 for the remainder of 1999; $771,000 for
2000; $771,000 for 2001 and $729,000 for 2002.
F-21
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - WARRANTS (CONTINUED)
The fair value of each warrant has been estimated on the date of grant using
the following assumptions:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- ----------------------
1997 1998 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Risk-free interest rate........................... 6.12% 5.36% 5.61% 5.23%
Expected dividends................................ -- -- -- --
Volatility........................................ 70% 70% 70% 70%
</TABLE>
NOTE 11 - RELATED PARTY TRANSACTIONS
During 1996, 1997 and 1998, the Company leased office space from a company
in which an executive officer held an ownership interest. The rent paid under
this lease was $30,000, $78,000 and $23,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
During May 1999, the Company entered into a promissory note agreement with
its Chief Executive Officer, whereby the Company agreed to loan the officer up
to $500,000. The full amount was loaned in August 1999. The note accrues
interest at 5.25% per annum and is due and payable on the earlier of the first
day of the month following the one-year anniversary of the closing of a firm
commitment underwritten public offering of the Company's common stock or within
90 days after the voluntary termination of the officer's employment or the
termination of the officer's employment for cause. The note is collateralized by
the officer's shares of stock and options to purchase shares of stock. At
September 30, 1999, $500,000 was outstanding under the note. If the Company
terminates the officer's employment without cause prior to March 29, 2000, 50%
of the loan will be forgiven. If the Company terminates the officer's employment
without cause after March 29, 2000 and prior to the first anniversary of the
closing of the Company's IPO, 75% of the loan will be forgiven.
An investor who participated in the Company's Series D convertible preferred
stock offering is also an advertising customer of the Company. The Company had
accounts receivable and deferred revenue balances from this related party of
$62,500 at September 30, 1999 and granted to it and its affilate warrants to
purchase 326,000 shares of Series D convertible preferred stock.
NOTE 12 - UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
STOCKHOLDERS' EQUITY
Upon the closing of the Company's initial public offering, all outstanding
convertible preferred stock will be converted automatically into common stock.
The pro forma effect of this conversion has been presented as a separate column
in the Company's balance sheet, assuming the conversion had occurred as of
September 30, 1999.
Pro forma basic and diluted net loss per common share have been computed as
described in Note 2 and also give effect to common equivalent shares from
preferred stock that will automatically convert upon the closing of the
Company's initial public offering (using the as-if-converted method) for 1998
and the nine months ended September 30, 1999.
F-22
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
STOCKHOLDERS' EQUITY (CONTINUED)
The pro forma stockholders' equity also reflects the effect of the issuance
of 2,597,135 shares of Series E convertible preferred stock in November and
December 1999 for net proceeds of $35.0 million, and stock-based compensation of
$11.3 million from the issuance of warrants to purchase 1,262,596 shares of
common stock.
A reconciliation of the numerator and denominator used in the calculation of
pro forma basic and fully diluted net loss per common share follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
NINE
YEAR MONTHS
ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
Net loss attributable to common stockholders................ $(4,832) $(19,134)
======= ========
Shares used in computing basic and diluted net loss per
common
share..................................................... 1,383 1,487
Adjusted to reflect the effect of the assumed conversion of
convertible preferred stock from the date of issuance:
Series A convertible preferred stock...................... 1,205 1,205
Series B convertible preferred stock...................... 1,536 1,935
Series C convertible preferred stock...................... -- 2,402
Series D convertible preferred stock...................... -- 154
------- --------
Weighted average shares used in computing pro forma basic
and diluted net loss per common share..................... 4,124 7,183
======= ========
Pro forma basic and diluted net loss per common share....... $ (1.17) $ (2.66)
======= ========
</TABLE>
NOTE 13 - INCOME TAXES
At September 30, 1999, the Company had net operating loss carryforwards
available to offset future regular and alternative minimum taxable income of
approximately $21,181,000 and $13,241,000 for federal and California purposes,
respectively. These carryforwards expire between 2005 and 2019, if not utilized
before these dates. At September 30, 1999, the Company had approximately $67,000
of federal and $52,000 of state research and development credit carryforwards
available to offset future taxable income, which expire in varying amounts
beginning in 2013 and indefinitely, respectively. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances. Events which cause limitations in
the amounts of net operating losses that the Company may utilize in any year
include, but are not limited to, a cumulative ownership change of more than 50%
as defined, over a three-year period.
F-23
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - INCOME TAXES (CONTINUED)
The Company's deferred tax assets and liabilities are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- --------------
<S> <C> <C> <C>
Deferred tax assets (current):
Net operating losses...................................... $ 589 $ 2,079 $ 7,974
Allowance for doubtful accounts........................... 1 3 19
Accrued liabilities....................................... 5 11 185
Research and development credit carryforwards............. 26 89 119
----- ------- -------
Deferred tax assets..................................... 621 2,182 8,297
Deferred tax liabilities (non-current):
Depreciation.............................................. (2) (14) (74)
----- ------- -------
Deferred tax liabilities................................ (2) (14) (74)
----- ------- -------
Net deferred tax assets................................. 619 2,168 8,223
Valuation allowance..................................... (619) (2,168) (8,223)
----- ------- -------
$ -- $ -- $ --
===== ======= =======
</TABLE>
Due to uncertainty surrounding the realization of favorable tax attributes
in future tax returns, the Company has placed a valuation allowance against all
of its net deferred tax assets. At such time as it is determined that it is more
likely than not that the deferred tax assets are realizable, the valuation
allowance will be reduced.
NOTE 14 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------------------- -------------------
1996 1997 1998 1998 1999
---------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Conversion of convertible bridge notes into common
stock................................................... $ -- $65 $ -- $ -- $ --
Issuance of preferred stock/common stock in exchange for
services rendered....................................... $ -- $11 $ -- $ -- $ 37
Issuance of options for services rendered................. $ -- $-- $ 100 $ -- $ --
Issuance of warrant for services rendered................. $ -- $-- $ -- $ -- $ 42
Unearned stock-based compensation relating to stock option
grants.................................................. $ -- $-- $1,055 $ 459 $8,055
Unearned stock-based compensation relating to warrant
grant................................................... $ -- $-- $ -- $ -- $2,507
Accretion of Series A mandatorily redeemable convertible
preferred stock......................................... $ -- $86 $ 192 $ 141 $ 52
Accretion of Series B mandatorily redeemable convertible
preferred stock......................................... $ -- $-- $ 525 $ 344 $ 187
Issuance of common stock in exchange for stockholder note
receivable.............................................. $ 4 $-- $ -- $ -- $ --
Accrued interest converted to common stock................ $ -- $ 2 $ -- $ -- $ --
Conversion of convertible notes into convertible preferred
stock................................................... $ -- $-- $ 150 $ 150 $ --
Exchange of advertising services for advertising
services................................................ -- -- -- -- 215
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest.................. $ -- $14 $ 15 $ 12 $ 5
Cash paid during the period for taxes..................... $ -- $ 1 $ 1 $ 1 $ 1
</TABLE>
F-24
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - SUBSEQUENT EVENTS
ACQUISITION OF THE J.L. PRICE CORPORATION
On November 1, 1999, the Company acquired all of the outstanding shares of
The J.L. Price Corporation, a regional contractor referral service, incorporated
in California. Acquisition costs consisted of (i) cash payments of $148,600,
(ii) a cash holdback of $100,000 held in escrow, and (iii) 48,592 common shares
of which 24,296 shares will be issued on November 1, 2000 and November 1, 2001
subject to continued employment of the selling stockholder. At September 30,
1999, $69,000 of the purchase price had been paid and is included in other
assets. The Company will account for this acquisition using the purchase method
of accounting.
OPTIONS GRANTED
Subsequent to September 30, 1999, the Company granted 772,000 additional
options for common stock to employees with a weighted average exercise price of
$5.17 per share. The Company increased the number of shares available for grant
from 2.1 million to 2.7 million.
SERIES E CONVERTIBLE PREFERRED STOCK
On November 23, 1999, the Company issued 1,671,209 shares of series E
convertible preferred stock, $0.001 par value, for net proceeds of approximately
$22.4 million. The series E convertible preferred stock contains voting rights,
preferences, liquidation entitlements and privileges substantially identical to
the other series of preferred stock (See Note 8). In December 1999, the Company
issued an additional 925,926 shares of series E convertible preferred stock,
$0.001 par value, for net proceeds of approximately $12.5 million. The Company
also issued warrants to these strategic investors to purchase 420,000 shares of
common stock at $0.01 per share and 842,596 shares of common stock at $13.50 per
share. Warrants to purchase 245,000 shares expire on November 23, 2004 and
warrants to purchase 1,017,596 shares expire in December 2004. In connection
with these issuances, the Board of Directors approved the amendment of the
Company's Certificate of Incorporation increasing the number of common shares
authorized for issuance from 31,000,000 to 34,000,000.
In connection with the issuances of series E convertible preferred stock,
the Company entered into advertising package agreements with these strategic
stockholders under which the Company will exchange advertising services with the
related parties. Four of these strategic stockholders were advertising customers
of the Company during the nine months ended September 30, 1999. One of these
strategic stockholders was also a vendor of the Company during 1998 and 1999.
The Company recognized the following amounts in advertising revenues, accounts
receivable and deferred revenue (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
NINE MONTHS ENDED ---------------------
SEPTEMBER 30, 1999 ACCOUNTS DEFERRED
REVENUES RECEIVABLE REVENUE
------------------- ---------- --------
<S> <C> <C> <C>
MASCO.................................... $91 $ 72 $ 20
Owens Corning............................ 42 48 5
Armstrong................................ 51 42 10
Microsoft................................ 20 -- --
</TABLE>
Included in the revenue from MASCO was barter revenue of $12,000 for which
the Company recorded an equal amount in sales and marketing expenses. All
revenues from Microsoft were barter revenues for which the Company recorded an
equal amount in sales and marketing expenses. The Company recorded advertising
expenses of 2,000 and $669,000 in the nine months ended September 30,
F-25
<PAGE>
IMPROVENET, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - SUBSEQUENT EVENTS (CONTINUED)
1998 and 1999, respectively, for advertising services purchased from Microsoft,
of which none and $301,000 was recorded in accrued liabilities at September 30,
1998 and 1999, respectively.
SALES AND MARKETING AGREEMENTS
Subsequent to September 30, 1999 the Company entered into seven agreements
under which the Company will purchase sales and marketing services. Under the
terms of the agreements, the Company is obligated to make minimum future
payments as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C>
1999........................................................ $ 1,085
2000........................................................ 6,771
2001........................................................ 5,374
2002........................................................ 4,350
2003........................................................ 356
Thereafter.................................................. 352
-------
$18,288
=======
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors adopted the Employee Stock Purchase Plan
(the "Purchase Plan") on December 3, 1999 under which 300,000 shares have been
reserved for issuance. The Purchase Plan has been approved by the Company's
stockholders. The number of shares reserved under the Purchase Plan will
automatically increase on January 1 of each year by the lesser of an amount
equal to 1% of the total number of shares outstanding, or 300,000 shares. Under
the Purchase Plan, eligible employees may purchase common stock in an amount not
to exceed the lesser of $25,000 or 15% of their base compensation. The purchase
price per share will be 85% of the common stock fair value at the lower of
certain plan defined dates.
1999 STOCK INCENTIVE PLAN
The Company's Board of Directors adopted the 1999 Stock Incentive Plan (the
"Incentive Plan") on December 3, 1999 under which 1,300,000 shares have been
reserved for issuance. The number of shares reserved under the Incentive Plan
will automatically increase on January 1 of each year by the lesser of 5% of the
total number of shares outstanding or 1,300,000 shares. The Incentive Plan,
which has five separate programs, allows non-employee board members, executive
officers and other highly compensated employees to purchase shares using a
portion of their salary or retainer fee. The Incentive Plan allows eligible
employees to be issued shares of common stock directly, upon the attainment of
performance milestones or the completion of services. The Incentive Plan also
allows automatic option grants at periodic intervals to eligible non-employee
board members to purchase shares of common stock.
INITIAL PUBLIC OFFERING
On December 3, 1999 the Board of Directors approved the issuance and sale of
shares of the Company's common stock in an underwritten initial public offering.
F-26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Members of
Contractor Referral Service, LLC
In our opinion, the accompanying balance sheet and the related statements of
operations and members' deficit and of cash flows present fairly, in all
material respects, the financial position of Contractor Referral Service, LLC at
December 31, 1998 and the results of its operations and its cash flows for the
year ended December 31, 1998 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has recently sold its revenue producing assets
and intangibles and may not be able to generate cash flows from operations which
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to this matter are also described in Note 1. The
financial statements do not include any adjustments that may result from the
outcome of this uncertainty.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
November 24, 1999
F-27
<PAGE>
CONTRACTOR REFERRAL SERVICE, LLC
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 5 $ 8
Accounts receivable, net of allowance for doubtful
accounts of $43 in 1998 and $58 in 1999................. 42 60
Prepaid expenses and other current assets................. 2 4
------- -------
Total current assets.................................. 49 72
Property and equipment, net................................. 2 1
Other assets................................................ 2 2
------- -------
Total assets.......................................... $ 53 $ 75
======= =======
LIABILITIES
Current liabilities:
Accounts payable.......................................... $ 43 $ 77
Accrued liabilities....................................... 2 3
Line of credit............................................ 9 7
Related party loans payable............................... 62 88
------- -------
Total current liabilities............................. 116 175
------- -------
Commitments (Note 5)
MEMBERS' DEFICIT
Shares issued and outstanding: 3,056,827 in 1998 and
1999.................................................... (63) (100)
Total liabilities and members' deficit................ $ 53 $ 75
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-28
<PAGE>
CONTRACTOR REFERRAL SERVICE, LLC
STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $ 271 $ 168
Cost of revenue............................................. 63 41
------ ------
Gross profit................................................ 208 127
Costs and expenses:
Sales and marketing....................................... 175 98
General and administrative................................ 65 46
------ ------
Total operating expenses................................ 240 144
------ ------
Loss from operations........................................ (32) (17)
Interest and other income (expense)......................... (12) (20)
------ ------
Net loss................................................ $ (44) $ (37)
====== ======
Basic and diluted net loss per share........................ $ (.01) $ (.01)
====== ======
Shares used in calculating basic and diluted net loss per
share..................................................... 3,048 3,057
====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
CONTRACTOR REFERRAL SERVICE, LLC
STATEMENTS OF MEMBERS' DEFICIT
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SHARES
------------------- TOTAL MEMBERS'
NUMBER VALUE CAPITAL (DEFICIT)
-------- -------- -----------------
<S> <C> <C> <C>
Balances, January 1, 1998................................... 3,022 $ (26) $ (26)
Issuance of shares to members............................... 35 $ 7 $ 7
Net loss.................................................... -- (44) (44)
----- ----- -----
Balances, December 31, 1998................................. 3,057 (63) (63)
Net loss (unaudited)........................................ -- (37) (37)
----- ----- -----
Balances, June 30, 1999 (unaudited)......................... 3,057 $(100) $(100)
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
CONTRACTOR REFERRAL SERVICE, LLC
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
1998 1999
------------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $(44) $(37)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................. -- 1
Provision for doubtful accounts................ 24 15
Changes in operating assets and liabilities:
Accounts receivable............................ (31) (33)
Prepaid expenses and other current assets...... (1) (2)
Accounts payable............................... 15 34
Accrued liabilities............................ 14 1
---- ----
Net cash used in operating activities...... (23) (21)
---- ----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................. 4 --
---- ----
Net cash used in investing activities...... 4 --
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
Members' contributions............................. 7 --
Borrowings under line of credit.................... 9 --
Principal payments under line of credit............ -- (2)
Related party loans payable........................ -- 26
---- ----
Net cash provided by financing
activities............................... 16 24
---- ----
Net increase (decrease) in cash and cash
equivalents........................................ (3) 3
Cash and cash equivalents, beginning of period....... 8 5
---- ----
Cash and cash equivalents, end of period............. $ 5 $ 8
==== ====
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
CONTRACTOR REFERRAL SERVICE, LLC
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED
NOTE 1 - GOING CONCERN:
These financial statements are prepared on a going concern basis, which
assumes that Contractor Referral Service, LLC ("CRS") will realize its assets
and discharge its liabilities in the normal course of business. The Company
incurred an operating loss of $44,000 for the year ended December 31, 1998 and
$37,000 for the six months ended June 30, 1999 and reported a deficit on member
capital accounts at December 31, 1998 of $63,000 and $100,000 at June 30, 1999.
The ability of the Company to continue as a going concern is dependent upon
obtaining adequate sources of financing and developing new operations.
On September 9, 1999, the assets and certain intangible assets of the
Company were acquired by ImproveNet, Inc. (Note 7). As required by the asset
purchase agreement, the Company will maintain its legal status and maintain
minimum levels of general liability insurance. Management anticipates that this
transaction will provide sufficient funding to discharge its liabilities.
Nevertheless, there are no assurances, they will be sufficient to meet its
obligations as they become due.
NOTE 2 - FORMATION AND BUSINESS OF THE COMPANY:
Contractor Referral Service, LLC (the "Company") was formed as a Limited
Liability Company under the laws of the state of Illinois. The Company operates
a telephone contractor referral business under the name "1-800 Contractor."
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 purchased with original
or remaining maturities of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The reported amounts of certain of the Company's financial instruments
including cash and cash equivalents, restricted cash, accounts receivable,
accounts payable and other accrued liabilities approximate fair value due to
their short maturities. Based on borrowing rates currently available to the
Company for loans with similar terms, the carrying value of the lines of credit
approximate fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a straight
line basis over their estimated useful lives of three to seven years. Major
additions and improvements are capitalized, while replacements, maintenance, and
repairs that do not improve or extend the life of the assets are charged to
operations. In the period assets are retired or otherwise disposed of, the costs
and related
F-32
<PAGE>
CONTRACTOR REFERRAL SERVICE, LLC
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED
(CONTINUED)
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
accumulated depreciation and amortization are removed from the accounts, and any
gain or loss on disposal is included in results of operations.
REVENUE RECOGNITION
Revenues are derived from contractor referral fees that are recognized once
the homeowner and contractor are matched by the Company. Payments received in
advance of providing services are deferred until the period such services are
provided. The Company establishes a sales reserve at the time of revenue
recognition based on the Company's historical experience.
ADVERTISING
The Company expenses advertising costs as they are incurred. Advertising
expense for the years ended December 31, 1998 and the six months ended June 30,
1999 was $91,000 and $48,000 (unaudited), respectively.
INCOME TAXES
The Company is treated as a partnership for federal and state income tax
purposes. Consequently federal income taxes are not payable or provided for by
the Company. Members are taxed individually on their share of the Company's
earnings. The Company's net income or loss is allocated among the members in
accordance with the Company's articles of organization.
CONCENTRATION OF CREDIT RISK
The Company's cash and cash equivalents are held with one major bank in the
United States. The Company's customers consist of contractors in southern
California. The Company performs ongoing credit evaluations of its customers'
financial condition. The Company does not require collateral.
NOTE 4 - BANK LINE OF CREDIT:
On January 22, 1997 the Company obtained a $25,000 line of credit from a
bank, bearing interest at a fluctuating interest rate per annum equal to the
Bank's Reference Rate plus 5.75 percentage points (14.0% at December 31, 1998).
NOTE 5 - COMMITMENTS AND CONTINGENCIES:
OPERATING LEASE
The Company leases a facility under an operating lease agreement expiring
April 2001. In March 1999, the Company entered into a two lease agreement for a
new office facility in Santa Ana, California. Total future minimum lease
payments totaled $54,000 at the date the agreement was signed. Under the terms
of the lease, the Company is required to pay $2,000 as a security deposit.
F-33
<PAGE>
CONTRACTOR REFERRAL SERVICE, LLC
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 IS UNAUDITED
(CONTINUED)
NOTE 5 - COMMITMENTS AND CONTINGENCIES: (CONTINUED)
Future minimum lease payments under the operating leases as of December 31,
1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,:
<S> <C>
1999........................................................ $20
2000........................................................ 27
2001........................................................ 7
---
$54
===
</TABLE>
NOTE 6 - RELATED PARTY TRANSACTIONS:
At December 31, 1998 and June 30, 1999 the Company owed a total of $62,000
and $88,000 (unaudited), respectfully to the founders and directors. These
amounts represent loans to the Company which include interest of $12,000 that
has been compounded annually at a weighted average rate of 17%.
At June 30, 1999 the Company owed a total of $88,000 to the founders and
directors. These amounts represent loans to the Company which include interest
of $31,000 that has been compounded annually at a weighted average rate of 40%.
NOTE 7 - SUBSEQUENT EVENTS:
On August 27, 1999, the Company entered into an agreement to sell
substantially all the assets and business of the Company to ImproveNet, Inc. The
acquisition was consummated on September 9, 1999, for total consideration of
$650,000 payable in cash. A holdback of $100,000 will be released in fiscal
2000.
F-34
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
On September 9, 1999, ImproveNet, Inc. (the "Company") acquired
substantially all of the assets and business of Contractor Referral Service, LLC
("CRS"), in exchange for total cash consideration of $650,000. The transaction
was accounted for using the purchase method of accounting and the results of CRS
were included in the results of the Company from September 9, 1999, the closing
date of the transaction.
The following unaudited Pro Forma Combined Statements of Operations for the
nine months ended September 30, 1999 and year ended December 31, 1998 give
effect to the acquisition by the Company of CRS as if it had occurred on
January 1, 1998. The statements have been derived from the statements of
operations of the Company for the year ended December 31, 1998 and the nine
months ended September 30, 1999 appearing elsewhere in the Prospectus and the
audited statement of operations of CRS for the year ended December 31, 1998 and
the unaudited statement of operations for the nine months ended September 30,
1999. The unaudited pro forma financial data are not necessarily indicative of
the results of operations of the Company had the transactions assumed therein
occurred, nor are they necessarily indicative of the results of operations which
may be expected to occur in the future. The unaudited Pro Forma Combined
Statements of Operations should be read in conjunction with the historical
financial statements and notes thereto of the Company and CRS included elsewhere
in this Prospectus.
F-35
<PAGE>
IMPROVENET, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA
----------------------
ACQUISITION
IMPROVENET CRS ADJUSTMENTS COMBINED
---------- -------- ----------- --------
<S> <C> <C> <C> <C>
Revenues:
Service revenues................... $ 238 $ 271 $ -- $ 509
Advertising revenues............... 20 -- -- 20
------- ------ ----- -------
Total revenues................. 258 271 -- 529
Cost of Revenues:
Cost of service revenues........... 767 63 -- 830
Cost of advertising revenues....... 49 -- -- 49
------- ------ ----- -------
Total cost of revenues......... 816 63 -- 879
------- ------ ----- -------
Gross profit (loss).......... (558) 208 -- (350)
Operating expenses:
Sales and marketing................ 1,669 175 -- 1,844
Product development................ 504 -- -- 504
General and administrative......... 1,142 65 -- 1,207
Amortization of goodwill........... -- -- 82A 82
Stock-based compensation........... 326 -- -- 326
------- ------ ----- -------
Total operating expenses....... 3,641 240 82 3,963
------- ------ ----- -------
Loss from operations................. (4,199) (32) (82) (4,313)
Interest and other income (expense),
net................................ 84 (12) -- 72
------- ------ ----- -------
Net loss............................. (4,115) (44) (82) (4,241)
Accretion of mandatorily redeemable
convertible preferred stock........ (717) -- -- (717)
------- ------ ----- -------
Net loss attributable to common
stockholders....................... $(4,832) $ (44) $ (82) $(4,958)
======= ====== ===== =======
Basic and diluted net loss per
share.............................. $ (3.49) $ (3.58)
======= =======
Shares used in calculating basic and
diluted net loss per share......... 1,383 1,383
======= =======
</TABLE>
See accompanying notes to unaudited Pro Forma Statements of Operations
for explanation of Pro Forma acquisition adjustments.
F-36
<PAGE>
IMPROVENET INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
IMPROVENET CRS
FOR THE NINE FOR THE
MONTHS PERIOD FROM PRO FORMA
ENDED JANUARY 1, 1999 ----------------------
SEPTEMBER 30, TO ACQUISITION
1999 SEPTEMBER 30, 1999 ADJUSTMENTS COMBINED
-------------- ------------------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Service revenues........................ $ 719 $ 215 $ -- $ 934
Advertising revenues.................... 566 -- -- 566
-------- ------ ---- --------
Total revenues........................ 1,285 215 -- 1,500
Cost of revenues:
Cost of service revenues................ 1,091 66 -- 1,157
Cost of advertising revenues............ 307 -- -- 307
-------- ------ ---- --------
Total cost of revenues................ 1,398 66 -- 1,464
-------- ------ ---- --------
Gross profit (loss)................. (113) 149 -- 36
Operating expenses:
Sales and marketing..................... 14,363 144 -- 14,507
Product development..................... 417 -- -- 417
General and administrative.............. 1,491 84 -- 1,575
Amortization of goodwill................ -- -- 62(A) 62
Stock-based compensation................ 2,835 -- -- 2,835
-------- ------ ---- --------
Total operating expenses............ 19,106 228 62 19,396
-------- ------ ---- --------
Loss from operations...................... (19,219) (79) (62) (19,360)
Interest and other income (expense),
net..................................... 324 (41) -- 283
-------- ------ ---- --------
Net loss.................................. (18,895) (120) (62) (19,077)
Accretion of mandatorily redeemable
preferred convertible stock............. (239) -- -- (239)
-------- ------ ---- --------
Net loss attributable to common
stockholders............................ $(19,134) $ (120) $(62) $(19,316)
======== ====== ==== ========
Basic and diluted net loss per share...... $ (12.87) $ (12.99)
======== ========
Shares used basic and diluted net loss per
share:.................................. 1,487 1,487
======== ========
</TABLE>
See accompanying notes to unaudited Pro Forma Statements of Operations
for explanation of Pro Forma acquisition adjustments.
F-37
<PAGE>
IMPROVENET INC.
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
NOTE A - GOODWILL AMORTIZATION
Reflects additional goodwill amortization expense related to the acquisition
of CRS. Goodwill is being amortized over a period of five years.
NOTE B - ALLOCATION OF PURCHASE PRICE TO INTANGIBLE ASSETS
The purchase price of CRS was allocated to tangible net assets and
identifiable intangible assets with the remaining unallocated purchase price
attributed to goodwill. The fair value of tangible assets approximated their
historical book value at September 9, 1999. The identifiable intangible assets
and goodwill, along with their estimated lives for amortization, are as follows
(in thousands):
<TABLE>
<CAPTION>
FAIR
VALUE LIFE (YEARS)
-------- -------------
<S> <C> <C>
Licensing right........................................ $ 125 1.2
Non-competition agreement.............................. 50 2
Goodwill............................................... 411 5
</TABLE>
NOTE C - UNAUDITED PRO FORMA COMBINED NET LOSS PER SHARE
Pro forma net loss reflects the impact of the adjustments above. Basic and
diluted net loss per common share (pro forma) is computed using ImproveNet's
weighted-average number of shares of common stock.
F-38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates, except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
AMOUNT TO BE PAID
-----------------
<S> <C>
SEC Registration Fee........................................ $ 15,180
NASD Filing Fee............................................. 6,250
Nasdaq National Market Listing Application Fee.............. 1,000
Blue Sky Qualification Fees and Expenses.................... 5,000
Printing and Engraving Expenses............................. 200,000
Legal Fees and Expenses..................................... 400,000
Accounting Fees and Expenses................................ 400,000
Transfer Agent and Registrar Fees........................... 25,000
Miscellaneous............................................... 247,570
----------
Total....................................................... $1,300,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Restated Certificate of Incorporation and Bylaws include
provisions to (i) eliminate the personal liability of its directors and officers
for monetary damages resulting from breaches of their fiduciary duty to the
extent permitted by Section 102(b)(7) of the General Corporation Law of Delaware
(the "Delaware Law") and (ii) require the Registrant to indemnify its directors
and officers to the fullest extent permitted by Section 145 of the Delaware Law,
including circumstances in which indemnification is otherwise discretionary.
Pursuant to Section 145 of the Delaware Law, a corporation generally has the
power to indemnify its present and former directors, officers, employees and
agents against expenses incurred by them in connection with any suit to which
they are or are threatened to be made, a party by reason of their serving in
such positions so long as they acted in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action, they had no reasonable
cause to believe their conduct was unlawful. The Registrant believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers. These provisions do not eliminate the directors' duty of care,
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available under Delaware Law. In
addition, each director will continue to be subject to liability for breach of
the director's duty of loyalty to the Registrant, for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for acts or omissions that the director believes to be contrary to the best
interests of the Registrant or its stockholders, for any transaction from which
the director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the director's duty to the Registrant or its
stockholders when the director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to the Registrant or its stockholders, for improper
transactions between the director and the Registrant and for improper
II-1
<PAGE>
distributions to stockholders and loans to directors and officers. The provision
also does not affect a director's responsibilities under any other law, such as
the federal securities law or state or federal environmental laws.
The Registrant intends to enter into indemnity agreements with each of its
directors and officers that require the Registrant to indemnify such persons
against expenses, judgments, fines, settlements and other amounts incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or an officer of the
Registrant or any of its affiliated enterprises, provided that such person acted
in good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. The indemnification agreements also set forth certain procedures that
will apply in the event of a claim for indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or director.
The Registrant has an insurance policy covering the officers and directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the Registrant's inception on January 4, 1996, the Company has issued
and sold the following unregistered securities:
(1) In January 1996, the Company issued 420,000 shares of its common stock
at a purchase price of $0.01 per share pursuant to a founders stock
agreements by and between the Company and three investors.
(2) In June 1997, the Company issued 133,604 shares of its common stock at a
purchase price of $0.50 per share pursuant to convertible promissory
notes by and between the Company and five investors.
(3) From March 1996 through June 1997, the Company issued 707,835 shares of
its common stock at an aggregate purchase price of $398,458.75 pursuant
to subscription agreements by and between the Company and twenty-one
investors.
(4) In June 1997, the Company issued 112,600 shares of its common stock in
consideration of $11,260 in consulting services rendered pursuant to a
consulting agreement by and between the Company and two investors.
(5) From inception through December 14, 1999, the Company granted options to
purchase 3,373,985 shares of common stock at a weighted average exercise
price of $1.70 per share to employees, consultants, directors and other
service providers pursuant to its 1996 Stock Option Plan and issued an
aggregate of 379,994 shares of its common stock at a weighted average
exercise price of $0.31 per share to employees, consultants, directors
and other service providers pursuant to exercises of options granted
under the 1996 Stock Option Plan.
(6) From June 1997 to July 1997, the Company issued 1,207,000 shares of its
series A preferred stock at a purchase price of $1.00 per share and
warrants to purchase 94,400 shares of series A preferred stock to nine
investors. The warrants have a per share exercise price of $1.00 per
share.
II-2
<PAGE>
(7) In March 1998, the Company issued 1,934,526 shares of its series B
preferred stock at a purchase price of $2.52 per share and warrants to
purchase 47,009 shares of series B preferred stock to eight investors.
The warrants have a per share exercise price of $2.52 per share.
(8) In June 1997, the Company issued warrants to purchase 10,000 shares of
common stock to two investors. The warrants have an exercise price of
$1.00 per share.
(9) In March 1999, the Company issued 3,543,190 shares of its series C
preferred stock at a purchase price of $6.53 per share to thirty-eight
investors and warrants to purchase 47,167 shares of series C preferred
stock to a consultant. The warrants have an exercise price of $6.53 per
share.
(10) In September 1999, the Company issued 5,666 shares of series C preferred
stock to a consultant for services performed. The Company imparted a
value for the services of $36,942.32.
(11) In September 1999, the Company issued 2,100,843 shares of its series D
preferred stock at a purchase price of $7.70 per share and warrants to
purchase 326,000 shares of series D preferred stock to 16 investors. The
warrants have a per share exercise price of $0.01 per share.
(12) In November and December 1999, the Company issued 2,597,135 shares of
its series E preferred stock at a purchase price of $13.50 per share to
sixteen investors, warrants to purchase 842,596 shares of common stock
to two investors at a per share exercise price of $13.50 and warrants to
purchase 420,000 shares of common stock to six investors at a per share
exercise price of $0.01.
(13) In November, 1999, the Company became obligated to issue 24,296 shares
of common stock on each of November 1, 2000 and November 1, 2001 in
consideration of, among other things, all of the outstanding stock of
The J.L. Price Corporation, pursuant to the Stock Purchase Agreement by
and between the Company, The J.L. Price Corporation and James L. Price.
The sales of the above securities were deemed to be exempt from registration
under the Securities Act in reliance upon Section 4(2) of the Securities Act or
Regulation D promulgated thereunder, or Rule 701 promulgated under Section 3(b)
of the Securities Act as transactions by an issuer not involving any public
offering or transactions pursuant to, benefit plans and contracts relating to
compensation as provided under Rule 701. The recipients of securities in each of
these transactions represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof, and appropriate legends were placed upon the share
certificates issued in such transactions. All recipients had adequate access,
through their relationships with us, to information about ImproveNet.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Stock Purchase Agreement by and between the Registrant and
The J.L. Price Corporation.
2.2 Asset Purchase Agreement by and between the Registrant and
Contractor Referral Service, LLC.
3.1 Form of Third Amended and Restated Certificate of
Incorporation of the Registrant.
3.2 Form of Fourth Amended and Restated Certificate of
Incorporation of the Registrant to be filed on the closing
of the offering made hereby.
3.3 Bylaws of the Registrant.
3.4 Bylaws of the Registrant to be filed on the closing of the
offering made hereby.
4.1 Form of Warrant to Purchase an aggregate of 420,000 shares
of common stock.
4.2 Form of Warrant to Purchase an aggregate of 10,000 shares of
common stock.
4.3 Form of Warrant to Purchase an aggregate of 842,596 shares
of common stock.
4.4 Form of Warrant to Purchase an aggregate of 96,400 shares of
Series A preferred stock.
4.5 Form of Warrant to Purchase an aggregate of 47,009 shares of
Series B preferred stock.
4.6 Form of Warrant to purchase 47,167 shares of Series C
preferred stock.
4.7 Form of Warrant to purchase an aggregate of 326,000 shares
of Series D preferred stock.
4.8 Fourth Amended and Restated Investor Rights Agreement by and
between the Registrant and certain investors of the
Registrant dated November 23, 1999.
5.1* Opinion of Cooley Godward LLP.
10.1 Amended and Restated 1996 Stock Option Plan.
10.2 Form of 1999 Equity Incentive Plan.
10.3 Form of 1999 Employee Stock Purchase Plan.
10.4 Commercial Office Lease by and between Florcor I Limited
Partnership and the Registrant.
10.5 Commercial Office Lease by and between Chestnut Bay LLC and
the Registrant.
10.6 Employment agreement by and between the Registrant and
Ronald Cooper.
10.7 Series A Preferred Stock and Warrant Purchase Agreement by
and between the Registrant and certain investors of the
Registrant dated June 30, 1997.
10.8 Series B Preferred Stock and Warrant Purchase Agreement by
and between the Registrant and certain investors of the
Registrant dated March 17, 1998.
10.9 Series C Preferred Stock Agreement by and between the
Registrant and certain investors of the Registrant dated
March 29, 1999.
10.10 Series D Preferred Stock Purchase Agreement by and between
the Registrant and certain investors of the Registrant
dated September 10, 1999.
10.11 First Series E Preferred Stock Purchase Agreement by and
between the Registrant and certain investors of the
Registrant dated November 23, 1999.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
10.12 Second Series E Preferred Stock Purchase Agreement by and
between the Registrant and certain investors of the
Registrant dated November 23, 1999.
10.13 Form of Warrant Purchase Agreement by and between the
Registrant and certain investors of the Registrant dated
December 7, 1999.
10.14 Fourth Amended and Restated Voting Agreement by and between
the Registrant and certain investors of the Registrant
dated November 23, 1999.
10.15 Form of Indemnity Agreement by and between the Registrant
and each of its directors and executive officers.
10.16*+ Internet-based Service Agreement between the Registrant and
Owens Corning dated October 1, 1999.
10.17*+ Internet-based Service Agreement between the Registrant and
Armstrong World Industries, Inc. dated November 24, 1999.
10.18*+ Internet-based Service Agreement between the Registrant and
The Dow Chemical Company dated November 17, 1999.
10.19*+ Internet-based Service Agreement between the Registrant and
E.I. du Pont de Nemours and Company dated December 3,
1999.
10.20*+ Internet Development, Marketing and Distribution Agreement
between the Registrant and General Electric Appliances
dated September 10, 1999.
10.21*+ Relationship Agreement between the Registrant and Microsoft
HomeAdvisor dated December 7, 1999.
10.22*+ Agreement between the Registrant and CompleteHome
Operations, Inc. dated December 13, 1999.
10.23*+ Commercial Agreement with the Registrant and
Wickes/Buildscape dated December 10, 1999.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney. Reference is made to Page II-7.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ Confidential treatment will be requested with respect to certain portions of
this exhibit. Omitted portions will be filed separately with the Securities
and Exchange Commission.
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 14 or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of
II-5
<PAGE>
the Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Redwood City, County of
San Mateo, State of California, on December 14, 1999.
<TABLE>
<S> <C> <C>
By: /s/ RONALD B. COOPER
-----------------------------------------
Ronald B. Cooper
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Ronald B. Cooper and Richard G. Reece, and each
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments, exhibits thereto and other documents in connection therewith) to
this Registration Statement and any subsequent registration statement filed by
the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, which relates to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
President, Chief Executive
/s/ RONALD B. COOPER Officer and Director
------------------------------------------- (PRINCIPAL EXECUTIVE December 14, 1999
Ronald B. Cooper OFFICER)
Senior Vice President and
/s/ RICHARD G. REECE Chief Financial Officer
------------------------------------------- (PRINCIPAL FINANCIAL AND December 14, 1999
Richard G. Reece ACCOUNTING OFFICER)
/s/ ROBERT L. STEVENS
------------------------------------------- Chairman of the Board of December 14, 1999
Robert L. Stevens Directors
/s/ ANDREW ANKER
------------------------------------------- Director December 13, 1999
Andrew Anker
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
------------------------------------------- Director , 1999
Domenico Cecere
/s/ STUART GANNES
------------------------------------------- Director December 14, 1999
Stuart Gannes
/s/ BRIAN GRAFF
------------------------------------------- Director December 14, 1999
Brian Graff
/s/ GARRETT GRUENER
------------------------------------------- Director December 14, 1999
Garrett Gruener
/s/ ALEX KNIGHT
------------------------------------------- Director December 14, 1999
Alex Knight
</TABLE>
II-8
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Stock Purchase Agreement by and between the Registrant and
The J.L. Price Corporation.
2.2 Asset Purchase Agreement by and between the Registrant and
Contractor Referral Service, LLC.
3.1 Form of Third Amended and Restated Certificate of
Incorporation of the Registrant.
3.2 Form of Fourth Amended and Restated Certificate of
Incorporation of the Registrant to be filed on the closing
of the offering made hereby.
3.3 Bylaws of the Registrant.
3.4 Bylaws of the Registrant to be filed on the closing of the
offering made hereby.
4.1 Form of Warrant to Purchase an aggregate of 420,000 shares
of common stock.
4.2 Form of Warrant to Purchase an aggregate of 10,000 shares of
common stock.
4.3 Form of Warrant to Purchase an aggregate of 842,596 shares
of common stock.
4.4 Form of Warrant to Purchase an aggregate of 96,400 shares of
Series A preferred stock.
4.5 Form of Warrant to Purchase an aggregate of 47,009 shares of
Series B preferred stock.
4.6 Form of Warrant to purchase 47,167 shares of Series C
preferred stock.
4.7 Form of Warrant to purchase an aggregate of 326,000 shares
of Series D preferred stock.
4.8 Fourth Amended and Restated Investor Rights Agreement by and
between the Registrant and certain investors of the
Registrant dated November 23, 1999.
5.1* Opinion of Cooley Godward LLP.
10.1 Amended and Restated 1996 Stock Option Plan.
10.2 Form of 1999 Equity Incentive Plan.
10.3 Form of 1999 Employee Stock Purchase Plan.
10.4 Commercial Office Lease by and between Florcor I Limited
Partnership and the Registrant.
10.5 Commercial Office Lease by and between Chestnut Bay LLC and
the Registrant.
10.6 Employment agreement by and between the Registrant and
Ronald Cooper.
10.7 Series A Preferred Stock and Warrant Purchase Agreement by
and between the Registrant and certain investors of the
Registrant dated June 30, 1997.
10.8 Series B Preferred Stock and Warrant Purchase Agreement by
and between the Registrant and certain investors of the
Registrant dated March 17, 1998.
10.9 Series C Preferred Stock Agreement by and between the
Registrant and certain investors of the Registrant dated
March 29, 1999.
10.10 Series D Preferred Stock Purchase Agreement by and between
the Registrant and certain investors of the Registrant
dated September 10, 1999.
10.11 First Series E Preferred Stock Purchase Agreement by and
between the Registrant and certain investors of the
Registrant dated November 23, 1999.
10.12 Second Series E Preferred Stock Purchase Agreement by and
between the Registrant and certain investors of the
Registrant dated November 23, 1999.
10.13 Form of Warrant Purchase Agreement by and between the
Registrant and certain investors of the Registrant dated
December 7, 1999.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- --------------------- -----------------------
<C> <S>
10.14 Fourth Amended and Restated Voting Agreement by and between
the Registrant and certain investors of the Registrant
dated November 23, 1999.
10.15 Form of Indemnity Agreement by and between the Registrant
and each of its directors and executive officers.
10.16*+ Internet-based Service Agreement between the Registrant and
Owens Corning dated October 1, 1999.
10.17*+ Internet-based Service Agreement between the Registrant and
Armstrong World Industries, Inc. dated November 24, 1999.
10.18*+ Internet-based Service Agreement between the Registrant and
The Dow Chemical Company dated November 17, 1999.
10.19*+ Internet-based Service Agreement between the Registrant and
E.I. du Pont de Nemours and Company dated December 3,
1999.
10.20*+ Internet Development, Marketing and Distribution Agreement
between the Registrant and General Electric Appliances
dated September 10, 1999.
10.21*+ Relationship Agreement between the Registrant and Microsoft
HomeAdvisor dated December 7, 1999.
10.22*+ Agreement between the Registrant and CompleteHome
Operations, Inc. dated December 13, 1999.
10.23*+ Commercial Agreement with the Registrant and
Wickes/Buildscape dated December 10, 1999.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2* Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.
24.1 Power of Attorney. Reference is made to Page II-7.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
+ Confidential treatment will be requested with respect to certain portions of
this exhibit. Omitted portions will be filed separately with the Securities
and Exchange Commission.
* To be filed by amendment.
<PAGE>
===============================================================================
STOCK PURCHASE AGREEMENT
among:
IMPROVENET, INC.
a Delaware corporation;
THE J.L. PRICE CORPORATION
a California Corporation;
and
JAMES L. PRICE
---------------------------
Dated as of November 1, 1999
---------------------------
===============================================================================
<PAGE>
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A - Definitions of Capitalized Terms
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Noncompetition Agreement
Exhibit D - General Release
</TABLE>
iv.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1.Purchase and Sale.......................................................................................1
1.1 Purchase and Sale...............................................................................1
1.2 Purchase Price..................................................................................1
1.3 Payments to James L. Price......................................................................3
1.4 Cancellation of Indebtedness....................................................................3
1.5 Closing; Effective Time.........................................................................3
1.6 Further Action..................................................................................4
SECTION 2.Representations and Warranties of the Company and the Selling Shareholder...............................4
2.1 Organization and Standing; Directors and Officers...............................................4
2.4 Capitalization, Etc.............................................................................4
2.5 Financial Statements............................................................................5
2.8 Absence of Changes..............................................................................6
2.9 Title to Assets.................................................................................7
2.10 Bank Accounts; Receivables; Inventory...........................................................8
2.11 Equipment; Leasehold............................................................................8
2.12 Proprietary Assets..............................................................................8
2.13 Contracts......................................................................................10
2.14 Liabilities....................................................................................11
2.15 Compliance with Legal Requirements.............................................................11
2.16 Governmental Authorizations....................................................................12
2.17 Tax Matters....................................................................................12
2.18 Employee and Labor Matters; Benefit Plans......................................................13
2.19 Environmental Matters..........................................................................14
2.20 Insurance......................................................................................15
2.21 Related Party Transactions.....................................................................15
2.22 Legal Proceedings; Orders......................................................................15
2.23 Authority; Binding Nature of Agreement.........................................................16
2.24 Contractors....................................................................................16
2.25 Non-Contravention; Consents....................................................................16
</TABLE>
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
2.26 Articles of Incorporation and Bylaws...........................................................17
2.27 Brokers........................................................................................17
2.28 Selling Shareholder............................................................................17
2.29 Full Disclosure................................................................................18
SECTION 3.Representations and Warranties of the Purchaser........................................................18
3.1 Organization and Standing......................................................................18
3.2 Authority; Binding Nature of Agreement.........................................................18
3.3 Capitalization, Etc............................................................................19
3.4 Non-Contravention; Consents....................................................................19
3.5 Full Disclosure................................................................................20
3.6 Valid Issuance.................................................................................20
SECTION 4.Conditions Precedent to Obligations of the Purchaser...................................................20
4.1 Accuracy of Representations....................................................................20
4.2 Performance of Covenants.......................................................................20
4.3 Consents.......................................................................................20
4.4 Agreements and Documents.......................................................................20
4.5 No Restraints..................................................................................21
4.6 No Legal Proceedings...........................................................................21
4.7 Cancellation of Indebtedness...................................................................21
SECTION 5.Conditions Precedent to Obligations of the Selling Shareholder.........................................21
5.1 Accuracy of Representations....................................................................21
5.2 Performance of Covenants.......................................................................21
5.3 Documents......................................................................................22
5.4 No Restraints..................................................................................22
SECTION 6.Indemnification, Etc...................................................................................22
6.1 Survival of Representations, Etc...............................................................22
6.2 Indemnification by the Selling Shareholder.....................................................23
6.3 Indemnification by the Purchaser...............................................................23
6.4 Threshold......................................................................................24
6.5 No Contribution................................................................................24
</TABLE>
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C>
6.6 Satisfaction of Indemnification Claim..........................................................24
6.7 Interest.......................................................................................25
6.8 Setoff Rights..................................................................................25
6.9 Defense of Third Party Claims..................................................................25
6.10 Exercise of Remedies by Indemnitees Other Than Purchaser.......................................25
SECTION 7.Miscellaneous Provisions...............................................................................26
7.1 Filings and Consents...........................................................................26
7.2 Further Assurances.............................................................................26
7.3 Fees and Expenses..............................................................................26
7.4 Attorneys' Fees................................................................................26
7.5 Notices........................................................................................26
7.6 Confidentiality................................................................................27
7.7 Time of the Essence............................................................................27
7.8 Headings.......................................................................................27
7.9 Counterparts...................................................................................27
7.10 Governing Law..................................................................................28
7.11 Successors and Assigns.........................................................................28
7.12 Remedies Cumulative; Specific Performance......................................................28
7.13 Waiver.........................................................................................28
7.14 Amendments.....................................................................................28
7.15 Severability...................................................................................28
7.16 Parties in Interest............................................................................29
7.17 Entire Agreement...............................................................................29
7.18 Construction...................................................................................29
</TABLE>
iii.
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("AGREEMENT") is made and entered into
as of November 1, 1999, by and among: IMPROVENET, INC. a Delaware corporation
("PURCHASER"); THE J.L. PRICE CORPORATION, a California corporation (the
"COMPANY"); and JAMES L. PRICE (the "SELLING SHAREHOLDER"). Certain other
capitalized terms used in this Agreement are defined in EXHIBIT A.
RECITALS
A. WHEREAS, the Selling Shareholder owns all of the issued and
outstanding shares of capital stock of the Company (the SHARES); and
B. WHEREAS, Purchaser desires to purchase from the Selling
Shareholder, and the Selling Shareholder desires to sell to the Purchaser,
the Shares, subject to the terms and conditions of this Agreement (the
"SALE"); and
C. WHEREAS, this Agreement has been approved by the respective
boards of directors of the Purchaser and the Company and by the Selling
Shareholder.
AGREEMENT
The parties to this Agreement hereby agree as follows:
SECTION 1. PURCHASE AND SALE.
1.1 PURCHASE AND SALE. Upon the terms and subject to the conditions
set forth in this Agreement, at the Closing, the Selling Shareholder shall
sell, assign, transfer and deliver to the Purchaser, and the Purchaser shall
purchase from the Selling Shareholder, the Shares, free and clear of all
options, pledges, security interests, liens or other encumbrances or
restrictions on voting or transfer ("ENCUMBRANCES"), other than restrictions
imposed by Federal or State securities laws.
1.2 PURCHASE PRICE.
(A) The aggregate purchase price payable by the Purchaser for
the Shares (the "PURCHASE PRICE") shall consist of (i) $248,600 payable in
cash (the "Cash Payment") plus (ii) 48,592 shares of the authorized but
previously unissued common stock of the Purchaser ("PURCHASER COMMON STOCK").
The Purchase Price shall be paid by the Purchaser to the Selling Shareholder
as follows:
(B) (1) At the Closing, the Purchaser shall pay to the Selling
Shareholder the sum of $79,600 in cash, lawful money of the United States, by
wire transfer of immediately available funds to an account to be designated
by the Selling Shareholder or by such other method as the Selling Shareholder
shall deem acceptable. The balance of the Cash Payment (i.e. $100,000) shall
be deposited by the Selling Shareholder and the Purchaser into escrow at the
Closing pursuant to the terms of the Escrow Agreement attached hereto as
EXHIBIT B (the
1
<PAGE>
ESCROWED FUNDS). Seventy thousand dollars ($70,000) of the Escrowed Funds
shall be referred to herein as the "First Escrowed Funds". Thirty thousand
dollars ($30,000) of the Escrowed Funds shall be referred to herein s the
"Second Escrowed Funds".
(2) On January 31, 2000, seventy thousand dollars ($70,000)
of the First Escrowed Funds shall be released from escrow and paid to the
Selling Shareholder by wire transfer of immediately available funds to an
account to be designated by the Selling Shareholder or by such other method
as the Selling Shareholder shall deem acceptable provided that (i) the
Purchaser does not have any pending or assertable Indemnities as provided
herein (which Indemnities will not be subject to any Minimum Thresholds), and
(ii) the Company has achieved a level of gross revenues for the fiscal year
1999 of at least two hundred thousand dollars ($200,000) (the "TARGET
AMOUNT"), including revenues from sources introduced to the Company by the
Purchaser prior or subsequent to the Closing Date; provided, further, that if
the Company does not achieve the Target Amount, the First Escrowed Funds
shall nevertheless be paid to the Selling Shareholder but the amount paid
shall be reduced by $1.00 for each $1.00 of gross revenues less than the
Target Amount. Any amounts of the First Escrowed Funds not paid to the
Selling Shareholder pursuant to this subsection shall be paid to the
Purchaser. Achievement of the Target Amount is not a condition subsequent to
the parties' obligations under this Agreement except as specifically set
forth herein and this Agreement shall not terminate or otherwise be rendered
null and void if the Target Amount is not achieved; For purposes of this
Agreement, the Target Amount shall be calculated on a cash basis in
accordance with generally accepted accounting principles applied on a
consistent basis with the immediately preceding annual period.
(3) On the first anniversary of the Closing Date (or on
such earlier date as the Purchaser may elect) and provided the Selling
Shareholder has not voluntarily terminated his employment with the Purchaser,
the Purchaser shall issue and deliver to the Selling Shareholder one or more
certificates representing 24,296 shares of the Purchaser Common Stock, which
shares shall be free and clear of all Encumbrances; provided, however, that
such obligation of the Purchaser shall be subject to any right of setoff
which the Purchaser may be entitled to exercise pursuant to Section 6.7
hereof or otherwise;
(4) On the second anniversary of the Closing Date (or on
such earlier date as the Purchaser may elect) and provided the Selling
Shareholder has not voluntarily terminated his employment with the Purchaser,
the Purchaser shall issue and deliver to the Selling Shareholder one or more
certificates representing 24,296 shares of the Purchaser Common Stock, which
shares shall be free and clear of all Encumbrances; provided, however, that
such obligation of the Purchaser shall be subject to any right of setoff
which the Purchaser may be entitled to exercise pursuant to Section 6.7
hereof or otherwise.
(5) Upon the earlier of (i) the date of receipt by the
Company of a letter from the Internal Revenue Service stating the amount of
the liability for penalties and/or interest, if any, relating to the
Company's federal withholding tax obligations as disclosed in Part 2.14(a) of
the Company and the Selling Shareholder Disclosure Schedule (collectively,
the "PENALTIES"), or (ii) the date of lapsing of the statute of limitations
related thereto, the Second Escrowed Funds shall be released from escrow and
paid to the Selling Shareholder by wire transfer of immediately available
funds to an account to be designated by the Selling Shareholder
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or by such other method as the Selling Shareholder shall deem acceptable;
PROVIDED, HOWEVER, that if the Company incurs any liability for Penalties,
the Second Escrowed Funds shall nevertheless be paid to the Selling
Shareholder but the amount thereof shall be reduced by $1.00 for each $1.00
of liabilities so incurred. All parties to this Agreement acknowledge and
agree that the disclosures concerning the potential Penalties set forth in
Part 2.14(a) of the Company and the Selling Shareholder Disclosure Schedule
shall not affect the reduction of the payment of the Second Escrowed Funds
payable to the Selling Shareholder. Any portion of the Second Escrowed Funds
not paid to the Selling Shareholder pursuant to this subsection shall be paid
to the Purchaser.
(6) The Purchaser paid $69,000 of the Purchase Price to the
Selling Shareholder on July 14, 1999.
1.3 PAYMENTS TO JAMES L. PRICE. On November 15, 1999, the Purchaser
shall pay $41,400 to James L. Price, reduced by all applicable payroll
deductions and required withholdings, as payment of any and all unpaid wages
or salary, if any, earned by Mr. Price for the performance of services for or
on behalf of the Company at any time, including, but not limited to the
period from October 31, 1996 to the date of this Agreement. Mr. Price hereby
agrees and acknowledges that after such payment provided hereunder, he is not
owed any payments or amounts by the Company including, but not limited to,
any compensation, wages, salary, overtime pay, bonuses, commissions, vacation
pay, interest, penalties or expense reimbursements.
1.4 CANCELLATION OF INDEBTEDNESS. At the Closing, the Selling
Shareholder shall forgive $208,077 of indebtedness to the Company.
1.5 CLOSING; EFFECTIVE TIME. The sale and purchase of the Shares
contemplated by this Agreement (the "CLOSING") shall take place at the
offices of Cooley Godward LLP, 3000 El Camino Real, Five Palo Alto Square,
Palo Alto, California 94306 at 10:00 a.m. on the date hereof, or at such
other time and date as the Purchaser and the Selling Shareholder shall
mutually agree (the "SCHEDULED CLOSING TIME"). The date on which the Closing
actually takes place is referred to in this Agreement as the "CLOSING DATE."
(A) The shares of Purchaser Common Stock to be issued pursuant
to Sections 1.2(a)(3) and 1.2(a)(4) shall be characterized as "restricted
securities" for purposes of Rule 144 under the Securities Act, and each
certificate representing any of such securities shall bear a legend identical
or similar in effect to the following legend (together with any other legend
or legends required by applicable state securities laws or otherwise):
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED,
PLEDGED OR HYPOTHECATED UNLESS REGISTERED UNDER THE ACT OR UNLESS
AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT IS
AVAILABLE."
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1.6 FURTHER ACTION. If, at any time after the Closing Date, any
further action is determined by the Purchaser to be necessary or desirable to
carry out the purposes of this Agreement or to vest the Purchaser with full
right, title and possession of the Shares and all rights and property of the
Company, the officers and directors of the Purchaser shall be fully
authorized (in the name of the Company and otherwise) to take such action.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDER.
Except as set forth on the Company and Selling Shareholder
Disclosure Schedule delivered to Purchaser simultaneously herewith (to which
the Company and the Selling Shareholder also jointly and severally represent
and warrant), the Company and the Selling Shareholder jointly and severally
represent and warrant, to and for the benefit of the Indemnitees, as follows:
2.1 ORGANIZATION AND STANDING; DIRECTORS AND OFFICERS.
(A) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and
has all necessary power and authority: (i) to conduct its business in the
manner in which its business is currently being conducted; (ii) to own and
use its assets in the manner in which its assets are currently owned and
used; and (iii) to perform its obligations under all Company Contracts.
(B) The Company conducts its business only in the State of
California and does not conduct business in any foreign jurisdiction and is
not required to qualify in any foreign jurisdiction.
(C) Part 2.1 of the Company and Selling Shareholder Disclosure
Schedule accurately sets forth (i) the names of the members of the Company's
board of directors, and (ii) the names and titles of the Company's officers.
2.2 SUBSIDIARIES. The Company does not own and has never owned any
controlling interest in any Entity and the Company has never owned,
beneficially or otherwise, any shares or other securities of, or any direct
or indirect equity interest in, any Entity. The Company has not agreed and is
not obligated to make any future investment in or capital contribution to any
Entity.
2.3 OWNERSHIP OF STOCK. The Shares are owned by the Selling
Shareholder free and clear of all Encumbrances, other than restrictions
imposed by federal and state securities laws. Upon the consummation of the
transactions contemplated hereby, the Purchaser will acquire title to the
Shares, free and clear of all Encumbrances, other than restrictions imposed
by federal and state securities laws.
2.4 CAPITALIZATION, ETC.
(A) Immediately prior to the Closing, the authorized capital
stock of the Company consists of 100,000 shares of common stock, no par value
(the "COMPANY COMMON STOCK"), of which 10,000 shares have been issued and are
outstanding;
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(B) The Company has not authorized or adopted any stock option
plans. There is no: (i) outstanding subscription, option, call, warrant or
right (whether or not currently exercisable) to acquire any shares of the
capital stock or other securities of the Company; (ii) outstanding security,
instrument or obligation that is or may become convertible into or
exchangeable for any shares of the capital stock or other securities of the
Company; (iii) Company Contract under which the Company is or may become
obligated to sell or otherwise issue any shares of its capital stock or any
other securities; or (iv) to the best of the Company's and the Selling
Shareholder's knowledge, any condition or circumstance that may give rise to
or provide a basis for the assertion of a claim by any Person to the effect
that such Person is entitled to acquire or receive any shares of capital
stock or other securities of the Company.
(C) All of the outstanding shares of Company Common Stock have
been duly authorized and validly issued, and are fully paid and
non-assessable. All of the Shares have been issued and granted in compliance
with (i) all applicable securities laws and other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Company
Contracts.
2.5 FINANCIAL STATEMENTS.
(A) The Company has delivered to Purchaser the following
financial statements and notes (collectively, the "COMPANY FINANCIAL
STATEMENTS"):
(I) The unaudited balance sheets of the Company as of
December 31, 1996, 1997, and 1998 and the related audited income statements,
statements of shareholders' equity and statements of cash flows of the
Company for the years then ended, together with the notes thereto; and
(II) The unaudited balance sheet of the Company (the
"UNAUDITED INTERIM BALANCE SHEET") as of August 31, 1999 (the "STATEMENT
DATE"), and the related unaudited income statement of the Company for the
eight months then ended.
(B) The Company Financial Statements are accurate and complete
in all material respects and present fairly the financial position of the
Company as of the respective dates thereof and the results of operations and
(in the case of the financial statements referred to in Section 2.5(a)(i))
cash flows of the Company for the periods covered thereby. The Company
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered (except that the financial statements referred to in Section
2.5(a)(ii) do not contain footnotes and are subject to normal and recurring
year-end audit adjustments, which will not, individually or in the aggregate,
be material in magnitude).
2.6 CONSENTS AND APPROVALS; NO VIOLATIONS. Except as disclosed in
Part 2.6 of the Company and Selling Shareholder Disclosure Schedule, neither
the execution, delivery nor performance of this Agreement by the Selling
Shareholder nor the consummation by the Selling Shareholder of the
transactions contemplated hereby will (i) violate any provision of the
articles of incorporation or bylaws or other organizational documents of the
Company; (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default
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(or give rise to any right of termination, cancellation or acceleration)
under, any of the terms, conditions or provision of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or
obligation to which the Company or the Selling Shareholder is a party or by
which either of them or any of their respective properties or assets may be
bound; (iii) violate any order, writ, judgment, injunction, decree, law,
statute, rule or regulation applicable to the Company or any of its
properties or assets or (iv) require on the part of the Company or the
Selling Shareholder any filing or registration with, notification to, or
authorization, consent or approval of, any court, legislative, executive or
regulatory authority or agency ("GOVERNMENT ENTITY").
2.7 NO UNDISCLOSED LIABILITIES. Except as disclosed in Part 2.7 of
the Company and Selling Shareholder Disclosure Schedule and except for (a)
liabilities and obligations incurred in the ordinary course of business after
August 31, 1999; (b) liabilities and obligations disclosed in or covered by
the Financial Statements and (c) liabilities and obligations incurred in
connection with the transactions contemplated hereby or otherwise as
contemplated by this Agreement (including any liabilities to be reflected,
accrued, or reserved against in the Purchaser's opening balance sheet as of
the Closing Date), since August 31, 1999, the Company has not incurred any
liabilities or obligations that would be required to be reflected or reserved
against in the Company's balance sheet, prepared in accordance with GAAP as
applied in preparing the unaudited consolidated balance sheet of the Company
as included in the Financial Statements and that would have a Material
Adverse Effect on the Company.
2.8 ABSENCE OF CHANGES. Except as set forth in Part 2.8 of the
Company and Selling Shareholder Disclosure Schedule, since the Statement Date:
(A) there has not been any material adverse change in the
Company's business, condition, assets, liabilities, operations, financial
performance or prospects, and, to the best of the knowledge of the Company
and the Selling Shareholder, no event has occurred that will, or could
reasonably be expected to, have a Material Adverse Effect on the Company;
(B) there has not been any material loss, damage or destruction
to, or any material interruption in the use of, any of the Company's assets
(whether or not covered by insurance);
(C) the Company has not declared, accrued, set aside or paid
any dividend or made any other distribution in respect of any shares of
capital stock, and has not repurchased, redeemed or otherwise reacquired any
shares of capital stock or other securities;
(D) the Company has not made any capital expenditure which,
when added to all other capital expenditures made on behalf of the Company
since the Statement Date, exceeds $25,000;
(E) the Company has not (i) entered into or permitted any of
the assets owned or used by it to become bound by any material Company
Contract, or (ii) amended or prematurely terminated, or waived any material
right or remedy under, any such Company Contract;
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(F) the Company has not (i) acquired, leased or licensed any
right or other asset from any other Person, (ii) sold or otherwise disposed
of, or leased or licensed, any right or other asset to any other Person, or
(iii) waived or relinquished any right, except for immaterial rights or other
immaterial assets acquired, leased, licensed or disposed of in the ordinary
course of business and consistent with the Company's past practices;
(G) the Company has not written off as uncollectible, or
established any extraordinary reserve with respect to, any account receivable
or other indebtedness;
(H) the Company has not made any pledge of any of its assets or
otherwise permitted any of its assets to become subject to any Encumbrance,
except for pledges of immaterial assets made in the ordinary course of
business and consistent with the Company's past practices;
(I) the Company has not lent money to any Person other than
pursuant to routine travel advances made to employees in the ordinary course
of business and consistent with the Company's past practices;
(J) the Company has not (i) established or adopted any Employee
Benefit Plan, (ii) paid any bonus or made any profit-sharing or similar
payment to, or increased the amount of the wages, salary, commissions, fringe
benefits or other compensation or remuneration payable to, any of its
directors, officers or employees, or (iii) hired any new employee;
(K) the Company has not changed any of its methods of
accounting or accounting practices in any respect;
(L) the Company has not made any Tax election;
(M) the Company has not commenced or settled any Legal
Proceeding;
(N) the Company has not entered into any material transaction
or taken any other material action outside the ordinary course of business or
inconsistent with its past practices; and
(O) the Company has not agreed or committed to take any of the
actions referred to in clauses "(c)" through "(n)" above.
2.9 TITLE TO ASSETS.
(A) The Company owns, and has good, valid and marketable title
to, all assets purported to be owned by it, including: (i) all assets
reflected on the Unaudited Interim Balance Sheet; (ii) all assets referred to
in Parts 2.10(b) and 2.12 of the Company and Selling Shareholder Disclosure
Schedule and all of the Company's rights under the Company Contracts
identified in Part 2.13 of the Company and Selling Shareholder Disclosure
Schedule; and (iii) all other assets reflected in the Company's books and
records as being owned by the Company. Except as set forth in Part 2.9 of the
Company and Selling Shareholder Disclosure Schedule, all of said assets are
owned by the Company free and clear of any liens or other Encumbrances,
except for (y) any
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lien for current taxes not yet due and payable, and (z) minor liens that have
arisen in the ordinary course of business and that do not (in any case or in
the aggregate) materially detract from the value of the assets subject
thereto or materially impair the operations of the Company.
(B) Part 2.9 of the Company and Selling Shareholder Disclosure
Schedule identifies all assets that are material to the business of the
Company and that are being leased or licensed to the Company, except for (i)
any equipment being leased to the Company under a standard operating lease
requiring annual payments by the Company of less than $25,000, and (ii) any
software being licensed to the Company under any third party software license
generally available to the public at a total cost of less than $25,000.
2.10 BANK ACCOUNTS; RECEIVABLES; INVENTORY.
(A) Part 2.10(a) of the Company and Selling Shareholder
Disclosure Schedule provides accurate information with respect to each
account maintained by or for the benefit of the Company at any bank or other
financial institution.
(B) Part 2.10(b) of the Company and Selling Shareholder
Disclosure Schedule provides an accurate and complete breakdown and aging of
all accounts receivable, notes receivable and other receivables of the
Company as of the Statement Date. Except as set forth in Part 2.10(b) of the
Company and Selling Shareholder Disclosure Schedule, all existing accounts
receivable of the Company (including those accounts receivable reflected on
the Unaudited Interim Balance Sheet that have not yet been collected and
those accounts receivable that have arisen since the Statement Date and have
not yet been collected) (i) represent valid obligations of customers of the
Company arising from bona fide transactions entered into in the ordinary
course of business, and (ii) are current and will be collected in full when
due, without any counterclaim or set off (net of an allowance for doubtful
accounts not to exceed $25,000 in the aggregate).
2.11 EQUIPMENT; LEASEHOLD.
(A) All material items of equipment and other tangible assets
owned by or leased to the Company are adequate for the uses to which they are
being put, are in good condition and repair (ordinary wear and tear excepted)
and are adequate for the conduct of the Company's business in the manner in
which such business is currently being conducted.
(B) The Company does not own any real property or any interest
in real property, except for the leasehold created under the real property
lease identified in Part 2.10 of the Company and Selling Shareholder
Disclosure Schedule.
2.12 PROPRIETARY ASSETS.
(A) Part 2.12(a)(i) of the Company and Selling Shareholder
Disclosure Schedule sets forth, with respect to each Company Proprietary
Asset registered with any Governmental Body or for which an application has
been filed with any Governmental Body, (i) a brief description of such
Proprietary Asset, and (ii) the names of the jurisdictions covered by the
applicable registration or application. Part 2.12(a)(ii) of the Company and
Selling Shareholder Disclosure Schedule identifies and provides a brief
description of all other Company Proprietary Assets owned by the Company.
Part 2.12(a)(iii) of the Company and Selling
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Shareholder Disclosure Schedule identifies and provides a brief description
of each Proprietary Asset licensed to the Company by any Person (except for
any Proprietary Asset that is licensed to the Company under any third party
software license generally available to the public at a cost of less than
$25,000), and identifies the license agreement under which such Proprietary
Asset is being licensed to the Company. Except as set forth in Part
2.12(a)(iv) of the Company and Selling Shareholder Disclosure Schedule, the
Company has good, valid and marketable title to all of the Company
Proprietary Assets identified in Parts 2.12(a)(i) and 2.12(a)(ii) of the
Company and Selling Shareholder Disclosure Schedule, free and clear of all
liens and other Encumbrances, and has a valid right to use all Proprietary
Assets identified in Part 2.12(a)(iii) of the Company and Selling Shareholder
Disclosure Schedule. Except as set forth in Part 2.12(a)(v) of the Company
and Selling Shareholder Disclosure Schedule, the Company is not obligated to
make any payment to any Person for the use of any Company Proprietary Asset.
Except as set forth in Part 2.12(a)(vi) of the Company and Selling
Shareholder Disclosure Schedule, the Company has not developed jointly with
any other Person any Company Proprietary Asset with respect to which such
other Person has any rights.
(B) The Company has taken all measures and precautions
necessary to protect and maintain the confidentiality and secrecy of all
Company Proprietary Assets (except Company Proprietary Assets whose value
would be unimpaired by public disclosure) and otherwise to maintain and
protect the value of all Company Proprietary Assets. Except as set forth in
Part 2.12(b) of the Company and Selling Shareholder Disclosure Schedule, the
Company has not (other than pursuant to license agreements identified in Part
2.12 of the Company and Selling Shareholder Disclosure Schedule) disclosed or
delivered to any Person, or permitted the disclosure or delivery to any
Person of, (i) the source code, or any portion or aspect of the source code,
of any Company Proprietary Asset, or (ii) the object code, or any portion or
aspect of the object code, of any Company Proprietary Asset.
(C) Except as set forth in Part 2.12(c) of the Company and
Selling Shareholder Disclosure Schedule, none of the Company Proprietary
Assets infringes or conflicts with any Proprietary Asset owned or used by any
other Person. The Company is not infringing, misappropriating or making any
unlawful use of, and the Company has not at any time infringed,
misappropriated or made any unlawful use of, or received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of, any Proprietary
Asset owned or used by any other Person. To the best of the knowledge of the
Company and the Selling Shareholder, no other Person is infringing,
misappropriating or making any unlawful use of, and no Proprietary Asset
owned or used by any other Person infringes or conflicts with, any Company
Proprietary Asset.
(D) Except as set forth in Part 2.12(d) of the Company and
Selling Shareholder Disclosure Schedule: (i) each Company Proprietary Asset
conforms in all material respects with any specification, documentation,
performance standard, representation or statement made or provided with
respect thereto by or on behalf of the Company; and (ii) there has not been
any claim by any customer or other Person alleging that any Company
Proprietary Asset (including each version thereof that has ever been licensed
or otherwise made available by the Company to any Person) does not conform in
all material respects with any specification, documentation, performance
standard, representation or statement made or provided by or on
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behalf of the Company, and, to the best of the knowledge of the Company and
the Selling Shareholder, there is no basis for any such claim.
(E) The Company Proprietary Assets constitute all the
Proprietary Assets necessary to enable the Company to conduct its business in
the manner in which such business has been and is being conducted. Except as
set forth in Part 2.12(e) of the Company and Selling Shareholder Disclosure
Schedule, (i) the Company has not licensed any of the Company Proprietary
Assets to any Person on an exclusive basis, and (ii) the Company has not
entered into any covenant not to compete or Contract limiting its ability to
exploit fully any of its Proprietary Assets or to transact business in any
market or geographical area or with any Person.
2.13 CONTRACTS.
(A) Part 2.13 of the Company and Selling Shareholder Disclosure
Schedule identifies and provides a complete list of each Company Contract.
Each Company Contract is in full force and effect, and is enforceable by the
Company in accordance with its terms, subject to (i) laws of general
application relating to bankruptcy, insolvency and the relief of debtors and
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies.
(B) Except as set forth in Part 2.13 of the Company and Selling
Shareholder Disclosure Schedule:
(I) The Company has not violated or otherwise breached, or
committed any default under, any Company Contract, and to the best knowledge
of the Company and to the actual knowledge of the Selling Shareholder, no
other Person has violated or otherwise breached, or declared or committed any
default under, any Company Contract;
(II) to the best knowledge of the Company and to the actual
knowledge of the Selling Shareholder, no event has occurred, and no
circumstance or condition exists, that is reasonably likely to (with or
without notice or lapse of time) (A) result in a violation or other breach of
any of the provisions of any Company Contract, (B) give any Person the right
to declare a default or exercise any remedy under any Company Contract, (C)
give any Person the right to accelerate the maturity or performance of any
Company Contract, or (D) give any Person the right to cancel, terminate or
modify any Company Contract;
(III) The Company has not received any written notice or
other communication regarding any actual, alleged, possible or potential
violation or breach of, or default under, any Company Contract; and
(IV) Company has not waived any of its rights under any
Company Contract.
(C) Except as set forth in Part 2.13 of the Company and Selling
Shareholder Disclosure Schedule:
(I) The Company has never guaranteed or otherwise agreed to
cause, insure or become liable for, and has never pledged any of its assets
to secure, the performance or payment of any obligation or other liability of
any other Person;
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(ii) The Company has never been a party to or bound by (A)
any joint venture agreement, partnership agreement, profit-sharing agreement,
cost-sharing agreement, loss-sharing agreement or similar Contract or (B) any
Contract that creates or grants to any Person, or provides for the creation
or grant of, any stock appreciation right, phantom stock right or similar
right or interest;
(iii) The performance of the Company Contracts will not
result in any violation of or failure to comply with any Legal Requirement;
(iv) No Person is renegotiating or, to the best of the
knowledge of Company and to the actual knowledge of the Selling Shareholder,
has the right to renegotiate, any amount paid or payable to the Company under
any Company Contract or any other term or provision of any Company Contract;
(v) The Contracts identified in Part 2.13 of the Company
and Selling Shareholder Disclosure Schedule collectively constitute all of
the Contracts necessary to enable the Company to conduct its business in the
manner in which its business is currently being conducted; and
(vi) Part 2.13 of the Company and Selling Shareholder
Disclosure Schedule identifies and provides an accurate and complete
description of each proposed Contract as to which any bid, offer, written
proposal, term sheet or similar document has been submitted or received by
the Company.
2.14 LIABILITIES.
(a) The Company has no accrued, contingent or other liabilities
of any nature, either matured or unmatured (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles, and whether due or to become due), except for: (i)
liabilities identified as such in the "liabilities" column of the Unaudited
Interim Balance Sheet; (ii) accounts payable or accrued salaries that have
been incurred by the Company since the Statement Date in the ordinary course
of business and consistent with the Company's past practices; (iii)
liabilities under the Company Contracts identified in Part 2.13 of the
Company and Selling Shareholder Disclosure Schedule, to the extent the nature
and magnitude of such liabilities can be specifically ascertained by
reference to the text of such Company Contracts; and (d) the liabilities
identified in Part 2.14 of the Company and Selling Shareholder Disclosure
Schedule.
(b) Part 2.14 of the Company and Selling Shareholder Disclosure
Schedule provides an accurate and complete breakdown of (i) the Company's
accounts payable as of the Statement Date; and (ii) the Company's
indebtedness as of the date hereof.
2.15 COMPLIANCE WITH LEGAL REQUIREMENTS. The Company is, and has at
all times since inception been, in compliance with all applicable Legal
Requirements, except where the failure to comply with such Legal Requirements
has not had and will not have a Material Adverse Effect on the Company.
Except as set forth in Part 2.15 of the Company and Selling Shareholder
Disclosure Schedule, since inception, the Company has not received any notice
or
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other communication from any Governmental Body regarding any actual or
possible violation of, or failure to comply with, any Legal Requirement.
2.16 GOVERNMENTAL AUTHORIZATIONS. Part 2.16 of the Company and
Selling Shareholder Disclosure Schedule identifies each material Governmental
Authorization held by the Company, and the Company has delivered to Purchaser
accurate and complete copies of all Governmental Authorizations identified in
Part 2.16 of the Company and Selling Shareholder Disclosure Schedule. The
Governmental Authorizations identified in Part 2.16 of the Company and
Selling Shareholder Disclosure Schedule are valid and in full force and
effect, and collectively constitute all Governmental Authorizations necessary
to enable the Company to conduct its business in the manner in which its
business is currently being conducted. The Company is, and at all times since
inception has been, in substantial compliance with the terms and requirements
of the respective Governmental Authorizations identified in Part 2.16 of the
Company and Selling Shareholder Disclosure Schedule. Since inception, the
Company has not received any notice or other communication from any
Governmental Body regarding (a) any actual or possible violation of or
failure to comply with any term or requirement of any Governmental
Authorization, or (b) any actual or possible revocation, withdrawal,
suspension, cancellation, termination or modification of any Governmental
Authorization.
2.17 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of the
Company with any Governmental Body with respect to any taxable period ending
on or before the Closing Date (the "COMPANY RETURNS") (i) have been or will
be filed on or before the applicable due date (including any extensions of
such due date), and (ii) have been, or will be when filed, accurately and
completely prepared in all material respects in compliance with all
applicable Legal Requirements. All amounts shown on the Company Returns to be
due on or before the Closing Date have been or will be paid on or before the
Closing Date. The Company has delivered to Purchaser accurate and complete
copies of all Company Returns which have been requested by Purchaser.
(b) The Company Financial Statements fully accrue all actual
and contingent liabilities for Taxes with respect to all periods through the
dates thereof in accordance with generally accepted accounting principles.
The Company has established, in the ordinary course of business and
consistent with its past practices, reserves adequate for the payment of all
Taxes for the period from the Statement Date through the Closing Date, and
the Company will disclose the dollar amount of such reserves to Purchaser on
or prior to the Closing Date.
(c) Except as disclosed on Part 2.17(c) of the Company and
Selling Shareholder Disclosure Schedule, (i) no Company Return relating to
income Taxes has ever been examined or audited by any Governmental Body, and
(ii) no extension or waiver of the limitation period applicable to any of the
Company Returns has been granted (by the Company or any other Person), and no
such extension or waiver has been requested from the Company.
(d) Except as disclosed on Part 2.17(d) of the Company and
Selling Shareholder Disclosure Schedule, (i) no claim or Legal Proceeding is
pending or has been threatened against or with respect to the Company in
respect of any Tax; (ii) there are no
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unsatisfied liabilities for Taxes (including liabilities for interest,
additions to tax and penalties thereon and related expenses) with respect to
any notice of deficiency or similar document received by the Company with
respect to any Tax (other than liabilities for Taxes asserted under any such
notice of deficiency or similar document which are being contested in good
faith by the Company and with respect to which adequate reserves for payment
have been established); (iii) there are no liens for Taxes upon any of the
assets of the Company except liens for current Taxes not yet due and payable;
(iv) the Company has not entered into or become bound by any agreement or
consent pursuant to Section 341(f) of the Code; or (v) the Company has not
been, and the Company will not be, required to include any adjustment in
taxable income for any tax period (or portion thereof) pursuant to Section
481 or 263A of the Code or any comparable provision under state or foreign
Tax laws as a result of transactions or events occurring, or accounting
methods employed, prior to the Closing.
(e) There is no agreement, plan, arrangement or other Contract
covering any employee or independent contractor or former employee or
independent contractor of the Company that, considered individually or
considered collectively with any other such Contracts, will, or could
reasonably be expected to, give rise directly or indirectly to the payment of
any amount that would not be deductible pursuant to Section 280G or Section
162 of the Code. The Company is not, and has never been, a party to or bound
by any tax indemnity agreement, tax sharing agreement, tax allocation
agreement or similar Contract.
2.18 EMPLOYEE AND LABOR MATTERS; BENEFIT PLANS.
(a) Part 2.18(a) of the Company and Selling Shareholder
Disclosure Schedule identifies each salary, bonus, deferred compensation,
incentive compensation, stock purchase, stock option, severance pay,
termination pay, hospitalization, medical, life or other insurance,
supplemental unemployment benefits, profit-sharing, pension or retirement
plan, program or agreement (collectively, the "PLANS") sponsored, maintained,
contributed to or required to be contributed to by the Company for the
benefit of any employee of the Company ("EMPLOYEE"), except for Plans which
would not require the Company to make payments or provide benefits having a
value in excess of $25,000 in the aggregate.
(b) The Company does not maintain, sponsor or contribute to,
and has never maintained, sponsored or contributed to, any employee pension
benefit plan (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), whether or not excluded from
coverage under specific Titles of ERISA) for the benefit of Employees or
former Employees (a "PENSION PLAN").
(c) The Company does not maintain, sponsor or contribute, and
has never maintained, sponsored or contributed to, any employee welfare
benefit plans (as defined in Section 3(1) of ERISA, whether or not excluded
from coverage under specific Titles of ERISA) for the benefit of Employees or
former Employees (a "Welfare Plan").
(d) The Company does not have any plan or commitment to create
any Welfare Plan or any Pension Plan.
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(e) Except as set forth in Part 2.18(e) of the Company and
Selling Shareholder Disclosure Schedule, neither the execution, delivery or
performance of this Agreement, nor the consummation of the Sale or any of the
other transactions contemplated by this Agreement, will result in any payment
(including any bonus, golden parachute or severance payment) to any current
or former Employee or director of the Company (whether or not under any
Plan), or materially increase the benefits payable under any Plan, or result
in any acceleration of the time of payment or vesting of any such benefits.
(f) The Company is not a party to any collective bargaining
contract or other Contract with a labor union involving any of its Employees.
All of the Company's employees are "at will" employees.
(g) Part 2.18(g) of the Company and Selling Shareholder
Disclosure Schedule identifies each Employee who is not fully available to
perform work because of disability or other leave and sets forth the basis of
such leave and the anticipated date of return to full service.
(h) The Company complies in all material respects with all
applicable Legal Requirements and Contracts relating to employment,
employment practices, wages, bonuses and terms and conditions of employment,
including employee compensation matters.
(i) Except as set forth in Part 2.18(i) of the Company and
Selling Shareholder Disclosure Schedule, the Company has good labor
relations, and the Selling Shareholder has no reason to believe that (i) the
consummation of the Sale or any of the other transactions contemplated by
this Agreement will have a material adverse effect on the Company's labor
relations, or (ii) any Employee intends to terminate his or her employment
with the Company.
2.19 ENVIRONMENTAL MATTERS. To the best of its knowledge, the
Company is in compliance in all material respects with all applicable
Environmental Laws, which compliance includes the possession by the Company
of all permits and other Governmental Authorizations required under
applicable Environmental Laws, and compliance with the terms and conditions
thereof. The Company has not received any notice or other communication (in
writing or otherwise), whether from a Governmental Body, citizens group,
employee or otherwise, that alleges that the Company is not in compliance
with any Environmental Law, and, to the best of the knowledge of the Company
and Selling Shareholder, there are no circumstances that may prevent or
interfere with the Company's compliance with any Environmental Law in the
future. To the best of the knowledge of the Company and the Selling
Shareholder, no current or prior owner of any property leased or controlled
by the Company has received any notice or other communication (in writing or
otherwise), whether from a Governmental Body, citizens group, employee or
otherwise, that alleges that such current or prior owner or the Company is
not in compliance with any Environmental Law. All Governmental Authorizations
currently held by the Company pursuant to Environmental Laws are identified
in Part 2.19 of the Company and Selling Shareholder Disclosure Schedule. (For
purposes of this Section 2.19: (i) "Environmental Law" means any federal,
state, local or foreign Legal Requirement relating to pollution or protection
of human health or the environment (including ambient air, surface water,
ground water, land surface or subsurface strata), including any law or
regulation relating to emissions, discharges, releases or threatened releases
of Materials of Environmental Concern, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport
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or handling of Materials of Environmental Concern; and (ii) "Materials of
Environmental Concern" include chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products and any other substance
that is now or hereafter regulated by any Environmental Law or that is
otherwise a danger to health, reproduction or the environment.)
2.20 INSURANCE. Part 2.20 of the Company and Selling Shareholder
Disclosure Schedule identifies all insurance policies maintained by, at the
expense of or for the benefit of the Company and identifies any material
claims made thereunder, and the Company has delivered to the Purchaser
accurate and complete copies of the insurance policies identified on Part
2.20 of the Company and Selling Shareholder Disclosure Schedule. Each of the
insurance policies identified in Part 2.20 of the Company and Selling
Shareholder Disclosure Schedule is in full force and effect. The Company has
not received any notice or other communication regarding any actual or
possible (a) cancellation or invalidation of any insurance policy, (b)
refusal of any coverage or rejection of any claim under any insurance policy,
or (c) material adjustment in the amount of the premiums payable with respect
to any insurance policy.
2.21 RELATED PARTY TRANSACTIONS. Except as set forth in Part 2.21 of
the Company and Selling Shareholder Disclosure Schedule: (a) no Related Party
has, and no Related Party has any direct or indirect interest in, any
material asset used in or otherwise relating to the business of the Company;
(b) no Related Party is, or has at any time been, indebted to the Company;
(c) no Related Party has entered into, or has had any direct or indirect
financial interest in, any material Contract, transaction or business dealing
involving the Company; (d) no Related Party is competing, or has at any time
since competed, directly or indirectly, with the Company; and (e) no Related
Party has any claim or right against the Company (other than rights to
receive compensation for services performed as an Employee). For purposes of
this Section 2.21, each of the following shall be deemed to be a "Related
Party": (i) the Selling Shareholder; (ii) each individual who is, or who has
at any time been, an officer of the Company; (iii) each member of the
immediate family of each of the individuals referred to in clauses "(i)" and
"(ii)" above; and (iv) any trust or other Entity (other than the Company) in
which any one of the individuals referred to in clauses "(i)", "(ii)" and
"(iii)" above holds (or in which more than one of such individuals
collectively hold), beneficially or otherwise, a material voting, proprietary
or equity interest.
2.22 LEGAL PROCEEDINGS; ORDERS.
(a) Except as set forth in Part 2.22 of the Company and Selling
Shareholder Disclosure Schedule, there is no pending Legal Proceeding, and
(to the best of the knowledge of the Company and the Selling Shareholder) no
Person has threatened to commence any Legal Proceeding: (i) that involves the
Company or any of the assets owned or used by the Company or any Person whose
liability the Company has or may have retained or assumed, either
contractually or by operation of law; or (ii) that challenges, or that may
have the effect of preventing, delaying, making illegal or otherwise
interfering with, the Sale or any of the other transactions contemplated by
this Agreement. To the best of the knowledge of the Company and the Selling
Shareholder, except as set forth in Part 2.22 of the Company and Selling
Shareholder Disclosure Schedule, no event has occurred, and no claim, dispute
or other condition or circumstance exists, that will, or that could
reasonably be expected to, give rise to or serve as a basis for the
commencement of any such Legal Proceeding.
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(b) Except as set forth in Part 2.22 of the Company and Selling
Shareholder Disclosure Schedule, no Legal Proceeding has ever been commenced
by or has ever been pending against the Company.
(c) There is no order, writ, injunction, judgment or decree to
which the Company, or any of the assets owned or used by the Company, is
subject. The Selling Shareholder is not subject to any order, writ,
injunction, judgment or decree that relates to the Company's business or to
any of the assets owned or used by the Company. To the best of the knowledge
of the Company and the Selling Shareholder, no officer or other Employee is
subject to any order, writ, injunction, judgment or decree that prohibits
such officer or other Employee from engaging in or continuing any conduct,
activity or practice relating to the Company's business.
2.23 AUTHORITY; BINDING NATURE OF AGREEMENT. The Company and the
Selling Shareholder have the absolute and unrestricted right, power and
authority to enter into and to perform their respective obligations under
this Agreement; and the execution, delivery and performance by the Company of
this Agreement have been duly authorized by all necessary action on the part
of the Company and its board of directors. This Agreement constitutes the
legal, valid and binding obligation of each of the Company and the Selling
Shareholder, enforceable against the Company and the Selling Shareholder in
accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules
of law governing specific performance, injunctive relief and other equitable
remedies.
2.24 CONTRACTORS. Neither the Company nor the Selling Shareholder
has received any notice or other communication and neither the Company nor
the Selling Shareholder has actual knowledge indicating that (i) there will
be a reduction in the volume of business produced by contractors in the
Company's database which will result in a material adverse effect on the
Company's business or (ii) the number of contractors who cease dealing with
the Company on a day-to-day basis will be inconsistent with past experience
of the Company.
2.25 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 2.25
of the Company and Selling Shareholder Disclosure Schedule:
(a) The execution, delivery and performance of this Agreement
or any of the other agreements referred to in this Agreement, and the
consummation of the Sale or any of the other transactions contemplated by
this Agreement, will not directly or indirectly (with or without notice or
lapse of time):
(i) contravene, conflict with or result in a violation of
any of the provisions of the Company's Articles of Incorporation or Bylaws or
any resolution adopted by the shareholders or the board of directors of the
Company;
(ii) contravene, conflict with or result in a violation of
or result in a default under, any provision of any material Company Contract,
or give any Person the right to declare a default or exercise any remedy
under any such Company Contract;
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(iii) contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental Body the right
to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Company or that otherwise relates to the
Company's business or to any of the assets owned or used by the Company; or
(iv) contravene, conflict with or result in a violation of
or result in the imposition or creation of any lien or other Encumbrance upon
or with respect to any asset owned or used by the Company (except for minor
liens that will not, in any case or in the aggregate, materially detract from
the value of the assets subject thereto or materially impair the operations
of the Company); and
(b) the Company is not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person
in connection with (i) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, or
(ii) the consummation of the Sale or any of the other transactions
contemplated by this Agreement.
2.26 ARTICLES OF INCORPORATION AND BYLAWS. The Company has delivered
to the Purchaser accurate and complete copies of: (1) the Company's Articles
of Incorporation and Bylaws, including all amendments thereto; (2) the stock
records of the Company; and (3) the minutes and other records of the meetings
and other proceedings (including any actions taken by written consent or
otherwise without a meeting) of the shareholders of the Company, the board of
directors of the Company and all committees of the board of directors of the
Company. There have been no formal meetings or other proceedings of the
shareholders of the Company, the board of directors of the Company or any
committee of the board of directors of the Company that are not fully
reflected in such minutes or other records. There has not been any violation
of any of the provisions of the Company's Articles of Incorporation or
Bylaws, and the Company has not taken any action that is inconsistent in any
material respect with any resolution adopted by the Company's shareholders,
the Company's board of directors or any committee of the Company's board of
directors. The books of account, stock records, minute books and other
records of the Company are accurate, up-to-date and complete in all material
respects, and have been maintained in accordance with prudent business
practices.
2.27 BROKERS. Neither the Company nor the Selling Shareholder has
agreed or become obligated to pay, or has taken any action that might result
in any Person claiming to be entitled to receive, any brokerage commission,
finder's fee or similar commission or fee in connection with the Sale.
2.28 SELLING SHAREHOLDER.
(a) The Selling Shareholder has the capacity and financial
capability to comply with and perform all of such Selling Shareholder's
covenants and obligations under this Agreement and any related agreement to
which such Selling Shareholder is or may become a party in connection with
this transaction.
(b) The Selling Shareholder:
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(i) has not, at any time, (A) made a general assignment for
the benefit of his creditors, (B) filed, or had filed against the Selling
Shareholder, any bankruptcy petition or similar filing, (C) suffered the
attachment or other judicial seizure of all or a substantial portion of his
assets, (D) admitted in writing his inability to pay his debts as they become
due, or (E) taken or been the subject of any action that may have an adverse
effect on his ability to comply with or perform any of his covenants or
obligations under any Agreement; or
(ii) is not subject to any Order that may have an adverse
effect on his ability to comply with or perform any of his covenants or
obligations under this Agreement.
(c) There is no Legal Proceeding pending, and no Person has
threatened to commence any Legal Proceeding, that may have an adverse effect
on the ability of the Selling Shareholder to comply with or perform any of
his covenants or obligations under this Agreement or any other agreement
contemplated hereby. No event has occurred, and no claim, dispute or other
condition or circumstance exists, that might directly or indirectly give rise
to or serve as a basis for the commencement of any such Legal Proceeding.
2.29 FULL DISCLOSURE. This Agreement (including the Company and
Selling Shareholder Disclosure Schedule) does not, and the Selling
Shareholder's Closing Certificate does not, (i) contain any representation,
warranty or information that is false or misleading with respect to any
material fact, or (ii) omit to state any material fact necessary in order to
make the representations, warranties and information contained and to be
contained herein and therein (in the light of the circumstances under which
such representations, warranties and information were or will be made or
provided) not false or misleading.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.
Except as set forth on the Purchaser Disclosure Schedule delivered
to the Company simultaneously herewith (to which the Purchaser also
represents and warrants), Purchaser represents and warrants to the Company
and the Selling Shareholder as follows:
3.1 ORGANIZATION AND STANDING.
(a) The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
all necessary power and authority to: (i) conduct its business in the manner
in which its business is currently being conducted; (ii) own and use its
assets in the manner in which its assets are currently owned and used; and
(iii) perform its obligations under all Purchaser Contracts.
(b) The Purchaser is in good standing as a foreign corporation
in each jurisdiction in which it is required to qualify as a foreign
corporation, except where the failure to be so qualified has not had or would
not reasonably be expected to have a Material Adverse Effect on the Purchaser.
3.2 AUTHORITY; BINDING NATURE OF AGREEMENT. The Purchaser has the
absolute and unrestricted right, power and authority to perform its
obligations under this Agreement; and the execution, delivery and performance
by the Purchaser of this Agreement (including the contemplated issuance of
Purchaser Common Stock in the Sale in accordance with this
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Agreement) have been duly authorized by all necessary action on the part of
the Purchaser and its board of directors. No vote of the Purchaser's
stockholders is needed to approve the Sale. This Agreement constitutes the
legal, valid and binding obligation of Purchaser, enforceable against it in
accordance with its terms, subject to (i) laws of general application
relating to bankruptcy, insolvency and the relief of debtors, and (ii) rules
of law governing specific performance, injunctive relief and other equitable
remedies.
3.3 CAPITALIZATION, ETC.
(a) Immediately prior to the Closing, the authorized capital
stock of the Purchaser consists of:
(i) 31,000,000 shares of Common Stock, $0.001 par value.
(ii) 9,482,935 shares of Preferred Stock, $0.001 par value.
(b) The Purchaser Common Stock has been duly authorized and
reserved for issuance.
3.4 NON-CONTRAVENTION; CONSENTS. Except as set forth in Part 3.4 of
the Purchaser Disclosure Schedule,
(A) The execution, delivery or performance of this Agreement or
any of the other agreements referred to in this Agreement, and the
consummation of the Sale or any of the other transactions contemplated by
this Agreement, will not directly or indirectly (with or without notice or
lapse of time):
(i) contravene, conflict with or result in a violation of
any of the provisions of the Certificate of Incorporation or Bylaws of the
Purchaser or any resolution adopted by the shareholders or the board of
directors of the Purchaser;
(ii) contravene, conflict with or result in a violation of
or result in a default under, any provision of any material Purchaser
Contract, or give any Person the right to declare a default or exercise any
remedy under any such Purchaser Contract;
(iii) contravene, conflict with or result in a violation of
any of the terms or requirements of, or give any Governmental Body the right
to revoke, withdraw, suspend, cancel, terminate or modify, any Governmental
Authorization that is held by the Purchaser or that otherwise relates to the
Purchaser's business or to any of the assets owned or used by the Purchaser;
or
(iv) contravene, conflict with or result in a violation of
or result in the imposition or creation of any lien or other Encumbrance upon
or with respect to any asset owned or used by the Purchaser (except for minor
liens that will not, in any case or in the aggregate, materially detract from
the value of the assets subject thereto or materially impair the operations
of the Purchaser); and
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(b) The Purchaser is not and will not be required to make any
filing with or give any notice to, or to obtain any Consent from, any Person
in connection with (i) the execution, delivery or performance of this
Agreement or any of the other agreements referred to in this Agreement, or
(ii) the consummation of the Sale or any of the other transactions
contemplated by this Agreement.
3.5 FULL DISCLOSURE. This Agreement (including the Purchaser
Disclosure Schedule) does not (i) contain any representation, warranty or
information that is false or misleading with respect to any material fact, or
(ii) omit to state any material fact or necessary in order to make the
representations, warranties and information contained and to be contained
herein and therein (in the light of the circumstances under which such
representations, warranties and information were or will be made or provided)
not false or misleading.
3.6 VALID ISSUANCE. The Purchaser Common Stock to be issued in the
Sale will, when issued in accordance with the provisions of this Agreement,
be validly issued, fully paid and nonassessable.
SECTION 4. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER .
The obligations of the Purchaser to effect the Sale and otherwise
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or prior to the Closing, of each of the following conditions:
4.1 ACCURACY OF REPRESENTATIONS. The representations and warranties
made by the Company and the Selling Shareholder in Section 2 hereof shall be
true and correct in all material respects as of the Closing Date (after
giving effect to the Company and Selling Shareholder Disclosure Schedule)
with the same force and effect as if they had been made as of the Closing
Date (or, to the extent such representations and warranties specifically
relate to an earlier date, that such representations and warranties were true
and correct in all material respects on and as of such earlier date).
4.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that the Company and the Selling Shareholder are required to comply with or
to perform at or prior to the Closing shall have been complied with and
performed in all material respects.
4.3 CONSENTS. All Consents required to be obtained in connection
with the Sale and the other transactions contemplated by this Agreement shall
have been obtained and shall be in full force and effect.
4.4 AGREEMENTS AND DOCUMENTS. The Purchaser and the Company shall
have received the following agreements and documents, each of which shall be
in full force and effect:
(a) The Noncompetition Agreements in the form of EXHIBIT C
executed by James L. Price;
(b) A General Release in the form of EXHIBIT D, executed by the
Selling Shareholder;
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(c) The Escrow Agreement in the form of EXHIBIT B, executed by
each of the Selling Shareholder, the Purchaser and the escrow agent;
(d) An estoppel certificate, dated as of a date not more than
five days prior to the Closing Date and satisfactory in form and content to
Purchaser, executed by the Company's landlord(s);
(e) A certificate executed by the Selling Shareholder
containing the Selling Shareholder's representation and warranty that each of
the representations and warranties set forth in Section 2 is accurate in all
respects as of the Closing Date as if made on the Closing Date and that the
conditions set forth in Sections 4.1, 4.2, 4.3 and 4.4 of this Agreement have
been duly satisfied (the "SELLING SHAREHOLDER'S CLOSING CERTIFICATE"); and
(f) The written resignations of all directors and officers of
the Company, effective as of the Scheduled Closing Time.
4.5 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Sale
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Sale that makes consummation of the Sale illegal.
4.6 NO LEGAL PROCEEDINGS. No Person shall have commenced or
threatened to commence any Legal Proceeding challenging or seeking the
recovery of a material amount of damages in connection with the Sale or
seeking to prohibit or limit the exercise by the Purchaser of any material
right pertaining to its ownership of stock of the Company.
4.7 CANCELLATION OF INDEBTEDNESS. The Selling Shareholder shall
deliver a letter effecting the cancellation of indebtedness set forth in
Section 1.4.
SECTION 5. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING SHAREHOLDER.
The obligations of the Selling Shareholder to effect the Sale and
otherwise consummate the transactions contemplated by this Agreement are
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
5.1 ACCURACY OF REPRESENTATIONS. The representations and warranties
made by the Purchaser in Section 3 hereof shall be true and correct in all
material respects as of the Closing Date (after giving effect to the
Purchaser Disclosure Schedule) with the same force and effect as if they had
been made as of the Closing Date (or, to the extent such representations and
warranties specifically relate to an earlier date, that such representations
and warranties were true and correct in all material respects on and as of
such earlier date).
5.2 PERFORMANCE OF COVENANTS. All of the covenants and obligations
that the Purchaser is required to comply with or to perform at or prior to
the Closing shall have been complied with and performed in all material
respects.
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5.3 DOCUMENTS. The Selling Shareholder shall have received the
following documents:
(a) A copy of the Certificate of Incorporation of the Purchaser,
together with copies of any and all amendments thereto, under the original
certification of the Secretary of State of the State of Delaware certifying
that such document is a true and correct copy of the document on file with
such official;
(b) An original certificate issued by the Secretary of State of
the State of Delaware and dated not earlier than three (3) business days
prior to the Closing Date to the effect that the Purchaser is a corporation
in good standing under the laws of the State of Delaware;
(c) A certificate executed by the Purchaser and containing the
Purchaser's representation and warranty that each of the representations and
warranties set forth in Section 3 of this Agreement is accurate in all
respects as of the Closing Date as if made on the Closing Date and that the
conditions set forth in Sections 5.1 and 5.2 hereof have been duly satisfied
(the "PURCHASER CLOSING CERTIFICATE");
(d) Copies of the resolutions of the Board of Directors of the
Purchaser authorizing the Purchaser to enter into, deliver and perform this
Agreement and each of the transactions and other agreements contemplated
hereby, which resolutions shall be under the original certification of the
Secretary of the Purchaser of a date not earlier than the Closing Date and to
the effect that such resolutions have not been changed, altered or amended
and remain in full force and effect; and
(e) The Escrow Agreement in the form of EXHIBIT B, executed by
each of the Selling Shareholder, the Purchaser and the escrow agent.
5.4 NO RESTRAINTS. No temporary restraining order, preliminary or
permanent injunction or other order preventing the consummation of the Sale
shall have been issued by any court of competent jurisdiction and remain in
effect, and there shall not be any Legal Requirement enacted or deemed
applicable to the Sale that makes consummation of the Sale illegal.
SECTION 6. INDEMNIFICATION, ETC.
6.1 SURVIVAL OF REPRESENTATIONS, ETC.
(a) The representations and warranties made by the Selling
Shareholder (including the representations and warranties set forth in
Section 2 and the representations and warranties set forth in the Selling
Shareholder's Closing Certificate) shall survive the Closing and shall expire
on the second anniversary of the Closing Date; provided, however, that the
representations and warranties contained in Sections 2.1, 2.2, 2.3 and 2.4
will remain in full force and effect forever; provided, further, that the
representations and warranties contained in Section 2.17 will remain in full
force and effect for a period equal to the applicable statute of limitations;
and PROVIDED, FURTHER, that such representations and warranties shall survive
any and such period with respect to any accuracy therein or breach thereof,
until such time as such claim is fully and finally resolved, notice of which
shall have been given within such time period (as applicable) in
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accordance with this Article 6. The representations and warranties made by
the Purchaser (including the representations and warranties set forth in
Section 3 and the representations and warranties set forth in the Purchaser's
Closing Certificate) shall survive the Closing and shall expire on the second
anniversary of the Closing Date.
(b) For purposes of this Agreement, (i) each statement or other
item of information set forth in the Company and Selling Shareholder
Disclosure Schedule shall be deemed to be a representation and warranty made
by the Company and the Selling Shareholder in this Agreement, and (ii) each
statement or other item of information set forth in the Purchaser Disclosure
Schedule shall be deemed to be a representation and warranty made by the
Purchaser in this Agreement.
6.2 INDEMNIFICATION BY THE SELLING SHAREHOLDER.
(a) From and after the Closing Date (but subject to Section
6.1(a)), the Selling Shareholder shall hold harmless and indemnify each of
the Indemnitees from and against, and shall compensate and reimburse each of
the Indemnitees for, any Damages which are directly or indirectly suffered or
incurred by any of the Indemnitees or to which any of the Indemnitees may
otherwise become subject (regardless of whether or not such Damages relate to
any third-party claim) and which arise from or as a result of, or are
directly or indirectly connected with: (i) any inaccuracy in or breach of any
representation or warranty set forth in Section 2 or in the Selling
Shareholder's Closing Certificate (giving effect to the Company and Selling
Shareholder Disclosure Schedule delivered to the Purchaser at the Closing);
(ii) any breach of any covenant or obligation of the Company or the Selling
Shareholder; or (iii) any Legal Proceeding relating to any inaccuracy or
breach of the type referred to in clause "(i)" or "(ii)" above (including any
Legal Proceeding commenced by any Indemnitee for the purpose of enforcing any
of its rights under this Section 6).
(b) The representations, warranties, covenants and obligations
of the Company and the Selling Shareholder, and the rights and remedies that
may be exercised by the Indemnitees, shall not be limited or otherwise
affected by or as a result of any information furnished to, or any
investigation made by or knowledge of, any of the Indemnitees or any of their
Representatives, other than information disclosed on the Company and Selling
Shareholder Disclosure Schedule.
(c) The Selling Shareholder acknowledges and agrees that, if
the Company suffers, incurs or otherwise becomes subject to any Damages as a
result of or in connection with any inaccuracy in or breach of any
representation, warranty, covenant or obligation, then (without limiting any
of the rights of the Purchaser as an Indemnitee) the Purchaser shall also be
deemed, by virtue of its ownership of the stock of the Company, to have
incurred Damages as a result of and in connection with such inaccuracy or
breach.
6.3 INDEMNIFICATION BY THE PURCHASER. From and after the Closing
Date (but subject to Section 6.1(a)), the Purchaser shall hold harmless and
indemnify the Selling Shareholder from and against, and shall compensate and
reimburse the Selling Shareholder for, any Damages which are directly or
indirectly suffered or incurred by the Selling Shareholder or to which the
Selling Shareholder may otherwise become subject (regardless of whether or
not such Damages
23
<PAGE>
relate to any third-party claim) and which arise from or as a result of, or
are directly or indirectly connected with: (i) any inaccuracy in or breach of
any representation or warranty set forth in Section 3 or in the Purchaser's
Closing Certificate (giving effect to the Purchaser Disclosure Schedule
delivered to the Selling Shareholder at the Closing); (ii) any breach of any
covenant or obligation of the Purchaser; or (iii) any Legal Proceeding
relating to any inaccuracy or breach of the type referred to in clause "(i)"
or "(ii)" above (including any Legal Proceeding commenced by the Selling
Shareholder for the purpose of enforcing any of its rights under this Section
6).
6.4 THRESHOLD. Neither the Selling Shareholder nor the Purchaser
shall be required to make any indemnification payment pursuant to Section
6.2(a) or 6.3, respectively, for any inaccuracy in or breach of any of their
respective representations and warranties set forth in Section 2 or Section
3, respectively, until such time as the total amount of all Damages
(including the Damages arising from such inaccuracy or breach and all other
Damages arising from any other inaccuracies in or breaches of any
representations or warranties) that have been directly or indirectly suffered
or incurred by any one or more persons entitled to indemnification or to
which any one or more of such persons has or have otherwise become subject,
exceeds $25,000 in the aggregate (the "Minimum Threshold"). If the total
amount of such Damages exceeds the Minimum Threshold, then the person or
persons seeking indemnification shall be entitled to be indemnified against
and compensated and reimbursed for the total amount of such Damages (and not
merely the portion of such Damages exceeding the Minimum Threshold).
6.5 NO CONTRIBUTION. The Selling Shareholder waives, and
acknowledges and agrees that he shall not have and shall not exercise or
assert (or attempt to exercise or assert), any right of contribution, right
of indemnity or other right or remedy against the Company in connection with
any indemnification obligation or any other liability to which he may become
subject under or in connection with this Agreement or the Selling
Shareholder's Closing Certificate. Notwithstanding the foregoing, the Selling
Shareholder does not waive, and shall retain, any and all rights to
contribution, indemnification or other remedy to which he is entitled under
the California Corporations Code as a director, officer or shareholder of the
Company arising under or relating to any claims bought against the Selling
Shareholder which are unrelated to this Agreement or the Selling
Shareholder's Closing Certificate.
6.6 SATISFACTION OF INDEMNIFICATION CLAIM.
(a) In the event the Selling Shareholder shall have any
liability (for indemnification or otherwise) to any Indemnitee under this
Section 6, the Selling Shareholder may satisfy such liability by delivering
to such Indemnitee, at the option of the Selling Shareholder, either (a)
payment of cash, or (b) cancellation of that number of shares of Purchaser
Common Stock (as adjusted as appropriate to reflect any stock split, reverse
stock split, stock dividend, recapitalization or other similar transaction
effected by Purchaser) with a value equal to the amount of such claim (with
such fair market value determined in accordance with the terms of the Escrow
Agreement).
(b) In the event the Purchaser shall have any liability
(for indemnification or otherwise) to the Selling Shareholder under this
Section 6, the Purchaser may satisfy such liability by delivering to the
Selling Shareholder, at the option of the Purchaser, either (a) payment of
cash, or (b) additional shares of Purchaser Common Stock (as adjusted as
24
<PAGE>
appropriate to reflect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction effected by the Purchaser) with
a value equal to the amount of such claim (with such fair market value
determined in accordance with the terms of the Escrow Agreement).
6.7 INTEREST. Any Person who is required to hold harmless,
indemnify, compensate or reimburse any other Person pursuant to this Section
6 with respect to any Damages shall also be liable to such indemnified Person
for interest on the amount of such Damages (for the period commencing as of
the date on which such indemnifying Person first received notice of a claim
for recovery by such indemnified Person and ending on the date on which the
liability of such indemnifying Person to such indemnified Person is fully
satisfied at a floating rate equal to the rate of interest publicly announced
by Bank of America, N.T. & S.A. from time to time as its prime, base or
reference rate.
6.8 SETOFF RIGHTS. In addition to any rights of setoff or other
rights that the Purchaser or any of the Indemnitees may have at common law or
otherwise, the Purchaser shall have the right to set off any amount that may
be owed to any Indemnitee under this Section 6 against any amount otherwise
payable by any Indemnitee to the Selling Shareholder.
6.9 DEFENSE OF THIRD PARTY CLAIMS. In the event of the assertion or
commencement by any Person of any claim or Legal Proceeding (whether against
the Company, against Purchaser or against any other Person) with respect to
which any of the Selling Shareholder may become obligated to hold harmless,
indemnify, compensate or reimburse any Indemnitee pursuant to this Section 6,
Purchaser shall have the right, at its election, to proceed with the defense
of such claim or Legal Proceeding on its own. If Purchaser so proceeds with
the defense of any such claim or Legal Proceeding:
(a) all reasonable expenses relating to the defense of such
claim or Legal Proceeding shall be borne and paid exclusively by the Selling
Shareholder;
(b) each Selling Shareholder shall make available to Purchaser
any documents and materials in his possession or control that may be
necessary to the defense of such claim or Legal Proceeding; and
(c) Purchaser shall have the right to settle, adjust or
compromise such claim or Legal Proceeding only with the consent of the
Selling Shareholder; PROVIDED, HOWEVER, that such consent shall not be
unreasonably withheld.
Purchaser shall give the Selling Shareholder prompt notice of the
commencement of any such Legal Proceeding against Purchaser or the Company;
PROVIDED, HOWEVER, that any failure on the part of Purchaser to so notify the
Selling Shareholder shall not limit any of the obligations of the Selling
Shareholder under this Section 6 (except to the extent such failure
materially prejudices the defense of such Legal Proceeding).
6.10 EXERCISE OF REMEDIES BY INDEMNITEES OTHER THAN PURCHASER. No
Indemnitee (other than the Purchaser or any successor thereto or assign
thereof) shall be permitted to assert any indemnification claim or exercise
any other remedy under this Agreement unless the Purchaser (or any successor
thereto or assign thereof) shall have consented to the assertion of such
indemnification claim or the exercise of such other remedy.
25
<PAGE>
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each party to this Agreement (a) shall make all
filings (if any) and give all notices (if any) required to be made and given
by such party in connection with the Sale and the other transactions
contemplated by this Agreement, and (b) shall use all commercially reasonable
efforts to obtain all Consents (if any) required to be obtained (pursuant to
any applicable Legal Requirement or Contract, or otherwise) by such party in
connection with the Sale and the other transactions contemplated by this
Agreement.
7.2 FURTHER ASSURANCES. Each party hereto shall execute and cause to
be delivered to each other party hereto such instruments and other documents,
and shall take such other actions, as such other party may reasonably request
(prior to, at or after the Closing) for the purpose of carrying out or
evidencing any of the transactions contemplated by this Agreement.
7.3 FEES AND EXPENSES. Each party to this Agreement shall bear and
pay all fees, costs and expenses (including legal fees and accounting fees)
that have been incurred or that are incurred by such party in connection with
the transactions contemplated by this Agreement, including all fees, costs
and expenses incurred by such party in connection with or by virtue of (a)
the investigation and review conducted by Purchaser and its Representatives
with respect to the Company's business (and the furnishing of information to
Purchaser and its Representatives in connection with such investigation and
review), (a) the investigation and review conducted by the Company and its
Representatives with respect to Purchaser's business (and the furnishing of
information to the Company and its Representatives in connection with such
investigation and review), (b) the negotiation, preparation and review of
this Agreement (including the respective Disclosure Schedules) and all
agreements, certificates, opinions and other instruments and documents
delivered or to be delivered in connection with the transactions contemplated
by this Agreement, (c) the preparation and submission of any filing or notice
required to be made or given in connection with any of the transactions
contemplated by this Agreement, and the obtaining of any Consent required to
be obtained in connection with any of such transactions, and (d) the
consummation of the Sale; PROVIDED, HOWEVER, that, to the extent the total
amount of all such fees, costs and expenses incurred by or for the benefit of
the Company (including all such fees, costs and expenses incurred prior to
the date of this Agreement and including the amount of all special bonuses
and other amounts that may become payable to any officers of the Company or
other Persons in connection with the consummation of the transactions
contemplated by this Agreement) exceeds $25,000 in the aggregate, such fees,
costs and expenses shall be borne and paid by the Selling Shareholder and not
by the Company.
7.4 ATTORNEYS' FEES. If any action or proceeding relating to this
Agreement or the enforcement of any provision of this Agreement is brought
against any party hereto, the prevailing party shall be entitled to recover
reasonable attorneys' fees, costs and disbursements (in addition to any other
relief to which the prevailing party may be entitled).
7.5 NOTICES. Any notice or other communication required or permitted to
be delivered to any party under this Agreement shall be in writing and shall be
deemed properly delivered, given and received when delivered (by hand, by
registered mail, by courier or express delivery service or by facsimile) to the
address or facsimile telephone number set forth beneath
26
<PAGE>
the name of such party below (or to such other address or facsimile telephone
number as such party shall have specified in a written notice given to the
other parties hereto):
<TABLE>
<S> <C>
IF TO PURCHASER: ImproveNet, Inc.
720 Bay Road
Suite 200
Redwood City,
CA 94063
ATTN: Chief Executive Officer ??
with a copy to: Cooley Godward LLP
3000 Sand Hill Road
Building 3, Suite 230
Menlo Park, CA 94025
ATTN: Mark P. Tanoury
IF TO THE COMPANY: The J.L. Price Corporation
1509 Schuyler Road
Beverly Hills, CA 90210
IF TO THE SELLING
SHAREHOLDER: James L. Price
1509 Schuyler Road
Beverly Hills, CA 90210
with a copy to: Barger & Wolen LLP
515 S. Flower Street, 34th Floor
Los Angeles, CA 90071
ATTN: John E. McPherson
</TABLE>
7.6 CONFIDENTIALITY. On and at all times after the Closing Date, the
Selling Shareholder shall keep confidential, and shall not use or disclose to
any other Person, any non-public document or other non-public information in
such Selling Shareholder's possession that relates to the business of the
Company or the Purchaser unless required or compelled to do so by Legal
Requirements or an order of any court or Governmental Entity.
7.7 TIME OF THE ESSENCE. Time is of the essence to the performance
of this Agreement.
7.8 HEADINGS. The headings contained in this Agreement are for
convenience of reference only, shall not be deemed to be a part of this
Agreement and shall not be referred to in connection with the construction or
interpretation of this Agreement.
7.9 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall constitute an original and all of which,
when taken together, shall constitute one agreement.
27
<PAGE>
7.10 GOVERNING LAW. This Agreement shall be construed in accordance
with, and governed in all respects by, the internal laws of the State of
California (without giving effect to principles of conflicts of laws).
7.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon:
the Company and its successors and assigns (if any), the Selling Shareholder
and his personal representatives, executors, administrators, estates, heirs,
successors and assigns (if any), and the Purchaser and its successors and
assigns (if any). This Agreement shall inure to the benefit of: the Company;
the Company's shareholders; the Purchaser; the other Indemnitees (subject to
Section 6.8); and the respective successors and assigns (if any) of the
foregoing. Purchaser may freely assign any or all of its rights under this
Agreement (including its indemnification rights under Section 6), in whole or
in part, to any other Person without obtaining the consent or approval of any
other party hereto or of any other Person.
7.12 REMEDIES CUMULATIVE; SPECIFIC PERFORMANCE. The rights and
remedies of the parties hereto shall be cumulative (and not alternative). The
parties to this Agreement agree that, in the event of any breach or
threatened breach by any party to this Agreement of any covenant, obligation
or other provision set forth in this Agreement for the benefit of any other
party to this Agreement, such other party shall be entitled (in addition to
any other remedy that may be available to it) to (a) a decree or order of
specific performance or mandamus to enforce the observance and performance of
such covenant, obligation or other provision, and (b) an injunction
restraining such breach or threatened breach.
7.13 WAIVER.
(a) No failure on the part of any Person to exercise any power,
right, privilege or remedy under this Agreement, and no delay on the part of
any Person in exercising any power, right, privilege or remedy under this
Agreement, shall operate as a waiver of such power, right, privilege or
remedy; and no single or partial exercise of any such power, right, privilege
or remedy shall preclude any other or further exercise thereof or of any
other power, right, privilege or remedy.
(b) No Person shall be deemed to have waived any claim arising
out of this Agreement, or any power, right, privilege or remedy under this
Agreement, unless the waiver of such claim, power, right, privilege or remedy
is expressly set forth in a written instrument duly executed and delivered on
behalf of such Person; and any such waiver shall not be applicable or have
any effect except in the specific instance in which it is given.
7.14 AMENDMENTS. This Agreement may not be amended, modified,
altered or supplemented other than by means of a written instrument duly
executed and delivered on behalf of all of the parties hereto.
7.15 SEVERABILITY. In the event that any provision of this
Agreement, or the application of any such provision to any Person or set of
circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to Persons or circumstances other than those as
to which it is
28
<PAGE>
determined to be invalid, unlawful, void or unenforceable, shall not be
impaired or otherwise affected and shall continue to be valid and enforceable
to the fullest extent permitted by law.
7.16 PARTIES IN INTEREST. None of the provisions of this Agreement
is intended to provide any rights or remedies to any Person other than the
parties hereto and their respective successors and assigns (if any).
7.17 ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein set forth the entire understanding of the parties hereto
relating to the subject matter hereof and thereof and supersede all prior
agreements and understandings among or between any of the parties relating to
the subject matter hereof and thereof.
7.18 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and vice versa; the
masculine gender shall include the feminine and neuter genders; the feminine
gender shall include the masculine and neuter genders; and the neuter gender
shall include the masculine and feminine genders.
(b) The parties hereto agree that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party
shall not be applied in the construction or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed to be terms of
limitation, but rather shall be deemed to be followed by the words "without
limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer to Sections of
this Agreement and Exhibits to this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
29
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this STOCK
PURCHASE AGREEMENT to be executed and delivered as of the date set forth in
the first paragraph hereof.
PURCHASER: IMPROVENET, INC.,
a Delaware corporation
By: /s/ Ron Cooper
------------------------------------------
Ron Cooper
Chief Executive Officer
COMPANY: THE J.L. PRICE CORPORATION,
a California Corporation
By: /s/ James L. Price
------------------------------------------
James L. Price
Chief Executive Officer
/s/ James L. Price
SELLING SHAREHOLDER: ---------------------------------------------
JAMES L. PRICE
<PAGE>
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
AGREEMENT. "Agreement" shall mean the Stock Purchase Agreement to
which this EXHIBIT A is attached (including the Company and Selling
Shareholder Disclosure Schedule and the Purchaser Disclosure Schedule), as it
may be amended from time to time.
COMPANY CONTRACT. "Company Contract" shall mean any Contract: (a) to
which the Company is a party; (b) by which the Company or any of its assets
is or may become bound or under which the Company has, or may become subject
to, any obligation; or (c) under which the Company has or may acquire any
right or interest.
COMPANY PROPRIETARY ASSET. "Company Proprietary Asset" shall mean any
Proprietary Asset owned by or licensed to the Company or otherwise used by the
Company.
CONSENT. "Consent" shall mean any approval, consent, ratification,
permission, waiver or authorization (including any Governmental Authorization).
CONTRACT. "Contract" shall mean any written, oral or other agreement,
contract, subcontract, lease, understanding, instrument, note, warranty,
insurance policy, benefit plan or legally binding commitment or undertaking of
any nature.
DAMAGES. "Damages" shall include any loss, damage, injury, decline in
value, lost opportunity, liability, claim, demand, settlement, judgment, award,
fine, penalty, Tax, fee (including reasonable attorneys' fees), charge, cost
(including costs of investigation) or expense of any nature.
COMPANY AND SELLING SHAREHOLDER DISCLOSURE SCHEDULE. "Company and
Selling Shareholder Disclosure Schedule" shall mean the schedule (dated as of
the date of the Agreement) delivered to Purchaser on behalf of the Company and
the Selling Shareholder.
PURCHASER DISCLOSURE SCHEDULE. "Purchaser Disclosure Schedule" shall
mean the schedule (dated as of the date of the Agreement) delivered to the
Company and Selling Shareholder on behalf of Purchaser.
ENCUMBRANCE. "Encumbrance" shall mean any lien, pledge,
hypothecation, charge, mortgage, security interest, encumbrance, claim,
infringement, interference, option, right of first refusal, preemptive right,
community property interest or restriction of any nature (including any
restriction on the voting of any security, any restriction on the transfer of
any security or other asset, any restriction on the receipt of any income
derived from any asset, any restriction on the use of any asset and any
restriction on the possession, exercise or transfer of any other attribute of
ownership of any asset).
ENTITY. "Entity" shall mean any corporation (including any
non-profit corporation), general partnership, limited partnership, limited
liability partnership, joint venture, estate, trust,
EXHIBIT A-1
STOCK PURCHASE AGREEMENT
<PAGE>
company (including any limited liability company or joint stock company),
firm or other enterprise, association, organization or entity.
GOVERNMENTAL AUTHORIZATION. "Governmental Authorization" shall mean
any: (a) permit, license, certificate, franchise, permission, clearance,
registration, qualification or authorization issued, granted, given or
otherwise made available by or under the authority of any Governmental Body
or pursuant to any Legal Requirement; or (b) right under any Contract with
any Governmental Body.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a) nation,
state, commonwealth, province, territory, county, municipality, district or
other jurisdiction of any nature; (b) federal, state, local, municipal,
foreign or other government; or (c) governmental or quasi-governmental
authority of any nature (including any governmental division, department,
agency, commission, instrumentality, official, organization, unit, body or
Entity and any court or other tribunal).
INDEMNITEES. "Indemnitees" shall mean the following Persons: (a)
Purchaser; (b) Purchaser's current and future affiliates (including the
Surviving Corporation); (c) the respective Representatives of the Persons
referred to in clauses "(a)" and "(b)" above; and (d) the respective
successors and assigns of the Persons referred to in clauses "(a)", "(b)" and
"(c)" above; PROVIDED, HOWEVER, that the Selling Shareholder shall not be
deemed to be "Indemnitees."
LEGAL PROCEEDING. "Legal Proceeding" shall mean any action, suit,
litigation, arbitration, proceeding (including any civil, criminal,
administrative, investigative or appellate proceeding), hearing, inquiry,
audit, examination or investigation commenced, brought, conducted or heard by
or before, or otherwise involving, any court or other Governmental Body or
any arbitrator or arbitration panel.
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal,
state, local, municipal, foreign or other law, statute, constitution,
principle of common law, resolution, ordinance, code, edict, decree, rule,
regulation, ruling or requirement issued, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of any
Governmental Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be deemed
to have a "Material Adverse Effect" on the Company if such violation or other
matter (considered together with all other matters that would constitute
exceptions to the representations and warranties set forth in the Agreement
or in the Selling Shareholder' Closing Certificate but for the presence of
"Material Adverse Effect" or other materiality qualifications, or any similar
qualifications, in such representations and warranties) would have a material
adverse effect on the Company's business, condition, assets, liabilities,
operations, financial performance or prospects.
PERSON. "Person" shall mean any individual, Entity or Governmental
Body.
PROPRIETARY ASSET. "Proprietary Asset" shall mean any: (a) patent,
patent application, trademark (whether registered or unregistered), trademark
application, trade name, fictitious business name, service mark (whether
registered or unregistered), service mark application,
EXHIBIT A-2
STOCK PURCHASE AGREEMENT
<PAGE>
copyright (whether registered or unregistered), copyright application,
maskwork, maskwork application, trade secret, know-how, customer list,
franchise, system, computer software, computer program, invention, design,
blueprint, engineering drawing, proprietary product, technology, proprietary
right or other intellectual property right or intangible asset; or (b) right
to use or exploit any of the foregoing.
REPRESENTATIVES. "Representatives" shall mean officers, directors,
employees, agents, attorneys, accountants, advisors and representatives.
SEC. "SEC" shall mean the United States Securities and Exchange
Commission.
SECURITIES ACT. "Securities Act" shall mean the Securities Act of
1933, as amended.
TAX. "Tax" shall mean any tax (including any income tax, franchise
tax, capital gains tax, gross receipts tax, value-added tax, surtax, excise
tax, ad valorem tax, transfer tax, stamp tax, sales tax, use tax, property
tax, business tax, withholding tax or payroll tax), levy, assessment, tariff,
duty (including any customs duty), deficiency or fee, and any related charge
or amount (including any fine, penalty or interest), imposed, assessed or
collected by or under the authority of any Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate, schedule,
notice, notification, form, election, certificate or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection or payment of any Tax or in connection with the
administration, implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
EXHIBIT A-3
STOCK PURCHASE AGREEMENT
<PAGE>
EXHIBIT 2.2
ASSET PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 10, 1999
BY AND AMONG
IMPROVENET, INC.,
A DELAWARE CORPORATION;
CONTRACTOR REFERRAL SERVICE LLC,
A CALIFORNIA LIMITED LIABILITY COMPANY;
AND THE
MEMBERS OF CONTRACTOR REFERRAL SERVICE LLC,
INDIVIDUALS:
DANIEL J. POTTER, KAREN BISHOP AND JOSEPH J. DADA III
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. PURCHASE AND SALE OF ASSETS.....................................................................1
1.1 Sale of Assets..................................................................................1
1.2 Excluded Assets; No Assumption of Liabilities...................................................1
1.3 Initial Purchase Price and Payment..............................................................1
1.4 Time and Place of Closing.......................................................................1
1.5 Transfer of the Assets..........................................................................2
1.6 Assignment of the Leases........................................................................2
1.7 Possession; Delivery of Records.................................................................2
1.8 Further Assurances..............................................................................2
1.9 Metrics for Purchase Price Adjustment and Option to Terminate...................................2
SECTION 2. REPRESENTATIONS AND WARRANTIES OF CRS AND THE SELLING MEMBERS...................................2
2.1 Organization and Qualification..................................................................2
2.2 Authority.......................................................................................3
2.3 Subsidiaries....................................................................................3
2.4 Financial Statements............................................................................3
2.5 Title to Properties; Liens; Condition of Properties.............................................3
2.6 Taxes...........................................................................................4
2.7 Absence of Undisclosed Liabilities..............................................................4
2.8 Absence of Certain Changes......................................................................4
2.9 Patents, Trade Names and Trademarks.............................................................5
2.10 Contracts.......................................................................................5
2.11 Litigation......................................................................................6
2.12 Compliance with Laws............................................................................6
2.13 Warranty or Other Claims........................................................................6
2.14 Disclosure of Material Information..............................................................6
2.15 Labor Relations; Employees......................................................................6
2.16 Creditors.......................................................................................6
SECTION 3. REPRESENTATIONS AND WARRANTIES OF IMPROVENET....................................................6
3.1 Organization and Qualification..................................................................6
3.2 Authority.......................................................................................7
SECTION 4. COVENANTS.......................................................................................7
4.1 Covenants of CRS and the Selling Members........................................................7
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
4.2 Each Selling Member's Covenant Not to Compete...................................................7
4.3 Affirmative Covenants of ImproveNet.............................................................8
4.4 Mutual Covenant.................................................................................8
SECTION 5. CONDITIONS......................................................................................8
5.1 Conditions to the Obligations of ImproveNet.....................................................8
5.2 Conditions to Obligations of CRS................................................................9
SECTION 6. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING...................................................10
6.1 Survival of Warranties.........................................................................10
6.2 Sales Taxes....................................................................................10
SECTION 7. INDEMNIFICATION................................................................................10
7.1 Indemnification by CRS and the Selling Members.................................................10
7.2 Indemnification by ImproveNet..................................................................11
7.3 Notice; Defense of Claims......................................................................11
SECTION 8. CONFIDENTIALITY................................................................................11
SECTION 9. MISCELLANEOUS..................................................................................12
9.1 Fees and Expenses..............................................................................12
9.2 Notices........................................................................................12
9.3 Entire Agreement...............................................................................12
9.4 Governing Law; Venue...........................................................................12
9.5 Broker's Fees..................................................................................13
9.6 Assignability..................................................................................13
9.7 Publicity and Disclosures......................................................................13
9.8 Waivers; Severability..........................................................................13
9.9 Headings.......................................................................................14
9.10 Counterparts...................................................................................14
</TABLE>
ii.
<PAGE>
SCHEDULES AND EXHIBITS
SCHEDULE I: Acquired Assets
SCHEDULE II: Excluded Assets
EXHIBIT A: License Agreement
EXHIBIT B: Leases
EXHIBIT C: Yellow Pages Obligations
EXHIBIT D: Disclosure Schedule
EXHIBIT E: Landlord's Estoppel Certificate
EXHIBIT F: Assignment of Leases
EXHIBIT G: Employment Offer Letter
iii.
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made effective as
of September 10, 1999, by and among IMPROVENET , INC., a Delaware corporation
("ImproveNet"), CONTRACT REFERRAL SERVICE, LLC, an Illinois LLC ("CRS"), and
the members of CRS: Daniel J. Potter, Karen Bishop and Joseph J. Dada III
(the "Selling Members").
WHEREAS, ImproveNet desires to purchase, and CRS desires to sell to
ImproveNet certain properties and assets of CRS for the consideration
specified herein without the assumption by ImproveNet of any liabilities or
obligations of CRS other than as specifically set forth below, all on the
terms and subject to the conditions hereof.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS.
1.1 SALE OF ASSETS. Subject to the provisions of this Agreement,
CRS hereby agrees to sell and ImproveNet hereby agrees to purchase all of the
properties, assets, rights and business of CRS including, without limitation,
CRS's cash balances, accounts receivable, notes receivable, inventories,
contractor lists, real estate,, plants, equipment, furniture, leases,
proprietary rights on intellectual property rights, patents, trademarks,
trade names, trade secrets, service marks, routes, customer lists, covenants
not to compete with CRS, all computer hardware and software associated with
CRS and rights under all member contracts, supply agreements, customer
agreements, leases and other contracts to which it is a party, and the right
to use the 1-800-CONTRACTOR name and telephone number for a period of 14
months in the existing coverage area (collectively, the "Assets"), according
to the terms of that certain License Agreement attached hereto as Exhibit A
and incorporated herein by reference Certain of the Assets are listed on
SCHEDULE I attached hereto. ImproveNet specifically agrees to assume the
lease of real property (the "Office") between CRS and Lake Center Partners
(the "Office Lease"), a copy of which is attached hereto as EXHIBIT B, and
assume CRS's "Yellow Pages" obligations as set forth in Section 1.2
(collectively with the Office Lease, the "Leases"). CRS and the Selling
Members hereby covenant and agree to obtain the consent of the landlord
and/or any other required party to enable CRS to assign or transfer the
Leases to ImproveNet.
1.2 EXCLUDED ASSETS; NO ASSUMPTION OF LIABILITIES. ImproveNet
shall not purchase the excluded Assets set forth on SCHEDULE II attached
hereto. ImproveNet shall not assume any liabilities of CRS, whether accrued
or contingent, except for (i) obligations arising under the Office, (ii)
CRS's Yellow Pages obligations described in the attached Exhibit C, and (iii)
those obligations expressly set forth and agreed to by ImproveNet in the
Assignment Agreement.
1.3 INITIAL PURCHASE PRICE AND PAYMENT. In consideration of the
sale by CRS to ImproveNet of the Assets, ImproveNet shall pay to CRS on the
Closing Date (as defined in Section 1.4) the aggregate amount of Six Hundred
Fifty Thousand Dollars ($650,000) (the "Purchase Price"), subject to any
adjustments specifically provided for in Section 1.9 of this
1.
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Agreement, and less $65,000 (the "Holdback Portion"), which shall be held
back by ImproveNet and subject to offset as provided for in Section 7.1.
1.4 TIME AND PLACE OF CLOSING. The closing of the purchase and
sale provided for in this Agreement (the "Closing") shall be held at the
offices of Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real,
Palo Alto, California, at 10:00 a.m. on September 10, 1999 (the "Closing
Date"), or at such other time and place as may be mutually agreed upon by the
parties hereto.
1.5 TRANSFER OF THE ASSETS. At the Closing, CRS shall deliver to
ImproveNet good and sufficient instruments of transfer transferring to
ImproveNet all right, title and interest in and to all of the Assets. Such
instruments of transfer (i) shall be in the form and shall contain the
warranties, covenants and other provisions (not inconsistent with the
provisions hereof) that are usual and customary for transferring the type of
property involved under the laws of the jurisdictions applicable to such
transfers, (ii) shall be in form and substance satisfactory to counsel for
ImproveNet, and (iii) shall effectively vest in ImproveNet, good title to the
Assets free and clear of all liens, restrictions and encumbrances.
1.6 ASSIGNMENT OF THE LEASES. At the Closing, CRS shall deliver or
cause to be delivered to ImproveNet an effective assignment of the Leases,
with such assignment thereof and consents to assignments as are necessary to
assure ImproveNet of the full benefit of the same. To the extent that the
assignment of the Leases shall require the consent of any other parties
thereto, this Agreement shall not constitute an assignment thereof; provided
however, that before the Closing, CRS shall have obtained any necessary
consents or waivers to assure ImproveNet of the benefits of the Leases.
1.7 POSSESSION; DELIVERY OF RECORDS. At the Closing, CRS shall
take all requisite steps to put ImproveNet in actual possession and operating
control of the Assets, the Office and the Leases, and CRS shall have vacated
the Office. Following execution of this Agreement, CRS shall afford to
ImproveNet and its accountants and attorneys reasonable access to the books
and records of CRS for the purposes of performing due diligence and for other
proper purposes reasonably requested by ImproveNet.
1.8 FURTHER ASSURANCES. After the Closing, CRS shall from time to
time upon the request of ImproveNet, execute and deliver further instruments
of transfer and assignment (in addition to those delivered under this Section
1) and take such other actions as ImproveNet may reasonably require to
transfer, assign to and/or vest in ImproveNet any of the Assets and the
Leases. Nothing herein shall be deemed a waiver by ImproveNet of its right
to receive at the Closing an effective transfer of the Assets and assignment
of the Leases.
1.9 METRICS FOR PURCHASE PRICE ADJUSTMENT AND OPTION TO TERMINATE
ImproveNet and CRS agree that ImproveNet has entered into this Agreement
based on certain assumptions and representations regarding CRS's existing
business set forth below as Sections 1.9(A)-1.9(I), inclusive (hereinafter
the "Estimated Metrics") and that if, during ImproveNet's due diligence
process, CRS's actual records reveal facts (hereinafter the "Actual Metrics")
inconsistent with the Assumed Metrics, appropriate adjustments to the
Purchase Price will be made as indicated below, or, alternatively, in the
event the Actual Metrics do not exceed any of the "Minimum
2.
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Parameters" established below, ImproveNet will have the option to abrogate
the Agreement and be refunded the full amount of the Purchase Price.
A. Member Volume
<TABLE>
<CAPTION>
- ------------------------------------------------------------------ ------------------------- ---------------------------------
Metric Estimated Min. Parameter
- ------------------------------------------------------------------ ------------------------- ---------------------------------
<S> <C> <C>
- ------------------------------------------------------------------ ------------------------- ---------------------------------
Number of Active Members 150 At least 135
- ------------------------------------------------------------------ ------------------------- ---------------------------------
Number of Active Members carrying General Liability Insurance 125 At least 110
- ------------------------------------------------------------------ ------------------------- ---------------------------------
Number of Temporarily Inactive Members (Our & Their Choice) 170 At least 153
- ------------------------------------------------------------------ ------------------------- ---------------------------------
Total Number of Active & Temp. Inactives 320 At least 288
- ------------------------------------------------------------------ ------------------------- ---------------------------------
</TABLE>
Price adjustment: for every Active Member below 150 (but greater than 135)
and for every Active Member carrying General Liability Insurance below 125
(but greater than 110), the price will be reduced by $2000 (not to exceed a
total of $50,000).
Criteria for qualification as "Active Member":
1. Contractual Agreement (a non-term agreement personally binding them to
their economic responsibilities)
2. California License (current and no unresolved complaints)
3. Better Business Bureau (no recorded unresolved complaints)
4. References (feedback from a minimum of 4 past work references who score
the contractor an average of over 70% of perfect on quality rating
system)
5. Personal Credit Check or checked at least 4 supplier reference (credit
to our satisfaction)
6. Has undertaken a project within the last 6 months.
B. Caller Volume
Metric : Caller Volume
Estimated: as per attached schedule
Min. Parameter: Total call volume for any 12 month period to be no less than
95% of estimated.
C. Referral Activity
Metric: Referrals (the action of giving a name and number of a Member to a
Caller for a specific project)
Estimated: as per attached schedule
Min Parameter: Total referrals given for any 12 month period to be no less than
95% of estimated.
D. Revenues
Metric: Total Revenues (on an accrual basis with a reasonable adjustment for
expected bad debt and no less than 97% to be received from Member's fees).
Estimated: As per attached schedule
Min Parameter: Total revenues for any 12 month period to be no less than 90% of
estimated.
3.
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E. Expenses
Metric: Total Expenses (on an accrual basis).
Estimated: As per attached schedule
Min Parameter: Total expense for any 12 month period to be no less than 90% of
estimated and no more than 110% of stated.
F. Accepted Liabilities
Metric: Office Lease
Estimated: CRS's present lease is as below:
1. Is for approximately 1,567 square feet and is $2,162.46 a month
until march 31, 2000 at which time it becomes $2,272.15 a month
until March 31, 2001. It is located in the offices as shown to
employees of purchaser's company.
2. Includes a clause indicating that the Landlord may not
unreasonably withhold permission to assign the lease to other
parties who are financially sound and who wish to use the space
for like activities.
Min. Parameters: Liabilities not to exceed those stated in Estimated
G. Metric: Yellow Pages Obligations: forward Yellow Pages obligations from
Sept 1, 1999 based on past signed agreements (not to extend beyond November 1,
2000). All obligations are for advertising aimed at attracting callers (or
contractors) to the referral service.
Estimated: Obligations to various companies total approximately $7,800 per month
Min. Parameters: Forward monthly obligations not to exceed $8,500 per month
H. Legal Issues:
Metric: Legal Actions known, unresolved, pending, or highly probable legal
actions against CRS or its employees.
Estimated: None
Min. Parameter: None
I. Physical Assets
Physical assets intended in the sale include all that are presently owned by
CRS.
Primary assets include but are not limited to the following
<TABLE>
<CAPTION>
- ------------------------------------------------------------------ ------------------------- ---------------------------------
Metric Estimated Min. Parameter
- ------------------------------------------------------------------ ------------------------- ---------------------------------
<S> <C> <C>
Computers with monitors in operating condition 10 9
- ------------------------------------------------------------------ ------------------------- ---------------------------------
Phone system with music on hold & up to 16 ext. 1 1
- ------------------------------------------------------------------ ------------------------- ---------------------------------
Phones for above systems 8 7
- ------------------------------------------------------------------ ------------------------- ---------------------------------
Printers 3 3
- ------------------------------------------------------------------ ------------------------- ---------------------------------
Fax machines 2 2
- ------------------------------------------------------------------ ------------------------- ---------------------------------
</TABLE>
SECTION 2. REPRESENTATIONS AND WARRANTIES OF CRS AND THE SELLING MEMBERS
4.
<PAGE>
Except as set forth on the Disclosure Schedule attached hereto as
EXHIBIT D, CRS and each of the Selling Members jointly and severally represent
and warrant to ImproveNet both as of the date hereof and the Closing Date as
follows:
2.1 ORGANIZATION AND QUALIFICATION. CRS is a limited liability
company duly organized, validly existing and in good standing under the laws
of the State of Illinois and has full corporate power and authority to own or
lease its properties as such properties are owned or leased and to conduct
its business as such business is currently being conducted. CRS is qualified
to do business as a foreign entity in each jurisdiction in which the
ownership of its property or the conduct of its business makes such
qualification necessary, except where the failure to so qualify would not
have a material adverse effect on the business or the financial condition of
CRS.
2.2 AUTHORITY. Each of CRS and each Selling Member has the full
power and authority to enter into this Agreement and the other documents and
agreements contemplated hereby and to carry out the transactions contemplated
hereby and thereby. The execution, delivery and performance by CRS and the
Selling Members of this Agreement and the other documents and agreements
contemplated hereby have been duly and validly authorized and approved by all
necessary action on the part of CRS, and each of this Agreement and the other
documents and agreements contemplated hereby is a legal, valid and binding
obligation of CRS and each Selling Member, enforceable against CRS and each
Selling Member in accordance with its terms, subject to laws of general
application from time to time in effect affecting creditors' rights and to
the exercise of judicial discretion in accordance with general equitable
principles. There are no requirements applicable to CRS to make any filing
with, or give any notice to, or to obtain any permit, authorization, consent
or approval of, any governmental or regulatory authority or any other person
as a material condition to the lawful consummation by CRS of the transactions
contemplated by this Agreement, except as set forth on the Disclosure
Schedule. Neither the execution and delivery of this Agreement by CRS nor the
consummation by CRS of the transactions contemplated by this Agreement shall
(a) conflict with or result in any breach of any provision of the Operating
Agreement or Bylaws of CRS, (b) result in a default (or give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license
agreement, lease or any contract, instrument or obligation to which CRS is a
party or by which CRS, or any of the Assets or the Leases may be bound, (c)
violate any statute, rule, regulation, order, writ, injunction or decree
applicable to CRS, any of the Assets or the Leases, or (d) result in the
creation of any (individually or in the aggregate) liens, charges or
encumbrances on any of the Assets or the Leases.
2.3 SUBSIDIARIES. CRS does not own, directly or indirectly, any
securities issued by any business organization or governmental authority.
2.4 FINANCIAL STATEMENTS. CRS has delivered to ImproveNet audited
balance sheets and statements of operations of CRS as of and for the year
ended December 31, 1998 and unaudited balance sheets for the seven months
ended July 31, 1999, which is hereinafter referred to as the "Base Balance
Sheet." All of the aforementioned financial statements have been prepared in
accordance with generally accepted accounting principles established by the
American Institute of Certified Public Accountants applied consistently
during the periods
5.
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covered thereby and to the best of CRS's and the Selling Members' knowledge,
present fairly the financial condition of CRS at the dates of such statements
and the results of its operations for the periods covered thereby.
2.5 TITLE TO PROPERTIES; LIENS; CONDITION OF PROPERTIES.
(a) CRS owns no real property and leases no real property
other than the Office as of the date hereof, and CRS is not a party to any
leases for personal property. CRS has good and marketable title to the
Assets, and the Leases are valid and subsisting. No default by CRS exists
under the Leases, and none of the Assets or the Leases are subject to any
mortgage, pledge, lien, conditional sale agreement, security interest,
encumbrance or other charge, or license, except as reflected in the Base
Balance Sheet, and except for statutory liens for real property taxes not yet
delinquent or payable.
(b) All of the Assets are in good working order and all the
Assets that are machinery or equipment have been properly maintained and
conform with all applicable ordinances, regulations and zoning or other laws.
2.6 TAXES. CRS has filed all federal, state and local income,
excise, franchise, real estate and sales and use tax returns required to be
filed by it and has paid all taxes owing by it except taxes, which have not
yet accrued or otherwise become due, for which adequate provision has been
made in the pertinent financial statements referred to in Section 2.4 above.
The provisions for taxes reflected in the Base Balance Sheet are adequate to
cover any and all tax liabilities of CRS in respect of its business,
properties and operations during the periods covered by such financial
statements. No extensions of time for the assessment of deficiencies for any
year are in effect. Neither the Internal Revenue Service nor any other taxing
authority is now asserting or threatening to assert against CRS any
deficiency or claim for additional taxes, interest thereon or penalties in
connection therewith.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. As of the date of the Base
Balance Sheet, CRS had no liabilities of any nature, whether accrued,
absolute, contingent or otherwise (including, without limitation, liabilities
as guarantor or otherwise with respect to obligations of others, or
liabilities for taxes due or then accrued or to become due), except for the
Leases and those certain liabilities reflected in the Base Balance Sheet. As
of the date hereof, CRS has no liabilities of any nature, whether accrued,
contingent or otherwise (including, without limitation, liabilities as
guarantor or otherwise with respect to obligations of others), except for the
Leases and those certain liabilities reflected on the Base Balance Sheet.
2.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed on the
Disclosure Schedule and as otherwise provided in this Agreement, from the
date of the Base Balance Sheet to the date of this Agreement, there has not
been:
(a) any change in the financial condition, properties, Assets,
Leases, liabilities, or business operations of CRS, which change, by itself
or in conjunction with all other such changes, whether or not arising in the
ordinary course of business, has been or is likely to be materially adverse
with respect to the Assets, the Office or the Leases;
6.
<PAGE>
(b) any contingent liabilities incurred by CRS (as guarantor
or otherwise) with respect to the obligations of others that could have a
material adverse effect on the Assets, the Office or the Leases;
(c) any mortgage, encumbrance or lien placed on any of the
Assets or the Leases which remains in existence on the date hereof;
(d) any obligation or liability incurred by CRS (not included
in the Base Balance Sheet);
(e) any purchase, sale or other disposition, or any agreement
or other arrangement for the purchase, sale or other disposition, of any part
of the Assets, the Office or the Leases;
(f) any other transaction entered into by CRS that could have
a material adverse effect on the Assets, the Office or the Leases;
(g) any contracts entered into by CRS;
(h) any payments to, or contracts entered into with, any
director, officer, member or affiliate of CRS or any loans or advances;
(i) any write-down or write-up of the value of any of the
Assets; and/or
(j) any agreement or understanding, whether in writing or
otherwise, for CRS or the Selling Members to take any of the actions
specified in paragraphs (a) through (i) above.
2.9 PATENTS, TRADE NAMES AND TRADEMARKS. All patents, patent
applications, registered copyrights, trade names, registered trademarks and
trademark applications that are owned by or licensed to CRS are listed on the
Disclosure Schedule hereto, which Schedule indicates with respect to each,
the nature of CRS's interest therein and the expiration date thereof or the
date on which CRS's interest therein terminates. CRS is not in any way making
an unlawful or wrongful use of any confidential information, know-how or
trade secrets of any third party, including, without limitation, any former
employer of any present or past employee of CRS.
2.10 CONTRACTS. Except as set forth on the Disclosure Schedule,
CRS is not a party to or subject to:
(a) any employment contract or contract for services not
terminable within 30 days by and without penalty or further liability to CRS;
(b) any contract or agreement for the sale of any commodity,
material, equipment or service material to the Assets, the Office or the
Leases;
(c) any contract or agreement material to the Assets, the
Office or the Leases; other than contracts for the purchase or sale of
commodities, material, equipment or services utilized in the ordinary course
of business, entered into after the date of the Base Balance Sheet;
7.
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(d) any contract or agreement with any present or former
officer, director or member of CRS or with any persons or organizations
controlled by or affiliated with any of them; or
(e) other than the Leases, any lease or other agreement under
which CRS is lessee of or holds or operates any items of tangible personal
property owned by any third party.
Any copy of such contract, commitment, plan, agreement or license
that has been provided by CRS to ImproveNet or its counsel prior to the
execution of this Agreement is true, correct and complete, has been subject
to no amendment, extension or other modification as of the date hereof and is
described on the Disclosure Schedule. CRS is not in default under any such
contract, commitment, plan, agreement or license described on the Disclosure
Schedule (a "default" being defined for purposes hereof as an actual default
or any set of facts which would, upon receipt of notice or passage of time,
or both, constitute a default under any such instrument).
2.11 LITIGATION. There is no litigation pending or threatened
against CRS or any of the Selling Members. CRS is not engaged as a plaintiff
to or contemplating any litigation.
2.12 COMPLIANCE WITH LAWS. CRS is not in violation of any laws or
regulations, the violation of which would have a material adverse effect upon
the Assets, the Office or the Leases, including, without limitation, laws and
regulations relating to employment, occupational safety and environmental
matters. CRS has not received notice of, and there has never been any
citation, fine or penalty imposed upon or asserted against CRS under any
federal, state or local law or regulation relating to employment,
occupational safety, zoning or environmental matters.
2.13 WARRANTY OR OTHER CLAIMS. There are no material existing or
threatened claims against CRS and no claims asserted against CRS for
renegotiation or price redetermination of any business transaction, and there
are no facts upon which any such claim could be based.
2.14 DISCLOSURE OF MATERIAL INFORMATION. Neither this Agreement
nor the Disclosure Schedule set forth any untrue statement of a material fact
relating to CRS or the Selling Members, or omit to state a material fact
necessary to make the statements herein or therein relating to CRS not
misleading.
2.15 LABOR RELATIONS; EMPLOYEES. Upon consummation of the
transactions contemplated by this Agreement, ImproveNet shall not by reason
of anything done prior to the Closing be liable to any CRS employee for
so-called "severance pay" or any other payments arising from or in connection
with the employment of such employees by CRS or the termination thereof. CRS
is in compliance with all applicable laws and regulations respecting labor,
employment and employment practices, terms and conditions of employment and
wages and hours. None of CRS's employees belongs to any labor union.
2.16 CREDITORS. Each of CRS's creditors (collectively, the
"Creditors") are listed in the Disclosure Schedule, and the amount owed each
such Creditor by CRS as of the date hereof is set forth opposite such
Creditor's name.
8.
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF IMPROVENET.
ImproveNet represents and warrants as of the Closing Date as follows:
3.1 ORGANIZATION AND QUALIFICATION. ImproveNet is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full corporate power and authority to own or lease
its properties as such properties are owned or leased and to conduct its
business as such business is conducted. ImproveNet is qualified to do
business as a foreign corporation in each jurisdiction in which the ownership
of its property or the conduct of its business makes such qualification
necessary, except where the failure to so qualify would not have a material
adverse effect on the business or the financial condition of ImproveNet.
3.2 AUTHORITY. ImproveNet has full power and authority to enter
into this Agreement and the other documents and agreements contemplated
hereby and to carry out the transactions contemplated hereby and thereby. The
execution, delivery and performance by ImproveNet of this Agreement and the
other documents and agreements contemplated hereby have been duly and validly
authorized and approved by all necessary action on the part of ImproveNet,
and each of this Agreement and the other documents and agreements
contemplated hereby executed by ImproveNet is a legal, valid and binding
obligation of ImproveNet enforceable against ImproveNet in accordance with
its terms, subject to laws of general application from time to time in effect
affecting creditors' rights and to the exercise of judicial discretion in
accordance with general equitable principles. Neither the execution and
delivery of this Agreement by ImproveNet nor the consummation by ImproveNet
of the transactions contemplated by this Agreement shall (a) conflict with or
result in any breach of any material provisions of the Certificate of
Incorporation or Bylaws of ImproveNet, (b) result in a default (or give rise
to any right of termination, cancellation or acceleration) under any of the
terms, conditions or provisions of any material note, bond, mortgage,
indenture, license agreement, lease or other material contract, instrument or
obligation to which ImproveNet is a party or by which ImproveNet or any of
its assets may be bound, (c) violate in any material respects any statute,
rule, regulation, order, writ, injunction or decree applicable to ImproveNet
or any of its assets where the consequences of any such violations would, in
the aggregate, have a material and adverse effect on ImproveNet, or (d)
result in the creation of any material (individually or in the aggregate)
liens, charges or encumbrances on any of the assets of ImproveNet.
SECTION 4. COVENANTS.
4.1 COVENANTS OF CRS AND THE SELLING MEMBERS. Each of CRS and each
Selling Member hereby covenants and agrees to do each of the following:
(a) Perform and fulfill all conditions and obligations on
their part to be performed and fulfilled under this Agreement, to the end
that the transactions contemplated by this Agreement shall be fully carried
out;
(b) Obtain all authorizations, consents and permits of others
required to permit the consummation of the transactions contemplated by this
Agreement;
9.
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(c) File with any governmental agencies or departments or give
persons all notices, reports and other documents required by law with respect
to this Agreement and promptly submit any additional information or
documentary material properly requested by any such governmental agency or
department; and
(d) Deliver to ImproveNet and cause their counsel to deliver
to ImproveNet, the closing documents referenced in this Agreement.
4.2 EACH SELLING MEMBER'S COVENANT NOT TO COMPETE. Each Selling
Member (except Karen Bishop) hereby covenants and agrees that each will not,
without ImproveNet's express written consent:
(a) For three (3) years following the Closing Date, engage in
any employment or business activity which is directly or indirectly
competitive with ImproveNet; in the United States in electronic commerce
consulting or management thereof; and
(b) For two (2) years after the Closing Date, directly or
through others, either for such Member or any other person: (i) induce or
attempt to induce any employee, independent contractor or consultant of
ImproveNet to leave the employ of ImproveNet; or (ii) induce or attempt to
induce any customer, supplier, licensee, or business relation of ImproveNet
to cease doing business with ImproveNet.
If any provision of Section 4.2 shall be held by a court of
competent jurisdiction to be excessively broad as to duration, activity or
subject, it shall be deemed to extend only over the maximum duration,
activity or subject as to which such provision shall be valid and enforceable
under applicable law.
4.3 AFFIRMATIVE COVENANTS OF IMPROVENET. ImproveNet hereby
covenants and agrees that it shall do each of the following:
(a) Assist CRS in its efforts to obtain all authorizations,
consents and permits required to permit the consummation of the transactions
contemplated by this Agreement and the continuation of CRS's business after
consummation of this transaction, including the moving of CRS's assets that
are not being acquired by ImproveNet; and
(b) Deliver to CRS and cause its counsel to deliver to CRS,
the closing documents referred to in this Agreement.
4.4 MUTUAL COVENANT. CRS, the Selling Members and ImproveNet each
agree that, for tax and other purposes, the fair market value of the Assets
and the Leases shall be as set forth in Section 4.4 the Disclosure Schedule.
SECTION 5. CONDITIONS.
5.1 CONDITIONS TO THE OBLIGATIONS OF IMPROVENET. The obligations
of ImproveNet to consummate this Agreement and the transactions contemplated
hereby are subject to the fulfillment by CRS and the Selling Members, prior
to or at the Closing, of the following conditions precedent:
10.
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(a) REPRESENTATIONS; WARRANTIES; COVENANTS.
(i) Each of the representations and warranties of CRS
and each of the Selling Members set forth in Section 2 shall be true and
correct in all material respects both on and as of the date hereof and on and
as of the Closing Date;
(ii) CRS and each of the Selling Members shall have
performed, on or before the Closing Date, all of their obligations hereunder
which by the terms hereof are to be performed on or before the Closing Date;
(iii) All action necessary to authorize the execution,
delivery and performance of this Agreement by CRS and each of the Selling
Members and the consummation of the transactions contemplated herein shall
have been duly and validly taken by CRS and each the Selling Members;
(iv) CRS and each of the Selling Members shall have
obtained all authorizations, consents and permits of others required to
permit the consummation of the transactions contemplated herein; and
(v) CRS shall have delivered to ImproveNet a
certificate of CRS's President, dated as of the Closing Date, attesting to
the effectiveness and validity of Sections 5.1(a)(i) through (iv) hereof.
(b) DELIVERY OF CERTAIN DOCUMENTS. CRS and the Selling
Members shall have delivered to ImproveNet copies of all contracts,
commitments, leases and other documents required to be delivered as set forth
herein.
(c) LANDLORD'S ESTOPPEL CERTIFICATE. CRS shall have delivered
to ImproveNet an executed Landlord's Estoppel Certificate in the form
attached hereto as EXHIBIT E.
(d) ASSIGNMENT OF LEASES. CRS shall have delivered to
ImproveNet an executed Assignment of Lease and Assumption of Lease
Obligations in the form attached hereto as EXHIBIT F for each of the Leases.
(e) EMPLOYMENT OFFER LETTER. The Selling Members shall have
executed the Employment Offer Letters in the form attached hereto as EXHIBIT
G.
(f) ImproveNet shall have been afforded the full and complete
opportunity to verify the Estimated Mectrics set forth in Section 1.9 hereof.
5.2 CONDITIONS TO OBLIGATIONS OF CRS. CRS's obligations to
consummate this Agreement and the transactions contemplated hereby are
subject to the fulfillment by ImproveNet, or the written waiver by CRS, prior
to or at the Closing Date of the following conditions precedent:
(a) REPRESENTATIONS; WARRANTIES; COVENANTS.
11.
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(i) Each of the representations and warranties of
ImproveNet contained in Section 3 shall be true and correct in all material
respects on and as of the Closing Date;
(ii) ImproveNet shall, on or before the Closing Date,
have performed all of its obligations hereunder which by the terms hereof are
to be performed on or before the Closing Date;
(iii) All action necessary to authorize the execution,
delivery and performance of this Agreement by ImproveNet and the consummation
of the transactions contemplated herein shall have been duly and validly
taken; and
(iv) ImproveNet shall have delivered to CRS a
certificate of ImproveNet's President, dated as of the Closing Date,
attesting to the effectiveness and validity of this Section 5.2(a)(i) through
(iii) hereof.
(b) EMPLOYMENT OFFER LETTER. ImproveNet shall have executed
the Employment Offer Letter(s) in the form attached hereto as EXHIBIT G.
SECTION 6. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
6.1 SURVIVAL OF WARRANTIES. All representations, warranties,
agreements, covenants and obligations herein or in any scheduled certificate
or financial statement delivered by any party to another party incident to
the transactions contemplated hereby are material, shall be deemed to have
been relied upon by the other party and shall survive until the second
anniversary of the Closing Date regardless of any investigation and shall not
merge into the performance of any obligation by any party hereto.
6.2 SALES TAXES. CRS shall pay all taxes due with respect to the
sale of the Assets and the assignment to ImproveNet of the Leases.
SECTION 7. INDEMNIFICATION.
7.1 INDEMNIFICATION BY CRS AND THE SELLING MEMBERS. Each of CRS
and each of the Selling Members agrees to defend, indemnify and hold
ImproveNet and its officers, directors, employees and agents harmless from
and against any damages, liabilities, losses and expenses (including, without
limitation, reasonable counsel fees and disbursements and expenses) of any
kind or nature whatsoever which may be sustained or suffered by ImproveNet
based upon (a) a breach of any representation, warranty or covenant made by
CRS in this Agreement, or in any Schedule or Exhibit hereto or any
certificate or financial statement delivered hereunder; (b) by reason of any
claim, action or proceeding asserted or instituted arising out of any matter
or thing covered by such representations, warranties or covenants, including,
without limitation, any tax liabilities of CRS for periods prior to or ending
on the Closing Date, any liabilities of CRS not disclosed to ImproveNet in
the Disclosure Schedule or any liabilities arising from any breach of such
representations, warranties or covenants; (c) any claims, action or
proceeding arising or asserted on or before the Closing Date; (d) any claim,
action or proceeding (for severance pay or otherwise) arising in connection
with the termination of any employee of CRS, whether or not such termination
occurs in connection with the transactions contemplated hereby; or (e) any
12.
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claims of creditors with respect to the Assets or the Leases ("ImproveNet
Indemnifiable Claims"). ImproveNet may proceed against CRS or the Selling
Members at any time or times for recovery of ImproveNet Indemnifiable Claims.
Notwithstanding any contrary provision of this Section 7.1, CRS and each of
the Selling Members shall have no liability pursuant to this Section 7.1 for
ImproveNet Indemnifiable Claims arising after the date two (2) years from the
date of the Closing, other than those arising from or in connection with (i)
state, local and federal income and other taxes and penalties and interest
thereon or (ii) claims, actions or proceedings (whether arising or asserted
before or after the date hereof) asserted or instituted by persons or
entities not parties to this Agreement. Neither CRS nor the Selling Members
shall be required to make any indemnification payment pursuant to this
Section 7.1 until such time as the total amount of all damages that have been
directly or indirectly suffered or incurred by ImproveNet exceeds $10,000 in
the aggregate. At such times as the total amount of such damages exceeds
$10,000 in the aggregate, ImproveNet shall be entitled to be indemnified only
against the portion of such damages exceeding $10,000.
Without prejudice to any rights of ImproveNet set forth above,
ImproveNet will also be entitled to offset any and all damages incurred in an
Indemnifiable Claim against the Holdback Portion of the Purchase Price being
held back by it for a period of one (1) year after Closing.
7.2 INDEMNIFICATION BY IMPROVENET. ImproveNet agrees to defend,
indemnify and hold CRS and each of the Selling Members harmless from and
against any damages, liabilities, losses and expenses (including, without
limitation, reasonable counsel fees and disbursements and expenses) of any
kind or nature whatsoever that may be sustained or suffered by CRS or such
Selling Members based upon (a) a breach of any representation, warranty or
covenant made by ImproveNet in this Agreement or in any Schedule or Exhibit
hereto or any certificate or financial statement delivered hereunder or (b)
by reason of any claim, action or proceeding asserted or instituted arising
out of any matter or thing covered by such representations, warranties or
covenants ("CRS Indemnifiable Claims"). Notwithstanding any contrary
provision of this Section 7.2, ImproveNet shall have no liability pursuant to
this Section 7.2 for CRS Indemnifiable Claims arising after the date two (2)
years from the date of the Closing. ImproveNet shall not be required to make
any indemnification payment pursuant to this Section 7.2 until such time as
the total amount of all damages that have been directly or indirectly
suffered or incurred by CRS and the Selling Members exceeds $10,000,
respectively. At such times as the total amount of such damages exceeds
$10,000, respectively, CRS and each of the Selling Members shall be entitled
to be indemnified only against the portion of such damages exceeding $10,000,
respectively.
7.3 NOTICE; DEFENSE OF CLAIMS.
(a) A party claiming indemnification under Section 7 or
Section 8 hereunder (the "Indemnified Party") shall give prompt written
notice to the party obligated to indemnify of each claim for indemnification
hereunder (the "Indemnifying Party"), specifying the amount and nature of the
claims and of any matter which in the opinion of the Indemnified Party is
likely to give rise to an indemnification claim. Failure to give notice of a
matter which may give rise to an indemnified claim shall not affect the
rights of the Indemnified Party to collect such claim from the Indemnifying
Party or any transferee in liquidation, except to the extent the Indemnifying
Party is prejudiced thereby.
13.
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(b) The Indemnifying Party shall have the right to control the
defense of any third-party claim, action or proceeding giving rise to a claim
for indemnification at its own expense in the defense of any such matter or
its settlement. The Indemnified Party and the Indemnifying Party agree to
render to each other assistance as they may reasonably require of each other
in order to ensure the proper and adequate defense of any such claims, action
or proceeding. In connection with any such claims, action or proceeding, no
Indemnifying Party shall consent to entry of any judgment or enter into any
settlement without the prior written consent of the Indemnified Party.
SECTION 8. CONFIDENTIALITY.
Except for the use of such information and documents in connection
with the transactions contemplated by this Agreement or as otherwise required
by and law or regulation (including the rules of the United States Securities
and Exchange Commission), each of CRS and each of the Selling Members agree
to keep in strict confidence any non-public information obtained by them from
ImproveNet in connection with their investigations or otherwise in connection
with the transactions.
SECTION 9. MISCELLANEOUS.
9.1 FEES AND EXPENSES. Each of the parties shall bear such party's
own expenses in connection with the negotiation and the consummation of the
transactions contemplated by this Agreement, and no expenses of CRS or the
Selling Members relating in any way to the purchase and sale of the Assets
and assumption of the Leases hereunder shall be charged to or paid by
ImproveNet.
9.2 NOTICES. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if delivered
or mailed by registered mail:
To: ImproveNet, Inc.
Attention:
With a copy to: Stephen N. Rosenfield, Esq.
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, CA 94306
To: Contractor Referral Service LLC
Attention:
To: Daniel J. Potter
Karen Bishop
Joseph J. Dada III
14.
<PAGE>
or to such other address of which either party may by registered mail notify
the other party.
9.3 ENTIRE AGREEMENT. This Agreement, including the Schedules and
Exhibits referred to herein, is complete; and all communications, promises,
representations, understandings, warranties and agreements with reference to
the subject matter hereof, and all inducements to the making to this
Agreement relied upon by any party hereto, have been expressed herein or in
such Schedules or Exhibits.
9.4 GOVERNING LAW; VENUE. This Agreement, and the rights of the
parties hereto, shall be governed by and construed in accordance with the
laws of the State of California as such laws apply to agreements among
California residents made and to be performed entirely within the laws of the
State of California. Any legal action or the legal proceeding relating to
this Agreement or the enforcement of any provision of this Agreement shall be
brought or otherwise commenced in any state or federal court located in San
Mateo, San Francisco or Santa Clara counties in the State of California. Each
party to this Agreement:
(a) expressly and irrevocably consents and submits to the
jurisdiction of each state and federal court located in San Mateo, San
Francisco or Santa Clara counties in the State of California in connection
with any such legal proceeding;
(b) agrees that each state and federal court located in San
Mateo, San Francisco or Santa Clara counties in the State of California shall
be deemed to be a convenient forum; and
(c) agrees not to assert (by way of motion, as a defense or
otherwise), in any such legal proceeding commenced in any state or federal
court located in San Mateo, San Francisco or Santa Clara counties in the
State of California, any claim that such party is not subject personally to
the jurisdiction of such court, that such legal proceeding has been brought
in an inconvenient forum, that the venue of such proceeding is improper of
that this Agreement or the subject matter of this Agreement may not be
enforced in or by such court.
9.5 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any
broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto
further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in
this Section 9.5 being untrue.
9.6 ASSIGNABILITY. This Agreement shall be assignable by
ImproveNet to an affiliate of ImproveNet or otherwise upon written notice to
CRS and the Selling Members, although no such assignment shall relieve
ImproveNet of any liabilities or obligations under this Agreement. This
Agreement may not be assigned by CRS or the Selling Members without the prior
written consent of ImproveNet. This Agreement shall be enforceable by, and
shall inure to the benefit of, the parties hereto and their permitted
successors and assigns, and no others.
15.
<PAGE>
9.7 PUBLICITY AND DISCLOSURES. No press releases or general public
announcements, either written or oral, of the transactions contemplated by
this Agreement, shall be made without the prior knowledge and written consent
of the parties.
9.8 WAIVERS; SEVERABILITY. The failure of any of the parties to
this Agreement to require the performance of a term or obligation under this
Agreement or the waiver by any of the parties to this Agreement of any breach
hereunder shall not prevent subsequent enforcement of such term or obligation
or be deemed a waiver of any subsequent breach hereunder. In case any one or
more of the provisions of this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision or part of a
provision of this Agreement but this Agreement shall be construed as if such
invalid or illegal or unenforceable provision or part of a provision had
never been contained herein.
9.9 HEADINGS. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
9.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
shall constitute one agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
16.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this ASSET
PURCHASE AGREEMENT to be executed as of the date set forth above by their
duly authorized representatives.
IMPROVENET, INC.
By: /s/ Ron Cooper
--------------------------------------
Print Name: Ronald B. Cooper
-------------------------
Title: Chief Executive Officer
------------------------------
CONTRACTOR REFERRAL SERVICES, INC.
By: /s/ Daniel J. Potter
--------------------------------------
Print Name: Daniel J. Potter
-------------------------
Title: Manager
------------------------------
SELLING MEMBERS
/s/ Daniel J. Potter
------------------------------------------
Daniel J. Potter
/s/ Karen Bishop
------------------------------------------
Karen Bishop
/s/ Joseph J. Dada III
------------------------------------------
Joseph J. Dada III
17.
<PAGE>
THIRD AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IMPROVENET, INC.
RONALD COOPER and JAN M. SHERMAN hereby certify that:
ONE: The original name of this corporation is ImproveNet, Inc. and the
date of filing the original Certificate of Incorporation of this corporation
with the Secretary of State of the State of Delaware is June 2, 1998.
TWO: They are the duly elected and acting President and Secretary,
respectively, of ImproveNet, Inc., a Delaware corporation.
THREE: The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
I.
The name of this corporation is IMPROVENET, INC. (the "CORPORATION" and
the "COMPANY").
II.
The address of the registered office of the Corporation in the State of
Delaware is 30 Old Rudnick Lane, City of Dover, County of Kent, and the name of
the registered agent of the Corporation in the State of Delaware at such address
is CorpAmerica, Inc.
III.
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This Corporation is authorized to issue two classes of stock to be
designated, respectively, "COMMON STOCK" and "PREFERRED STOCK." The total
number of shares which the Corporation is authorized to issue is forty six
million four hundred eighty two thousand nine hundred thirty five (46,482,935)
shares, thirty four million (34,000,000) shares of which shall be Common Stock
(the "COMMON STOCK") and twelve million four hundred eighty two thousand nine
hundred thirty five (12,482,935) shares of which shall be Preferred Stock (the
"PREFERRED STOCK"), each having a par value of one-tenth of one cent ($0.001).
B. One Million Three Hundred One Thousand Four Hundred (1,301,400) of
the authorized shares of Preferred Stock are hereby designated "Series A
Preferred Stock" (the "SERIES A PREFERRED"), One Million Nine Hundred Eighty-One
Thousand Five Hundred Thirty-Five (1,981,535) of the authorized shares of
Preferred Stock are hereby designated "Series B Preferred Stock" (the "SERIES B
1.
<PAGE>
PREFERRED"), Three Million Seven Hundred Thousand (3,700,000) of the authorized
shares of Preferred Stock are hereby designated "Series C Preferred Stock" (the
"SERIES C PREFERRED"), Two Million Five Hundred Thousand (2,500,000) of the
authorized shares of Preferred Stock are hereby designated "Shares D Preferred
Stock" (the "SERIES D PREFERRED") and three million (3,000,000) of the
authorized shares of Preferred Stock are hereby designated "Series E Preferred
Stock" (the "SERIES E PREFERRED").
C. The rights, preferences, privileges, restrictions and other
matters relating to the Series A Preferred, the Series B Preferred, the Series C
Preferred, the Series D Preferred and the Series E Preferred (collectively, the
"SERIES PREFERRED") are as follows:
1. DIVIDEND RIGHTS.
a. Holders of Series Preferred, in preference to the
holders of any other stock, including the Common Stock or any other capital
stock hereinafter issued, of the Company ("JUNIOR STOCK"), shall be entitled to
receive, when and as declared by the Board of Directors, but only out of funds
that are legally available therefor, cash dividends at the rate of six percent
(6%) of the "ORIGINAL ISSUE PRICE" per annum on each outstanding share of Series
Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares). The Original Issue
Price of the Series A Preferred shall be one dollar ($1.00) per share (as
adjusted for any stock dividends, combinations, splits, recapitalizations and
the like with respect to such shares) (the "SERIES A ORIGINAL ISSUE PRICE"), the
Original Issue Price of the Series B Preferred shall be two dollars and fifty
two cents ($2.52) per share (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) (the "SERIES
B ORIGINAL ISSUE PRICE"), the Original Issue Price of the Series C Preferred
shall be six dollars and fifty-three cents ($6.53) per share (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares) (the "SERIES C ORIGINAL ISSUE PRICE"), the Original
Issue Price of the Series D Preferred shall be seven dollars and seventy cents
($7.70) per share (as adjusted for any stock dividends, combinations, splits and
recapitalizations, and the like with respect to such shares) (the "SERIES D
ORIGINAL ISSUE PRICE") and the Original Issue Price of the Series E Preferred
shall be thirteen dollars and fifty cents ($13.50) per share (as adjusted for
any stock dividends, combinations, splits and recapitalizations and the like
with respect to such shares) (the "SERIES E ORIGINAL ISSUE PRICE"). Such
dividends shall be payable only when, as and if, declared by the Board of
Directors.
b. So long as any shares of Series Preferred shall be
outstanding, no dividend, whether in cash or property or otherwise, shall be
paid or declared, nor shall any other distribution be made, on any Junior Stock,
nor shall any shares of any Junior Stock of the Company be purchased, redeemed,
or otherwise acquired for value by the Company (except for acquisition of common
stock by the Company pursuant to agreements unanimously approved by the Board of
Directors which permit the Company to repurchase shares upon termination of
services to the Company) until all dividends (set forth in Section 1(a) above)
on the Series Preferred shall have been paid or declared and set apart. In the
event dividends are paid on any share of Common Stock, an additional dividend
shall be paid with respect to all outstanding shares of Series Preferred in an
amount equal per share (on an as-if-converted to Common Stock basis) to the
amount paid or set aside for each share of Common Stock. The provisions of this
Section 1(b) shall not, however, apply to (i) a dividend payable in Common
Stock, or (ii) any repurchase of any outstanding securities of the Company that
is unanimously approved by the Company's Board of Directors.
2.
<PAGE>
2. VOTING RIGHTS.
a. GENERAL RIGHTS. Except as otherwise provided herein
or as required by law, the Series Preferred shall be voted equally with the
shares of the Common Stock of the Company and not as a separate class, at any
annual or special meeting of stockholders of the Company, and may act by written
consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Series Preferred shall be entitled to
such number of votes as shall be equal to the whole number of shares of Common
Stock into which such holder's aggregate number of shares of Series Preferred
are convertible (pursuant to Section 5 hereof) immediately after the close of
business on the record date fixed for such meeting or the effective date of such
written consent.
b. SEPARATE VOTE OF SERIES PREFERRED. For so long as
shares of Series Preferred remain outstanding, in addition to any other vote or
consent required herein or by law, the vote or written consent of the holders of
at least a majority of the outstanding Series Preferred (voting together as a
single class on an as-converted basis and not as a separate series) shall be
necessary for effecting or validating the following actions:
(i) Any amendment, alteration, or repeal
of any provision of the Certificate of Incorporation or the Bylaws of the
Company (including any filing of a Certificate of Determination that affects
adversely the voting powers, preferences, or other special rights or privileges,
qualifications, limitations, or restrictions of the Series Preferred);
(ii) Any increase or decrease in the
authorized number of shares of Series Preferred or Preferred Stock;
(iii) Any authorization or any designation,
whether by reclassification or otherwise, of any new class or series of stock or
any other securities convertible into equity securities of the Company ranking
on a parity with or senior to the Series Preferred in rights of conversion,
redemption, liquidation preference, voting or dividends or any increase in the
authorized or designated number of any such new class or series;
(iv) Any redemption or repurchase with
respect to Common Stock or Preferred Stock (except for acquisitions of Common
Stock by the Company that are unanimously approved by the Company's Board of
Directors);
(v) Any agreement by the Company or its
stockholders regarding an Asset Transfer or Acquisition (each as defined in
Section 4(d));
(vi) Any action that results in the payment
or declaration of a dividend on any shares of Preferred Stock;
(vii) Any action that results in the payment
or declaration of a dividend (other than in Common Stock) on any shares of
Common Stock;
(viii) Any voluntary dissolution or
liquidation (as described in Section 4(d)) of the Company;
(ix) Any increase or decrease in the
authorized number of members of the Company's Board of Directors; or
3.
<PAGE>
(x) Any sale or acquisition, exchange or
transfer of any asset of the Company involving an amount greater than $5
million.
c. SEPARATE VOTE OF SERIES D PREFERRED. For so long as
shares of Series D Preferred remain outstanding, in addition to any other vote
or consent required herein or by law, the vote or written consent of the holders
of at least a majority of the outstanding Series D Preferred shall be necessary
for effecting or validating the following actions:
(i) Any amendment, alteration, or repeal of any
provision of the Certificate of Incorporation or the Bylaws of the Company
(including any filing of a Certificate of Determination that affects adversely
the voting powers, preferences, or other special rights or privileges,
qualifications, limitations, or restrictions of the Series D Preferred;
provided, however, no such approval shall be required with regard to any
amendment, alteration or repeal of any provision of the Certificate of
Incorporation or the Bylaws adopted by the Company (a) in connection with, and
to be effective upon, an initial public offering in which the Series D Preferred
will convert into Common Stock or (b) in connection with a financing pursuant to
which any additional series of Preferred Stock has rights pari passu with the
holders of Series D Preferred); notwithstanding the foregoing, an amendment to
the Certificate of Incorporation authorizing a new series of Preferred Stock
with rights pari passu with the holders of Series D Preferred shall not be
considered to adversely affect the voting powers, preferences or other special
rights or privileges, qualifications, limitations or restrictions of the Series
D Preferred.
d. SEPARATE VOTE OF SERIES E PREFERRED. For so long as
shares of Series E Preferred remain outstanding, in addition to any other vote
or consent required herein or by law, the vote or written consent of the holders
of at least a majority of the outstanding Series E Preferred shall be necessary
for effecting or validating the following actions:
(i) Any amendment, alteration, or repeal of any
provision of the Certificate of Incorporation or the Bylaws of the Company
(including any filing of a Certificate of Determination that affects adversely
the voting powers, preferences, or other special rights or privileges,
qualifications, limitations, or restrictions of the Series E Preferred;
provided, however, no such approval shall be required with regard to any
amendment, alteration or repeal of any provision of the Certificate of
Incorporation or the Bylaws adopted by the Company (a) in connection with, and
to be effective upon, an initial public offering in which the Series E Preferred
will convert into Common Stock or (b) in connection with a financing pursuant to
which any additional series of Preferred Stock has rights pari passu with the
holders of Series E Preferred); notwithstanding the foregoing, an amendment to
the Certificate of Incorporation authorizing a new series of Preferred Stock
with rights pari passu with the holders of Series E Preferred shall not be
considered to adversely affect the voting powers, preferences or other special
rights or privileges, qualifications, limitations or restrictions of the Series
E Preferred.
(ii) Any redemption or repurchase with respect to
Preferred Stock (except for acquisitions of Preferred Stock by the Company in
which the Series E Preferred is simultaneously redeemed or repurchased on a pro
rata basis in proportion to the number of shares of Common Stock then held on an
as if converted to Common Stock basis).
4.
<PAGE>
3. ELECTION OF BOARD OF DIRECTORS.
a. For so long as at least five hundred thousand
(500,000) shares of Series Preferred remain outstanding (subject to adjustment
for any stock split, reverse stock split or similar event affecting the Series
Preferred) and the authorized size of the Company's Board of Directors is at
least seven (7) members, (i) the holders of Series A Preferred, voting as a
separate class and series, shall be entitled to elect one (1) member of the
Company's Board of Directors at each meeting or pursuant to each consent of the
Company's stockholders for the election of directors and to remove from office
such director and to fill any vacancy caused by the resignation, death or
removal of such director; (ii) the holders of the Series B Preferred, voting as
a separate class and series, shall be entitled to elect one (1) member of the
Company's Board of Directors at each meeting or pursuant to each consent of the
Company's stockholders for the election of directors and to remove from office
such director and to fill any vacancy caused by the resignation, death or
removal of such director; (iii) the holders of the Series C Preferred, voting as
a separate class and series, shall be entitled to elect one (1) member of the
Company's Board of Directors at each meeting or pursuant to each consent of the
Company's stockholders for the election of directors and to remove from office
such director and to fill any vacancy caused by the resignation, death or
removal of such director; (iv) the holders of Series D Preferred, voting as a
separate class and series, shall be entitled to elect one (1) member of the
Company's Board of Directors at each meeting or pursuant to each consent of the
Company's stockholders for the election of directors and to remove from office
such director and to fill any vacancy caused by the resignation, death or
removal of such director; (v) for so long as 500,000 share of Series E Preferred
remain outstanding, the holders of a majority in interest of the Series E
Preferred, voting as a separate class and series, shall be entitled to elect one
(1) member of the Company's Board of Directors at each meeting or pursuant to
each consent of the Company's stockholders for the election of directors and to
remove from office such director and to fill any vacancy counsel by the
resignation, death or removal of such director; (vi) the holders of a majority
in interest of the Common Stock and the holders of a majority in interest of the
Series Preferred shall be entitled to elect one (1) member of the Board of
Directors at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal of
such director; and (vii) all remaining directors shall be elected by all
stockholders voting in accordance with Section 2(a) above; two of which shall be
the Chairman of the Board of Directors of the Company and the Chief Executive
Officer of the Company.
b. Directors shall be elected at each annual meeting of
stockholders to hold office until the next annual meeting. Each director shall
hold office either until the expiration of the term for which elected or
appointed and until a successor has been elected and qualified, or until such
director's death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
c. No person entitled to vote at an election for
directors may cumulate votes to which such person is entitled, unless, at the
time of such election, the Corporation is subject to Section 2115(b) of the
California General Corporation Law (" CGCL").
(i) During such time or times that the
Corporation is subject to Section 2115(b) of the CGCL:
(ii) Every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
5.
<PAGE>
otherwise entitled or distribute the stockholder's votes on the same principal
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (A)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (B) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. The candidates receiving the highest number of votes, up to the
number of directors to be elected, are elected.
d. During such time or times that the Corporation is
subject to Section 2115(b) of the CGCL, the Board of Directors or any individual
director may be removed from office at any time without cause by the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote on such removal; provided, however, that unless the entire Board of
Directors is removed, no individual director may be removed when the votes cast
against such director's removal, or not consenting in writing to such removal,
would be sufficient to elect that director if voted cumulatively at an election
which the same total number of votes were cast (or, if such action is taken by
written consent, all shares entitled to vote were voted) and the entire number
of directors authorized at the time of such director's most recent election were
then being elected.
e. Following any date on which the Corporation is no
longer subject to Section 2115(b) of the CGCL and subject to any limitations
imposed by law, Section 3(d) above shall no longer apply and the Board of
Directors or any director may be removed from office at any time (i) with cause
by the affirmative vote of the holders of a majority of the voting power of all
then-outstanding shares of voting stock of the Corporation entitled to vote at
an election of directors or (ii) without cause by the affirmative vote of the
holders of a majority of the voting power of all then-outstanding shares of
voting stock of the Corporation entitled to vote at an election of directors.
4. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution, or winding up of
the Company, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Junior Stock, the holders of Series
Preferred shall be entitled to be paid out of the assets of the Company, whether
from capital, surplus funds, earnings or otherwise, an amount per share of
Series Preferred equal to the Series A Original Issue Price, Series B Original
Issue Price, Series C Original Issue Price, Series D Original Issue Price or the
Series E Original Issue Price, as applicable, (as adjusted for any stock
dividends, combinations, splits, recapitalizations and the like with respect to
such shares), plus the greater of (i) all declared and unpaid dividends on such
shares of Series Preferred or (ii) an amount equal to six percent (6%)
(compounded annually) of the applicable Original Issue Price (as adjusted for
any stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares) per annum from the date that the first share of Series A
Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series
E Preferred is issued, respectively (the "SERIES A ORIGINAL ISSUE DATE," "SERIES
B ORIGINAL ISSUE DATE," "SERIES C ORIGINAL ISSUE DATE", "SERIES D ORIGINAL ISSUE
DATE," and "SERIES E ORIGINAL ISSUE DATE" respectively) until the date of
payment (less the per share amount of any dividends previously paid on such
shares) for each share of Series Preferred held by them (the "PREFERENCE"). If,
upon any liquidation, distribution, or winding up, the assets of the Company
shall be insufficient to make payment in full to all holders of Series Preferred
of the Preference set forth in this Section 4(a), then such assets shall be
distributed among the holders of Series Preferred at the time outstanding,
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled.
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b. After the payment of the full Preference of the
Series Preferred as set forth in Section 4(a) above, the holders of the Common
Stock shall receive on a PRO RATA basis, proceeds up to a total amount per share
equal to the Preference of the Series B Preferred as set forth in Section 4(a)
above. If, upon any liquidation, distribution, winding up, the assets of the
Company shall be insufficient to make payments in full to all holders of the
Common Stock, then such assets shall be distributed among the holders of Common
Stock at the time outstanding, ratably in proportion to the full amounts to
which they would otherwise be respectively entitled.
c. After the payments to the Series Preferred and
Common Stock as set forth in Sections 4(a) and 4(b) above, the assets of the
Company legally available for distribution, if any, shall be distributed ratably
to the holders of the Common Stock and Series Preferred on an as-if-converted to
Common Stock basis.
d. Upon the election of the holders of a majority of
the outstanding shares of Series Preferred, the following events shall be
considered a liquidation under this Section:
(i) any consolidation or merger of the Company
with or into any other corporation or other entity or person, or any other
corporate reorganization, in which the stockholders of the Company immediately
prior to such consolidation, merger or reorganization, own fifty percent (50%)
or less of the Company's voting power immediately after such consolidation,
merger or reorganization, or any transaction or series of related transactions
in which fifty percent (50%) or more of the Company's voting power is
transferred (an "ACQUISITION"); or
(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "ASSET TRANSFER").
e. The Company shall give each holder of record of
Series Preferred written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve a
transaction referenced in Section 4(d), or twenty (20) days prior to the closing
of such transaction, whichever is earlier, and shall also notify such holders in
writing of the final approval of such transaction. The first of such notices
shall describe the material terms and conditions of the impending transaction
and the provisions of this Section 4, and the Company shall thereafter give such
holders prompt notice of any material changes. The transaction shall in no
event take place sooner than twenty (20) days after the Company has given the
first notice provided for herein or sooner than ten (10) days after the Company
has given notice of any material changes provided for herein; PROVIDED, HOWEVER,
that such periods may be shortened to a minimum in each case, down to five (5)
business days, upon the written consent of the holders of Series Preferred that
are entitled to such notice rights or similar notice rights and that represent
at least a majority of the voting power of all then outstanding shares of such
Series Preferred.
f. In any of the events specified in subsection 4(d)
above, if the consideration received by the Company is other than cash, its
value will be deemed its fair market value. Any securities shall be valued as
follows:
(i) Securities not subject to investment letter
or other similar restrictions on free marketability:
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(A) If traded on a securities exchange or
the Nasdaq National Market System, the value shall be deemed to be the average
of the closing prices of the securities on such exchange over the thirty-day
period ending three (3) days prior to the closing;
(B) If actively traded over-the-counter,
the value shall be deemed to be the average of the closing bid or sales prices
(whichever is applicable) over the thirty-day period ending three (3) days prior
to the closing; and
(C) If there is no active public market,
the value will be the fair market value thereof, as mutually determined by the
Company and the holders of at least a majority of the voting power of all then
outstanding shares of Series Preferred.
(ii) The method of valuation of securities subject
to investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (i) (A), (B) or (C) to reflect the approximate fair
market value thereof, as mutually determined by the Company and the holders of
at least a majority of the voting power of all then outstanding shares of Series
Preferred.
5. CONVERSION RIGHTS.
The holders of the Series Preferred shall have the following
rights with respect to the conversion of the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred into
shares of Common Stock (the "CONVERSION RIGHTS"):
a. OPTIONAL CONVERSION. Subject to and in compliance
with the provisions of this Section 5, any shares of Series Preferred may, at
the option of the holder, be converted at any time into fully-paid and
nonassessable shares of Common Stock. The number of shares of Common Stock to
which a holder of Series A Preferred shall be entitled upon conversion shall be
the product obtained by multiplying the Series A Preferred Conversion Rate then
in effect (determined as provided in Section 5(b)) by the number of shares of
Series A Preferred being converted. The number of shares of Common Stock to
which a holder of Series B Preferred shall be entitled upon conversion shall be
the product obtained by multiplying the Series B Conversion Rate (determined as
provided in Section 5(b)) by the number of shares of Series B Preferred being
converted. The number of shares of Common Stock to which a holder of Series C
Preferred shall be entitled upon conversion shall be the product obtained by
multiplying the Series C Conversion Rate then in effect (determined as provided
in Section 5(b)) by the number of Series C Preferred being converted. The
number of shares of Common Stock to which a holder of Series D Preferred shall
be entitled upon conversion shall be the product obtained by multiplying the
Series D Conversion Rate then in effect (determined as provided in Section 5(b))
by the number of Series D Preferred being converted. The number of shares of
Common Stock to which a holder of Series E Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the Series E Conversion
Rate then in effect (determined as provided in Section 5(b)) by the number of
Series E Preferred being converted.
b. SERIES PREFERRED CONVERSION RATE. The conversion
rate in effect at any time for conversion of the Series A Preferred (the "SERIES
A PREFERRED CONVERSION RATE") shall be the quotient obtained by dividing the
Series A Original Issue Price by the Series A Preferred Conversion Price
(determined as provided in Section 5(c)). The conversion rate in effect at any
time for conversion of the Series B Preferred (the "SERIES B PREFERRED
CONVERSION RATE") shall be the quotient obtained by
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dividing the Series B Original Issue Price by the Series B Preferred
Conversion Price (determined as provided in Section 5(c)). The conversion
rate in effect at any time for conversion of the Series C Preferred (the
"SERIES C PREFERRED CONVERSION RATE") shall be the quotient obtained by
dividing the Series C Original Issue Price by the Series C Conversion Price
(determined as provided in Section 5(c)). The conversion rate in effect at
any time for conversion of the Series D Preferred (the "SERIES D PREFERRED
CONVERSION RATE") shall be the quotient obtained by dividing the Series D
Original Issue Price by the Series D Conversion Price (determined as provided
in Section 5(c)). The conversion rate in effect at any time for conversion of
the Series E Preferred (the "SERIES E PREFERRED CONVERSION RATE") shall be
the quotient obtained by dividing the Series E Original Issue Price by the
Series E Conversion Price (determined as provided in Section 5(c))
c. CONVERSION PRICE. The conversion price for the
Series A Preferred shall initially be the Series A Original Issue Price (the
"SERIES A PREFERRED CONVERSION PRICE"). The conversion price for the Series B
Preferred shall initially be the Series B Original Issue Price (the "SERIES B
PREFERRED CONVERSION PRICE"). The conversion price for the Series C Preferred
shall be the Series C Original Issue Price (the "SERIES C PREFERRED CONVERSION
PRICE"). The conversion price for the Series D Preferred shall be the Series D
Original Issue Price (the "SERIES D PREFERRED CONVERSION PRICE"). The
conversion price for the Series E Preferred shall be the Series E Original Issue
Price (the "SERIES E PREFERRED CONVERSION PRICE"). The initial Series A
Preferred Conversion Price, Series B Preferred Conversion Price, Series C
Conversion Price, the Series D Conversion Price and the Series E Conversion
Price shall be adjusted from time to time in accordance with this Section 5.
All references to the Series A Preferred Conversion Price, Series B Preferred
Conversion Price, Series C Conversion Price, the Series D Conversion Price, and
the Series E Conversion Price (collectively, the "SERIES PREFERRED CONVERSION
PRICES") herein shall mean such prices as so adjusted.
d. MECHANICS OF CONVERSION. Each holder of Series
Preferred who desires to convert the same into shares of Common Stock pursuant
to this Section 5 shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Series
Preferred and shall give written notice to the Company at such office that such
holder elects to convert the same. Such notice shall state the number of shares
of Series Preferred being converted. Thereupon, the Company shall promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled and
shall promptly pay in cash or, to the extent sufficient funds are not then
legally available therefor, in Common Stock (at the Common Stock's fair market
value determined by the Board of Directors as of the date of such conversion),
any declared and unpaid dividends on the shares of Series Preferred being
converted. Such conversion shall be deemed to have been made at the close of
business on the date of such surrender of the certificates representing the
shares of Series Preferred to be converted, and the person entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder of such shares of Common Stock on such date.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the
Company shall at any time or from time to time after the Series E Original Issue
Date effect a subdivision of the outstanding Common Stock without a
corresponding subdivision of the Preferred Stock, the Series Preferred
Conversion Prices in effect immediately before that subdivision shall be
proportionately decreased. Conversely, if the Company shall at any time or from
time to time after the Series E Original Issue Date combine the outstanding
shares of Common Stock into a smaller number of shares without a corresponding
combination of the Preferred Stock, the Series Preferred Conversion Prices in
effect immediately before the combination shall be proportionately increased.
Any adjustment under this
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Section 5(e) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
f. ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND
DISTRIBUTIONS. If the Company at any time or from time to time after the Series
E Original Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event the Series
Preferred Conversion Prices that are then in effect shall be decreased as of the
time of such issuance or, in the event such record date is fixed, as of the
close of business on such record date, by multiplying the Series Preferred
Conversion Prices then in effect by a fraction (1) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(2) the denominator of which is the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution; PROVIDED, HOWEVER, that if
such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Series Preferred
Conversion Prices shall be recomputed accordingly as of the close of business on
such record date and thereafter the Series Preferred Conversion Prices shall be
adjusted pursuant to this Section 5(f) to reflect the actual payment of such
dividend or distribution.
g. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after the Series E Original
Issue Date, the Common Stock issuable upon the conversion of the Series
Preferred is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or otherwise
(other than an Acquisition or Asset Transfer as defined in Section 4(d) or a
subdivision or combination of shares or stock dividend or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section
5), in any such event each holder of Series Preferred shall have the right
thereafter to convert such stock into the kind and amount of stock and other
securities and property receivable upon such recapitalization, reclassification
or other change by holders of the maximum number of shares of Common Stock into
which such shares of Series Preferred could have been converted immediately
prior to such recapitalization, reclassification or change, all subject to
further adjustment as provided herein or with respect to such other securities
or property by the terms thereof.
h. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the Series E Original Issue
Date, there is a capital reorganization of the Common Stock (other than an
Acquisition or Asset Transfer as defined in Section 4(d) or a recapitalization,
subdivision, combination, reclassification, exchange or substitution of shares
provided for elsewhere in this Section 5), as a part of such capital
reorganization, provision shall be made so that the holders of the Series
Preferred shall thereafter be entitled to receive upon conversion of the Series
Preferred the number of shares of stock or other securities or property of the
Company to which a holder of the number of shares of Common Stock deliverable
upon conversion would have been entitled on such capital reorganization, subject
to adjustment in respect of such stock or securities by the terms thereof. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of Series
Preferred after the capital reorganization to the end that the provisions of
this Section 5 (including adjustment of the Series Preferred Conversion Prices
then in effect and the number of shares issuable upon conversion of the Series
Preferred) shall be applicable after that event and be as nearly equivalent as
practicable.
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i. SALE OF SHARES BELOW SERIES PREFERRED CONVERSION
PRICES.
(i) If at any time or from time to time after the
Series E Original Issue Date, the Company issues or sells, or is deemed by the
express provisions of this subsection (i) to have issued or sold, Additional
Shares of Common Stock (as defined in subsection 5(i)(iv) below)), other than as
a dividend or other distribution on any class of stock as provided in Section
5(f) above, and other than a subdivision or combination of shares of Common
Stock as provided in Section 5(e) above, for an Effective Price (as defined in
subsection 5(i)(iv) below) less than the then effective Series A Preferred
Conversion Price, Series B Preferred Conversion Price, Series C Conversion
Price, Series D Conversion Price or Series E Preferred Conversion Price, as
applicable, then and in each such case the then existing Series A Preferred
Conversion Price, Series B Preferred Conversion Price, Series C Conversion
Price, Series D Conversion Price, or Series E Conversion Price, as applicable,
shall be reduced, as of the opening of business on the date of such issue or
sale, to a price determined by multiplying the Series A Preferred Conversion
Price, Series B Preferred Conversion Price, Series C Conversion Price, Series D
Conversion Price, or Series E Conversion Price, as applicable, by a fraction (A)
the numerator of which shall be (1) the number of shares of Common Stock deemed
outstanding (as defined below) immediately prior to such issue or sale, plus (2)
the number of shares of Common Stock which the aggregate consideration received
(as defined in subsection 5(i)(ii)) by the Company for the total number of
Additional Shares of Common Stock so issued would purchase at such Series A
Preferred Conversion Price, Series B Preferred Conversion Price, Series C
Conversion Price, Series D Conversion Price, or Series E Conversion Price, as
applicable, and (B) the denominator of which shall be the number of shares of
Common Stock deemed outstanding (as defined below) immediately prior to such
issue or sale plus the total number of Additional Shares of Common Stock so
issued. For the purposes of the preceding sentence, the number of shares of
Common Stock deemed to be outstanding as of a given date shall be the sum of (A)
the number of shares of Common Stock actually outstanding, (B) the number of
shares of Common Stock into which the then outstanding shares of Series
Preferred could be converted if fully converted on the day immediately preceding
the given date, and (C) the number of shares of Common Stock which could be
obtained through the exercise or conversion of all otherrights, rights,
warrants, options and convertible securities on the day immediately preceding
the given date, provided that such shares of Common Stock prior thereto have
been deemed Additional Shares of Common Stock. Notwithstanding the forgoing, if
at any time or from time to time after the Series E Original Issue Date and
prior to December 31, 2000, the Company issues or sells, or is deemed by the
express provisions of this subsection (i) to have issued or sold, Additional
Shares of Common Stock (or defined in subsection 5(i) (iv) below), other than as
dividend or other distribution or any class of stock as provided in Section 5(f)
above, and other than subdivisions or contribution of shares of Common Stock as
provided in Section 5(e) above, for an Effective Price (as defined in subsection
5(i)(iv) below) less than the then effective Series E Preferred Conversion Price
and the aggregate gross proceeds to the Company of such issuance exceeds
$7,500,000 then the Series E Conversion Price shall be reduced to the higher of
the (i) the lowest price at which such shares were issued or sold or (ii) the
Series D Original Issue Price.
(ii) For the purpose of making any adjustment
required under this Section 5(i), the consideration received by the Company for
any issue or sale of securities shall (A) to the extent it consists of cash, be
computed at the net amount of cash received by the Company after deduction of
any underwriting or similar commissions, compensation or concessions paid or
allowed by the Company in connection with such issue or sale but without
deduction of any expenses payable by the Company, (B) to the extent it consists
of property other than cash, be computed at the fair value of that property as
determined in good faith by a disinterested majority of the Board of Directors,
and (C) if Additional Shares of Common Stock, Convertible Securities (as defined
in subsection 5(i)(iii) below) or rights or options to purchase either
Additional Shares of Common Stock or Convertible Securities are
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issued or sold together with other stock or securities or other assets of the
Company for a consideration which covers both, be computed as the portion of
the consideration so received that may be reasonably determined in good faith
by the Board of Directors to be allocable to such Additional Shares of Common
Stock, Convertible Securities or rights or options.
(iii) For the purpose of the adjustment required
under this Section 5(i)(iii), if the Company issues or sells any rights or
options for the purchase of, or stock or other securities convertible into,
Additional Shares of Common Stock (such convertible stock or securities being
herein referred to as "CONVERTIBLE SECURITIES") and if the Effective Price of
such Additional Shares of Common Stock is less than the Series A Preferred
Conversion Price, the Series B Preferred Conversion Price, the Series C
Conversion Price, the Series D Conversion Price, or the Series E Conversion
Price, as applicable, in each case the Company shall be deemed to have issued at
the time of the issuance of such rights or options or Convertible Securities the
maximum number of Additional Shares of Common Stock issuable upon exercise or
conversion thereof and to have received as consideration for the issuance of
such shares an amount equal to the total amount of the consideration, if any,
received by the Company for the issuance of such rights or options or
Convertible Securities, plus, in the case of such rights or options, the minimum
amounts of consideration, if any, payable to the Company upon the exercise of
such rights or options, plus, in the case of Convertible Securities, the minimum
amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion thereof; provided that if in the case of
Convertible Securities the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses; provided further that if the
minimum amount of consideration payable to the Company upon the exercise or
conversion of rights, options or Convertible Securities is reduced over time or
on the occurrence or non-occurrence of specified events other than by reason of
antidilution adjustments, the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; provided
further that if the minimum amount of consideration payable to the Company upon
the exercise or conversion of such rights, options or Convertible Securities is
subsequently increased, the Effective Price shall be again recalculated using
the increased minimum amount of consideration payable to the Company upon the
exercise or conversion of such rights, options or Convertible Securities. No
further adjustment of the Series A Preferred Conversion Price, Series B
Preferred Conversion Price, Series C Conversion Price, Series D Conversion
Price, or Series E Conversion Price, as applicable, as adjusted upon the
issuance of such rights, options or Convertible Securities, shall be made as a
result of the actual issuance of Additional Shares of Common Stock on the
exercise of any such rights or options or the conversion of any such Convertible
Securities. If any such rights or options or the conversion privilege
represented by any such Convertible Securities shall expire without having been
exercised, the Series A Preferred Conversion Price, Series B Preferred
Conversion Price, Series C Conversion Price, Series D Conversion Price, or
Series E Conversion Price, as applicable, as adjusted upon the issuance of such
rights, options or Convertible Securities shall be readjusted to the Series A
Preferred Conversion Price, Series B Preferred Conversion Price, Series C
Conversion Price, Series D Conversion Price, or Series E Conversion Price, as
applicable, which would have been in effect had an adjustment been made on the
basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such rights or options or rights of conversion of such Convertible
Securities, and such Additional Shares of Common Stock, if any, were issued or
sod for the consideration actually received by the Company upon such exercise,
plus the consideration, if any, actually received by the Company for the
granting of all such rights or options, whether or not exercised, plus the
consideration received for issuing or selling the Convertible Securities
actually converted, plus the consideration, if any, actually received by the
Company (other than by
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cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion of such Convertible Securities, provided that
such readjustment shall not apply to prior conversions of Series Preferred.
(iv) "ADDITIONAL SHARES OF COMMON STOCK" shall
mean all shares of Common Stock issued by the Company or deemed to be issued
pursuant to this Section 5(i), whether or not subsequently reacquired or retired
by the Company other than (A) shares of Common Stock issued upon conversion of
the Series Preferred, (B) if approved by the Board of Directors of the Company
(including the representatives designated by the Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred, and Series E Preferred),
shares of Common Stock and/or options, warrants or other Common Stock purchase
rights and the Common Stock issued pursuant to such options, warrants or other
rights after the Series E Original Issue Date to employees, officers or
directors of, or consultants or advisors to the Company or any subsidiary
pursuant to stock purchase or stock option plans or other arrangements, (C)
shares of Common Stock issued pursuant to the exercise of options, warrants or
convertible securities outstanding as of the Series E Original Issue Date, (D)
shares of Common Stock and/or options, warrants or other Common Stock purchase
rights, and the Common Stock issued pursuant to such options, warrants or other
rights issued for consideration other than cash pursuant to a merger,
consolidation, acquisition or similar business combination approved by the Board
(so long as Board approval constitutes consent by at least a majority of the
members of the Board of Directors representing the Series Preferred), (E) shares
of Common Stock or Preferred Stock and/or options, warrants or other Common
Stock or Preferred Stock purchase rights issued pursuant to any equipment
leasing arrangement, debt financing from a bank or similar financial institution
or strategic transaction approved by the Board (so long as Board approval
constitutes consent by at least a majority of the members of the Board of
Directors representing the Series Preferred), (F) warrants to purchase up to
245,000 shares of Common Stock of the Company issued after November 17, 1999 or
(G) shares of Common Stock isuable upon the exercise of such warrants. The
"EFFECTIVE PRICE" of Additional Shares of Common Stock shall mean the quotient
determined by dividing the total number of Additional Shares of Common Stock
issued or sold or deemed to have been issued or sold by the Company under this
Section 5(i), into the aggregate consideration received, or deemed to have been
received by the Company for such issue under this Section 5(i), for such
Additional Shares of Common Stock.
j. CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Series A Preferred Conversion Price, Series B
Preferred Conversion Price, Series C Conversion Price, Series D Conversion Price
or Series E Conversion Price for the number of shares of Common Stock or other
securities issuable upon conversion of the Series A Preferred, Series B
Preferred, Series C Preferred Series D Preferred, or Series E Preferred, if the
Series A Preferred, Series B Preferred, Series C Preferred, Series D Preferred,
or Series E Preferred is then convertible pursuant to this Section 5, the
Company, at its expense, shall compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Series A Preferred, Series B
Preferred, Series C Preferred, Series D Preferred or Series E Preferred, as
applicable, at the holder's address as shown in the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (1) the consideration received or deemed to be received by the
Company for any Additional Shares of Common Stock issued or sold or deemed to
have been issued or sold, (2) the Series A Preferred Conversion Price, Series B
Preferred Conversion Price, Series C Conversion Price, Series D Conversion Price
or Series E Conversion Price at the time in effect, as applicable, (3) the
number of Additional Shares of Common Stock and (4) the type and amount, if any,
of other property which at the
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time would be received upon conversion of the Series A Preferred, Series B
Preferred, Series C Preferred Series D Preferred or Series E Preferred.
k. NOTICES OF RECORD DATE. Upon (i) any taking by the
Company of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any Acquisition (as defined in Section 4(d)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined in Section 4(d)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall mail to
each holder of Series Preferred at least twenty (20) days prior to the record
date specified therein a notice specifying (A) the date on which any such record
is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (B) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective, and (C) the date, if any, that is to be fixed as to when the holders
of record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up.
l. AUTOMATIC CONVERSION.
(i) Each share of Series A Preferred and
Series B Preferred shall automatically be converted into shares of Common
Stock, based on the then-effective Series A Preferred Conversion Price or
Series B Preferred Conversion Price, as applicable, (A) at any time upon the
affirmative election of the holders of at least a majority of the outstanding
shares of the Series A Preferred and Series B Preferred (voting together as a
single class on an as-converted basis and not as a separate series), or (B)
immediately upon the closing of a firmly underwritten public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offer and sale of Common Stock for the account
of the Company in which (I) the per share price is at least nine dollars and
eighty cents ($9.80) and (II) the net cash proceeds to the Company (before
underwriting discounts, commissions and fees) are in excess of twenty million
dollars ($20,000,000). Upon such automatic conversion, any declared and
unpaid dividends shall be paid in accordance with the provisions of Section
5(d).
(ii) Each share of Series C Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Series C Preferred Conversion Price, (A) at any time upon the
affirmative election of the holders of at least a majority of the outstanding
shares of the Series C Preferred, or (B) immediately upon the closing of a
firmly underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer
and sale of Common Stock for the account of the Company in which (I) the per
share price is at least nine dollars and eighty cents ($9.80) and (II) the
net cash proceeds to the Company (before underwriting discounts, commissions
and fees) are in excess of twenty million dollars ($20,000,000). Upon such
automatic conversion, any declared and unpaid dividends shall be paid in
accordance with the provisions of Section 5(d).
(iii) Each share of Series D Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Series D Preferred Conversion Price, (A) at any time upon the
affirmative election of the holders of at least a majority of the outstanding
shares of the Series D Preferred, or (B) immediately upon the closing of a
firmly underwritten public
14.
<PAGE>
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Company in which (I) the per share price is at least nine
dollars and eighty cents ($9.80) and (II) the net cash proceeds to the
Company (before underwriting discounts, commissions and fees) are in excess
of twenty million dollars ($20,000,000). Upon such automatic conversion, any
declared and unpaid dividends shall be paid in accordance with the provisions
of Section 5(d).
(iv) Each share of Series E Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Series E Preferred Conversion Price, (A) at any time upon the
affirmative election of the holders of at least a majority of the outstanding
shares of the Series E Preferred, or (B) immediately upon the closing of a
firmly underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer
and sale of Common Stock for the account of the Company in which (I) the per
share price is at least thirteen dollars and fifty cents ($13.50) and (II)
the net cash proceeds to the Company (before underwriting discounts,
commissions and fees) are in excess of twenty million dollars ($20,000,000).
Upon such automatic conversion, any declared and unpaid dividends shall be
paid in accordance with the provisions of Section 5(d).
(v) Upon the occurrence of an event specified in
subsections 5(l)(i), 5(l)(ii), 5(l)(iii) and/or 5(l)(iv), above, the outstanding
shares of Series Preferred shall be converted automatically without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
PROVIDED, HOWEVER, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series Preferred are either delivered to
the Company or its transfer agent as provided below, or the holder notifies the
Company or its transfer agent that such certificates have been lost, stolen or
destroyed and executes an agreement satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection with such certificates. Upon
the occurrence of such automatic conversion of the Series Preferred, the holders
of Series Preferred shall surrender the certificates representing such shares at
the office of the Company or any transfer agent for the Series Preferred.
Thereupon, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Series Preferred surrendered were convertible on the date on
which such automatic conversion occurred, and any declared and unpaid dividends
shall be paid in accordance with the provisions of Section 5(d).
m. FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon conversion of Series Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series Preferred by a holder thereof shall be aggregated for purposes
of determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Company shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board
of Directors) on the date of conversion.
n. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series Preferred, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of the Series Preferred. If at any time the number of
authorized but unissued shares of
15.
<PAGE>
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series Preferred, the Company will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
o. NOTICES. Any notice required by the provisions of
this Section 5 shall be in writing and shall be deemed effectively given: (i)
upon personal delivery to the party to be notified; (ii) when sent by confirmed
telex or facsimile if sent during normal business hours of the recipient; if
not, then on the next business day; (iii) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage prepaid; or
(iv) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed to each holder of record at the address of such holder
appearing on the books of the Company.
p. PAYMENT OF TAXES. The Company will pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed with respect to the issue or delivery of shares of Common Stock upon
conversion of shares of Series Preferred, excluding any tax or other charge
imposed in connection with any transfer involved in the issue and delivery of
shares of Common Stock in a name other than that in which the shares of Series
Preferred so converted were registered.
q. NO DILUTION OR IMPAIRMENT. Without the consent of
the holders of a majority of the then outstanding Series Preferred (voting
together as a single class on an as-converted basis and not as a separate
series), as required under Section 2(b), the Company shall not amend its
Certificate of Incorporation or participate in any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or take
any other voluntary action, for the purpose of avoiding or seeking to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series Preferred
against dilution or other impairment.
6. NO REISSUANCE OF SERIES PREFERRED. No share or shares of
Series Preferred acquired by the Company by reason of redemption, purchase,
conversion or otherwise shall be reissued; and in addition, this Third Amended
and Restated Certificate of Incorporation shall be appropriately amended to
effect the corresponding reduction in the Company's authorized stock.
V.
A. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed by
the Board of Directors in the manner provided in the Bylaws.
B. The Board of Directors may from time to time make, amend,
supplement or repeal the Bylaws; PROVIDED, HOWEVER, that the stockholders may
change or repeal any Bylaw adopted by the Board of Directors by the affirmative
vote of the percentage of holders of capital stock as provided therein; and,
provided further, that no amendment or supplement to the Bylaws adopted by the
Board of Directors shall vary or conflict with any amendment or supplement thus
adopted by the stockholders.
16.
<PAGE>
C. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
VI.
A. A director of the Corporation shall to the fullest extent
permitted by the Delaware General Corporation Law, as it now exists or as it may
hereafter be amended, not be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts of omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the Delaware General Corporation Law is amended after approval by
the stockholders of this Article to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended. During such times that the
Corporation is subject to Section 2115(b) of the CGCL, the liability of the
directors of this Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California Law.
B. Each person who is or was a director of the Corporation (including
the heirs, executors, administrators or estate of such person) shall be
indemnified by the Corporation as of right to the fullest extent permitted or
authorized by the Delaware General Corporation Law against any liability, cost
or expense asserted against such director or officer and incurred by such
director or officer in any such person's capacity as a director or officer, or
arising out of any such person's status as a director or officer. The
Corporation may, but shall not be obligated to, maintain insurance, at its
expense, to protect itself and any such person against any such liability, cost
or expense. During such time or times that the Corporation is subject to
Section 2115(b) of the CGCL, this Corporation is authorized to provide
indemnification of agents (as defined in Section 317 of the CGCL) through bylaw
provisions, agreements with the agents, vote of stockholders or disinterested
directors or otherwise in excess of the indemnification otherwise permitted by
Section 317 of the CGCL, subject only to applicable limits set forth in Section
204 of the CGCL with respect to actions for breach of duty to the Corporation
and its stockholders.
C. Any repeal or modification of this Article shall only be
prospective and shall not effect the rights under this Article in effect at the
time of the alleged occurrence of any action or omission to act giving rise to
liability.
VII.
A. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Third Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon the stockholders herein are granted subject to this
reservation.
B. Notwithstanding any other provisions of this Third Amended and
Restated Certificate of Incorporation or any provisions of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holder of any particular class or series of voting stock required by
law, the affirmative vote of the holders of at least a majority of the voting
power of all the then
17.
<PAGE>
outstanding shares of voting stock, voting together as a single class, shall
be required to alter, amend or repeal Articles VI and VII.
* * * *
FOUR: This Third Amended and Restated Certificate of Incorporation has
been duly approved by the Board of Directors of this Corporation.
FIVE: This Third Amended and Restated Certificate of Incorporation has
been duly adopted in accordance with the provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware by the Board of Directors
and the stockholders of the Corporation. The total number of outstanding shares
entitled to vote or act by written consent was one million six hundred eighty
one thousand three hundred nineteen (1,681,319) shares of Common Stock, one
million two hundred seven thousand (1,207,000) shares of Series A Preferred, one
million nine hundred thirty-four thousand five hundred twenty-six (1,934,526)
shares of Series B Preferred, three million five hundred forty three thousand
one hundred ninety (3,543,190) shares of Series C Preferred and two million one
hundred thousand eight hundred forty three (2,100,843) shares of Series D
Preferred. A majority of the outstanding shares of Common Stock, a majority of
the outstanding shares of Preferred Stock and a majority of the outstanding
shares of Series D Preferred Stock approved this Third Amended and Restated
Certificate of Incorporation by written consent in accordance with Section 228
of the General Corporation Law of the State of Delaware and written notice of
such was given by the Corporation in accordance with said Section 228.
18.
<PAGE>
IN WITNESS WHEREOF, ImproveNet, Inc. has caused this Third Amended and
Restated Certificate of Incorporation to be signed by the President and
Secretary of the Company in Redwood City, California this ______ day of
November, 1999.
------------------------------
Ronald Cooper
President
------------------------------
Jan M. Sherman
Secretary
<PAGE>
FOURTH AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
IMPROVENET, INC.
Ronald B. Cooper and Richard G. Reece hereby certify that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of ImproveNet, Inc., a Delaware corporation.
TWO: The original name of this corporation is ImproveNet, Inc. and the
date on which the Certificate of Incorporation was originally filed with the
Secretary of State of the State of Delaware is June 2, 1998.
THREE: The Certificate of Incorporation of this corporation is hereby
amended and restated to read as follows:
I.
The name of the corporation is IMPROVENET, INC. (the "Corporation" or
the "Company").
II.
The address of the registered office of the Corporation in the State of
Delaware is:
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
County of New Castle
The name of the Corporation's registered agent at said address is
Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is one hundred
five million (105,000,000) shares. One hundred million (100,000,000) shares
shall be Common Stock, each having a par
1.
<PAGE>
value of one-tenth of one cent ($.001). Five million (5,000,000) shares
shall be Preferred Stock, each having a par value of one-tenth of one cent
($.001).
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, by filing a certificate (a
"Preferred Stock Designation") pursuant to the Delaware General Corporation Law
("DGCL"), to fix or alter from time to time the designation, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions of any wholly unissued series of Preferred Stock, and to
establish from time to time the number of shares constituting any such series or
any of them; and to increase or decrease the number of shares of any series
subsequent to the issuance of shares of that series, but not below the number of
shares of such series then outstanding. In case the number of shares of any
series shall be decreased in accordance with the foregoing sentence, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
V.
For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. MANAGEMENT
1. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
2. BOARD OF DIRECTORS
a. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "1993 Act"),
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial Public
Offering, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the Initial Public Offering, the term of
office of the Class III directors shall expire and Class III directors shall be
elected for a full term of three years. At each succeeding annual meeting of
stockholders, directors shall be elected for a full term of three years to
succeed the directors of the class whose terms expire at
2.
<PAGE>
such annual meeting. During such time or times that the corporation is subject
to Section 2115(b) of the California General Corporation Law ("CGCL"), this
Section A.2.a of this Article V shall not be effective and Section A.2.b of this
Article shall apply.
b. In the event that the corporation is subject to Section 2115(b)
of the CGCL, Section A.2.a of this Article V shall not apply and all directors
shall be shall be elected at each annual meeting of stockholders to hold office
until the next annual meeting.
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation (i) is subject to Section 2115(b) of the CGCL and (ii)
is not a "listed" corporation or ceases to be a "listed" corporation under
Section 301.5 of the CGCL. During this time, every stockholder entitled to vote
at an election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
3. REMOVAL OF DIRECTORS
a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
b. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A. 3. a. above shall no longer apply and removal shall be as provided in
Section 141(k) of the DGCL.
3.
<PAGE>
4. VACANCIES
a. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
c. At any time or times that the corporation is subject to Section
2115(b) of the CGCL, if, after the filling of any vacancy by the directors then
in office who have been elected by stockholders shall constitute less than a
majority of the directors then in office, then
(i) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B.
1. BYLAW AMENDMENTS
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of the corporation entitled to
vote. The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
4.
<PAGE>
2. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
3. No action shall be taken by the stockholders of the corporation
except (i) at an annual or special meeting of stockholders called in accordance
with the Bylaws or (ii) by written consent of stockholders in accordance with
the Bylaws prior to the closing of the Initial Public Offering and following the
closing of the Initial Public Offering no action shall be taken by the
stockholders by written consent.
4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the CGCL) for breach of duty to the corporation and
its shareholders through bylaw provisions or through agreements with the agents,
or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal any
provision contained in this Fourth Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, except as
provided in paragraph B. of this Article VII, and all rights conferred upon the
stockholders herein are granted subject to this reservation.
B. Notwithstanding any other provisions of this Fourth Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock required by law,
this Fourth Amended and Restated Certificate of Incorporation or any Preferred
Stock Designation, following the closing of the Initial Public Offering the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then-outstanding shares of the
voting stock, voting together as a single class, shall be required to alter,
amend or repeal Articles V, VI, or VII of this Fourth Amended and Restated
Certificate of Incorporation.
5.
<PAGE>
* * * *
FOUR: This Fourth Amended and Restated Certificate of Incorporation has
been duly approved by the Board of Directors of this Corporation.
FIVE: This Fourth Amended and Restated Certificate of Incorporation has
been duly adopted in accordance with the provisions of Sections 228, 242 and 245
of the General Corporation Law of the State of Delaware by the Board of
Directors and the stockholders of the Corporation. The total number of
outstanding shares entitled to vote or act by written consent was ___________
shares of Common Stock, _____________ shares of Series A Preferred Stock,
____________ shares of Series B Preferred Stock, __________ shares of Series C
Preferred Stock, __________ shares of Series D Preferred Stock and ________
shares of Series E Preferred Stock. A majority of the outstanding shares of
Common Stock, a majority of the outstanding shares of Preferred Stock, a
majority of the Series D Preferred Stock and a majority of the Series E
Preferred Stock approved this Fourth Amended and Restated Certificate of
Incorporation by written consent in accordance with Section 228 of the General
Corporation Law of the State of Delaware and written notice of such was given by
the Corporation in accordance with said Section 228.
6.
<PAGE>
IN WITNESS WHEREOF, IMPROVENET, INC. has caused this Fourth Amended and
Restated Certificate of Incorporation to be signed by the President and the
Secretary in Redwood City, California this _____ day of December, 1999.
IMPROVENET, INC.
By:
----------------------------------
Ronald B. Cooper
President
ATTEST:
By:
----------------------------
Richard G. Reece
Secretary
<PAGE>
BYLAWS
OF
IMPROVENET, INC.
(A DELAWARE CORPORATION)
AS AMENDED AND RESTATED ON SEPTEMBER 10, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I OFFICES...................................................................................1
Section 1. Registered Office......................................................................1
Section 2. Other Offices..........................................................................1
ARTICLE II CORPORATE SEAL............................................................................1
Section 3. Corporate Seal.........................................................................1
ARTICLE III STOCKHOLDERS'MEETINGS.....................................................................1
Section 4. Place of Meetings......................................................................1
Section 5. Annual Meeting.........................................................................1
Section 6. Special Meetings.......................................................................2
Section 7. Notice of Meetings.....................................................................3
Section 8. Quorum.................................................................................3
Section 9. Adjournment and Notice of Adjourned Meetings...........................................4
Section 10. Voting Rights..........................................................................4
Section 11. Joint Owners of Stock..................................................................4
Section 12. List of Stockholders...................................................................4
Section 13. Action Without Meeting.................................................................5
Section 14. Organization...........................................................................5
ARTICLE IV DIRECTORS.................................................................................6
Section 15. Number and Term of Office..............................................................6
Section 16. Powers.................................................................................6
Section 17. Term of Directors......................................................................6
Section 18. Vacancies..............................................................................7
Section 19. Resignation............................................................................7
Section 20. Removal................................................................................8
Section 21. ......................................................................................8
(a) Annual Meetings........................................................................8
(b) Regular Meetings.......................................................................8
(c) Special Meetings.......................................................................8
(d) Telephone Meetings.....................................................................8
(e) Notice of Meetings.....................................................................9
(f) Waiver of Notice.......................................................................9
Section 22. Quorum and Voting......................................................................9
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<S> <C>
Section 23. Action Without Meeting.................................................................9
Section 24. Fees and Compensation..................................................................9
Section 25. Committees............................................................................10
(a) Executive Committee...................................................................10
(b) Other Committees......................................................................10
(c) Term..................................................................................10
(d) Meetings..............................................................................10
Section 26. Organization..........................................................................11
ARTICLE V OFFICERS.................................................................................11
Section 27. Officers Designated...................................................................11
Section 28. Tenure and Duties of Officers.........................................................11
(a) General...............................................................................11
(b) Duties of Chairman of the Board of Directors..........................................11
(c) Duties of President...................................................................11
(d) Duties of Vice Presidents.............................................................12
(e) Duties of Secretary...................................................................12
(f) Duties of Chief Financial Officer.....................................................12
Section 29. Delegation of Authority...............................................................12
Section 30. Resignations..........................................................................12
Section 31. Removal...............................................................................12
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF
SECURITIES OWNED BY THE CORPORATION......................................................13
Section 32. Execution of Corporate Instruments....................................................13
Section 33. Voting of Securities Owned by the Corporation.........................................13
ARTICLE VII SHARES OF STOCK..........................................................................13
Section 34. Form and Execution of Certificates....................................................13
Section 35. Lost Certificates.....................................................................14
Section 36. Transfers.............................................................................14
Section 37. Fixing Record Dates...................................................................14
Section 38. Registered Stockholders...............................................................15
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION......................................................16
Section 39. Execution of Other Securities.........................................................16
ii.
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TABLE OF CONTENTS
(CONTINUED)
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ARTICLE IX DIVIDENDS................................................................................16
Section 40. Declaration of Dividends..............................................................16
Section 41. Dividend Reserve......................................................................16
ARTICLE X FISCAL YEAR..............................................................................17
Section 42. Fiscal Year...........................................................................17
ARTICLE XI INDEMNIFICATION..........................................................................17
Section 43. Indemnification of Directors, Executive Officers, Other Officers,
Employees and Other Agents............................................................17
(a) Directors and Executive Officers......................................................17
(b) Other Officers, Employees and Other Agents............................................17
(c) Expenses..............................................................................17
(d) Enforcement...........................................................................18
(e) Non-Exclusivity of Rights.............................................................18
(f) Survival of Rights....................................................................18
(g) Insurance.............................................................................18
(h) Amendments............................................................................18
(i) Saving Clause.........................................................................19
(j) Certain Definitions...................................................................19
ARTICLE XII NOTICES..................................................................................20
Section 44. Notices...............................................................................20
(a) Notice to Stockholders................................................................20
(b) Notice to Directors...................................................................20
(c) Affidavit of Mailing..................................................................20
(d) Time Notices Deemed Given.............................................................20
(e) Methods of Notice.....................................................................20
(f) Failure to Receive Notice.............................................................20
(g) Notice to Person with Whom Communication Is Unlawful..................................20
(h) Notice to Person with Undeliverable Address...........................................21
ARTICLE XIII AMENDMENTS...............................................................................21
Section 45. Amendments............................................................................21
ARTICLE XIV RIGHT OF FIRST REFUSAL...................................................................21
Section 46. Right of First Refusal................................................................21
iii.
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TABLE OF CONTENTS
(CONTINUED)
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ARTICLE XV MISCELLANEOUS............................................................................23
Section 47. Annual Report.........................................................................23
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iv.
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BYLAWS
OF
IMPROVENET, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Dover, County of
Kent. (Del. Code Ann., tit. 8, Section 131)
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business at such place as may be
fixed by the Board of Directors, and may also have offices at such other
places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the corporation
may require. (Del. Code Ann., tit. 8, Section 122(8))
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a
corporate seal, such corporate seal shall consist of a die bearing the name
of the corporation and the inscription, "Corporate Seal-Delaware." Said seal
may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise. (Del. Code Ann., tit. 8, Section 122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of
the corporation shall be held at such place, either within or without the
State of Delaware, as may be designated from time to time by the Board of
Directors, or, if not so designated, then at the principal office of the
corporation required to be maintained pursuant to Section 2 hereof. (Del.
Code Ann., tit. 8, Section 211(a))
SECTION 5. ANNUAL MEETING.
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(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at
such time as may be designated from time to time by the Board of Directors.
(Del. Code Ann., tit. 8, Section 211(b))
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the Board of Directors, (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered
to or mailed and received at the principal executive offices of the
corporation not later than the close of business on the sixtieth (60th) day
nor earlier than the close of business on the ninetieth (90th) day prior to
the first anniversary of the preceding year's annual meeting; PROVIDED,
HOWEVER, that in the event that no annual meeting was held in the previous
year or the date of the annual meeting has been changed by more than thirty
(30) days from the date contemplated at the time of the previous year's proxy
statement, notice by the stockholder to be timely must be so received not
earlier than the close of business on the ninetieth (90th) day prior to such
annual meeting and not later than the close of business on the later of the
sixtieth (60th) day prior to such annual meeting or, in the event public
announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to
each matter the stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect
to a stockholder proposal in the proxy statement and form of proxy for a
stockholders' meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in
these Bylaws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this paragraph
(b). The chairman of the annual meeting shall, if the facts warrant,
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this paragraph
(b), and, if he should so determine, he shall so declare at the meeting that
any such business not properly brought before the meeting shall not be
transacted. (Del. Code Ann., tit. 8: Section 211(b))
(c) For purposes of this Section 5, "public
announcement" shall mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable national news service or
in a document publicly filed by the corporation with the Securities and
Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
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(a) Special meetings of the stockholders of the
corporation may be called, for any purpose or purposes, by (i) the Chairman
of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the
Board of Directors pursuant to a resolution adopted by a majority of the
total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
resolution is presented to the Board of Directors for adoption) or (iv) by
the holders of shares entitled to cast not less than ten percent (10%) of the
votes at the meeting, and shall be held at such place, on such date, and at
such time as the Board of Directors shall fix. At any time or times that the
corporation is subject to Section 2115(b) of the California General
Corporation Law ("CGCL"), stockholders holding five percent (5%) or more of
the outstanding shares shall have the right to call a special meeting of
stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business
may be transacted at such special meeting otherwise than specified in such
notice. The Board of Directors shall determine the time and place of such
special meeting, which shall be held not less than thirty-five (35) nor more
than one hundred twenty (120) days after the date of the receipt of the
request. Upon determination of the time and place of the meeting, the
officer receiving the request shall cause notice to be given to the
stockholders entitled to vote, in accordance with the provisions of Section 7
of these Bylaws. If the notice is not given within twenty (20) days after
the receipt of the request, the person or persons requesting the meeting may
set the time and place of the meeting and give the notice. Nothing contained
in this paragraph (b) shall be construed as limiting, fixing, or affecting
the time when a meeting of stockholders called by action of the Board of
Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by
law or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any
meeting of stockholders may be waived in writing, signed by the person
entitled to notice thereof, either before or after such meeting, and will be
waived by any stockholder by his attendance thereat in person or by proxy,
except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Any
stockholder so waiving notice of such meeting shall be bound by the
proceedings of any such meeting in all respects as if due notice thereof had
been given. (Del. Code Ann., tit. 8, Sections 222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except
where otherwise provided by statute or by the Certificate of Incorporation,
or by these Bylaws, the presence, in person or by proxy duly authorized, of
the holders of a majority of the outstanding shares of stock entitled to vote
shall constitute a quorum for the transaction of business. In the absence of
a quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority
of the shares represented thereat, but no other business shall be transacted
at such meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all action taken by the holders
of a majority of the vote cast, including abstentions, at any meeting at
which a quorum is present shall be valid and binding upon the corporation;
PROVIDED, HOWEVER, that, except as set
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forth in Section 17 herein, directors shall be elected by a plurality of the
votes of the shares present in person or represented by proxy at the meeting
and entitled to vote on the election of directors. Where a separate vote by
a class or classes or series is required, except where otherwise provided by
the statute or by the Certificate of Incorporation or these Bylaws, a
majority of the outstanding shares of such class or classes or series,
present in person or represented by proxy, shall constitute a quorum entitled
to take action with respect to that vote on that matter and, except where
otherwise provided by statute or by the Certificate of Incorporation or these
Bylaws, the affirmative vote of the majority (plurality, in the case of the
election of directors) of the votes cast, including abstentions, by the
holders of shares of such class or classes or series shall be the act of such
class or classes or series. (Del. Code Ann., tit. 8, Section 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any
meeting of stockholders, whether annual or special, may be adjourned from
time to time either by the chairman of the meeting or by the vote of a
majority of the shares casting votes, excluding abstentions. When a meeting
is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting
at which the adjournment is taken. At the adjourned meeting, the corporation
may transact any business which might have been transacted at the original
meeting. If the adjournment is for more than thirty (30) days or if after
the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting. (Del. Code Ann., tit. 8, Section 222(c))
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section
12 of these Bylaws, shall be entitled to vote at any meeting of stockholders.
Every person entitled to vote or execute consents shall have the right to do
so either in person or by an agent or agents authorized by a proxy granted in
accordance with Delaware law. An agent so appointed need not be a
stockholder. No proxy shall be voted after three (3) years from its date of
creation unless the proxy provides for a longer period. (Del. Code Ann.,
tit. 8, Sections 211(e), 212(b))
SECTION 11. JOINT OWNERS OF STOCK. If shares or other
securities having voting power stand of record in the names of two (2) or
more persons, whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety, or otherwise, or if two (2) or
more persons have the same fiduciary relationship respecting the same shares,
unless the Secretary is given written notice to the contrary and is furnished
with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting
shall have the following effect: (a) if only one (1) votes, his act binds
all; (b) if more than one (1) votes, the act of the majority so voting binds
all; (c) if more than one (1) votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or may apply to the Delaware Court of Chancery for relief as
provided in the Delaware General Corporation Law, Section 217(b). If the
instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest. (Del. Code Ann., tit. 8,
Section 217(b))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at said meeting, arranged
in alphabetical order, showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be
open to the examination of any stockholder, for any purpose germane to the
meeting, during ordinary business hours, for a period of at least ten (10)
days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not specified, at the place where the
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<PAGE>
meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present. (Del. Code Ann., tit. 8, Section 219(a))
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all
shares entitled to vote thereon were present and voted.
(b) Every written consent shall bear the date of
signature of each stockholder who signs the consent, and no written consent
shall be effective to take the corporate action referred to therein unless,
within sixty (60) days of the earliest dated consent delivered to the
corporation in the manner herein required, written consents signed by a
sufficient number of stockholders to take action are delivered to the
corporation by delivery to its registered office in the State of Delaware,
its principal place of business or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders
are recorded. Delivery made to a corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested. (Del. Code
Ann., tit. 8, Section 228)
(c) Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to
those stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the Delaware General Corporation Law if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed
under such section shall state, in lieu of any statement required by such
section concerning any vote of stockholders, that written consent has been
given in accordance with Section 228 of the Delaware General Corporation Law.
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of
the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or, if the President is absent, a chairman of the
meeting chosen by a majority in interest of the stockholders entitled to
vote, present in person or by proxy, shall act as chairman. The Secretary,
or, in his absence, an Assistant Secretary directed to do so by the
President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject
to such rules and regulations of the Board of Directors, if any, the chairman
of the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of
such chairman, are necessary, appropriate or convenient for the proper
conduct of the meeting, including, without limitation, establishing an agenda
or order of business for the meeting, rules and procedures for maintaining
order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation
and their duly authorized and constituted proxies and such other persons as
the chairman shall permit, restrictions on entry to the meeting after the
time fixed for the commencement thereof, limitations on the time allotted to
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questions or comments by participants and regulation of the opening and
closing of the polls for balloting on matters which are to be voted on by
ballot. Unless and to the extent determined by the Board of Directors or the
chairman of the meeting, meetings of stockholders shall not be required to be
held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE.
The exact number of directors shall be set from time to time (a) by
the approval of the Board of Directors (including at least one (1) Series A
Preferred Stock elected director), or (b) by the affirmative vote of a
majority of the shares represented and voting at a duly held meeting at which
a quorum is present (which shares voting affirmatively also constitute at
least a majority of the required quorum) or by the written consent of
shareholders pursuant to Section 13 herein above.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected
at an annual meeting, they may be elected as soon thereafter as convenient at
a special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws. (Del. Code Ann., tit. 8, Sections 141(b), 211(b),
(c))
SECTION 16. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the
Certificate of Incorporation. (Del. Code Ann., tit. 8, Section 141(a))
SECTION 17. TERM OF DIRECTORS.
(a) Subject to the rights of the holders of any series
of Preferred Stock to elect additional directors under specified
circumstances, directors shall be elected at each annual meeting of
stockholders for a term of one year. Each director shall serve until his
successor is duly elected and qualified or until his death, resignation or
removal. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
(b) No person entitled to vote at an election for
directors may cumulate votes to which such person is entitled, unless, at the
time of such election, the corporation is subject to Section 2115(b) of the
CGCL.
(i) During such time or times that the corporation
is subject to Section 2115(b) of the CGCL:
(ii) Every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholders votes on the same
principal among as many candidates as such
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stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (a) the names of such candidate or
candidates have been placed in nomination prior to the voting and (b) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice, all stockholders may cumulate their
votes for any candidates who have been properly placed in nomination. The
candidates receiving the highest number of votes, up to the number of
directors to be elected, are elected.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships shall be filled by stockholders, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred and until such director's successor shall have been
elected and qualified. A vacancy in the Board of Directors shall be deemed
to exist under this Bylaw in the case of the death, removal or resignation of
any director. (Del. Code Ann., tit. 8, Section 223(a), (b)).
(b) If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than
a majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors
then in offices as aforesaid, which election shall be governed by Section 211
of the Delaware General Corporation Law (Del. Code Ann. tit. 8,
Section 223(c)).
(c) At any time or times that the corporation is subject
to Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall
constitute less than a majority of the directors then in office, then
(i) any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) the Superior Court of the proper county shall,
upon application of such stockholder or stockholders, summarily order a
special meeting of the stockholders, to be held to elect the entire board,
all in accordance with Section 305(c) of the CGCL, the term of office of any
director shall terminate upon that election of a successor. (CGCL Section
305(c).]
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by
the Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the
Board of Directors. When one or more directors shall resign from the Board
of Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each Director so
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chosen shall hold office for the unexpired portion of the term of the
Director whose place shall be vacated and until his successor shall have been
duly elected and qualified. (Del. Code Ann., tit. 8, Sections 141(b),
223(d))
SECTION 20. REMOVAL.
(a) Subject to any limitations imposed by applicable law
(and assuming the corporation is not subject to Section 2115 of the CGCL),
the Board of Directors or any director may be removed from office at any time
(i) with cause by the affirmative vote of the holders of a majority of the
voting power of all then-outstanding shares of voting stock of the
corporation entitled to vote at an election of directors or (ii) without
cause by the affirmative vote of the holders of a majority of the voting
power of all then-outstanding shares of voting stock of the corporation,
entitled to vote at an election of directors.
(b) During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, the Board of Directors or any
individual director may be removed from office at any time without cause by
the affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal; provided, however, that unless the
entire Board is removed, no individual director may be removed when the votes
cast against such director's removal, or not consenting in writing to such
removal, would be sufficient to elect that director if voted cumulatively at
an election which the same total number of votes were cast (or, if such
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected
SECTION 21.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as
(b) REGULAR MEETINGS. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the
office of the corporation required to be maintained pursuant to Section 2
hereof. Unless otherwise restricted by the Certificate of Incorporation,
regular meetings of the Board of Directors may also be held at any place
within or without the State of Delaware which has been designated by
resolution of the Board of Directors or the written consent of all directors.
(Del. Code Ann., tit. 8, Section 141(g))
(c) SPECIAL MEETINGS. Unless otherwise restricted by
the Certificate of Incorporation, special meetings of the Board of Directors
may be held at any time and place within or without the State of Delaware
whenever called by the Chairman of the Board, the President or any two (2) of
the directors. (Del. Code Ann., tit. 8, Section 141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of
Directors, or of any committee thereof, may participate in a meeting by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person
at such meeting. (Del. Code Ann., tit. 8, Section 141(i))
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(e) NOTICE OF MEETINGS. Notice of the time and place of
all special meetings of the Board of Directors shall be orally or in writing,
by telephone, including a voice messaging system or other system or
technology designed to record and communicate messages, facsimile, telegraph
or telex, or by electronic mail or other electronic means, during normal
business hours, at least twenty-four (24) hours before the date and time of
the meeting, or sent in writing to each director by first class mail, postage
prepaid, at least three (3) days before the date of the meeting. Notice of
any meeting may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. (Del. Code Ann., tit. 8,
Section 229)
(f) WAIVER OF NOTICE. The transaction of all business
at any meeting of the Board of Directors, or any committee thereof, however
called or noticed, or wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present and
if, either before or after the meeting, each of the directors not present
shall sign a written waiver of notice. All such waivers shall be filed with
the corporate records or made a part of the minutes of the meeting. (Del.
Code Ann., tit. 8, Section 229)
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 43 hereof, for which a quorum shall be one-third of the exact
number of directors fixed from time to time, a quorum of the Board of
Directors shall consist of a majority of the exact number of directors fixed
from time to time by the Board of Directors in accordance with the
Certificate of Incorporation; PROVIDED, HOWEVER, at any meeting, whether a
quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting
of the Board of Directors, without notice other than by announcement at the
meeting. (Del. Code Ann., tit. 8, Section 141(b))
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different
vote be required by law, the Certificate of Incorporation or these Bylaws.
(Del. Code Ann., tit. 8, Section 141(b))
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing,
and such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee. (Del. Code Ann., tit. 8, Section 141(f))
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled
to such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, for attendance at
each regular or special meeting of the Board of Directors and at any meeting
of a committee of the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise and receiving
compensation therefor. (Del. Code Ann., tit. 8, Section 141(h))
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SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may
appoint an Executive Committee to consist of one (1) or more members of the
Board of Directors. The Executive Committee, to the extent permitted by law
and provided in the resolution of the Board of Directors shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to (i)
approving or adopting, or recommending to the stockholders, any action or
matter expressly required by the Delaware General Corporation Law to be
submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation. (Del. Code Ann., tit. 8,
Section 141(c))
(b) OTHER COMMITTEES. The Board of Directors may, from
time to time, appoint such other committees as may be permitted by law. Such
other committees appointed by the Board of Directors shall consist of one (1)
or more members of the Board of Directors and shall have such powers and
perform such duties as may be prescribed by the resolution or resolutions
creating such committees, but in no event shall any such committee have the
powers denied to the Executive Committee in these Bylaws. (Del. Code Ann.,
tit. 8, Section 141(c))
(c) TERM. Each member of a committee of the Board of
Directors shall serve a term on the committee coexistent with such member's
term on the Board of Directors. The Board of Directors, subject to the
provisions of subsections (a) or (b) of this Bylaw may at any time increase
or decrease the number of members of a committee or terminate the existence
of a committee. The membership of a committee member shall terminate on the
date of his death or voluntary resignation from the committee or from the
Board of Directors. The Board of Directors may at any time for any reason
remove any individual committee member and the Board of Directors may fill
any committee vacancy created by death, resignation, removal or increase in
the number of members of the committee. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee, and, in
addition, in the absence or disqualification of any member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. (Del. Code Ann., tit. 8,
Section 141(c))
(d) MEETINGS. Unless the Board of Directors shall
otherwise provide, regular meetings of the Executive Committee or any other
committee appointed pursuant to this Section 25 shall be held at such times
and places as are determined by the Board of Directors, or by any such
committee, and when notice thereof has been given to each member of such
committee, no further notice of such regular meetings need be given
thereafter. Special meetings of any such committee may be held at any place
which has been determined from time to time by such committee, and may be
called by any director who is a member of such committee, upon written notice
to the members of such committee of the time and place of such special
meeting given in the manner provided for the giving of written notice to
members of the Board of Directors of the time and place of special meetings
of the Board of Directors. Notice of any special meeting of any committee
may be waived in writing at any time before or after the meeting and will be
waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized
number of members of any such committee shall constitute a quorum for the
transaction of business, and
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the act of a majority of those present at any meeting at which a quorum is
present shall be the act of such committee. (Del. Code Ann., tit. 8,
Sections 141(c), 229)
SECTION 26. ORGANIZATION. At every meeting of the directors,
the Chairman of the Board of Directors, or, if a Chairman has not been
appointed or is absent, the President, or if the President is absent, the
most senior Vice President, or, in the absence of any such officer, a
chairman of the meeting chosen by a majority of the directors present, shall
preside over the meeting. The Secretary, or in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the
corporation shall include, if and when designated by the Board of Directors,
the Chairman of the Board of Directors, the Chief Executive Officer, the
President, one or more Vice Presidents, the Secretary, the Chief Financial
Officer, the Treasurer and the Controller, all of whom shall be elected at
the annual organizational meeting of the Board of Directors. The Board of
Directors may also appoint one or more Assistant Secretaries, Assistant
Treasurers, Assistant Controllers and such other officers and agents with
such powers and duties as it shall deem necessary. The Board of Directors
may assign such additional titles to one or more of the officers as it shall
deem appropriate. Any one person may hold any number of offices of the
corporation at any one time unless specifically prohibited therefrom by law.
The salaries and other compensation of the officers of the corporation shall
be fixed by or in the manner designated by the Board of Directors. (Del.
Code Ann., tit. 8, Sections 122(5), 142(a), (b))
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the
pleasure of the Board of Directors and until their successors shall have been
duly elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board
of Directors. If the office of any officer becomes vacant for any reason,
the vacancy may be filled by the Board of Directors. (Del. Code Ann., tit.
8, Section 141(b), (e))
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors, when present, shall preside at all
meetings of the stockholders and the Board of Directors. The Chairman of the
Board of Directors shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the
Board of Directors shall designate from time to time. If there is no
President, then the Chairman of the Board of Directors shall also serve as
the Chief Executive Officer of the corporation and shall have the powers and
duties prescribed in paragraph (c) of this Section 28. (Del. Code Ann., tit.
8, Section 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at
all meetings of the stockholders and at all meetings of the Board of
Directors, unless the Chairman of the Board of Directors has been appointed
and is present. Unless some other officer has been elected Chief Executive
Officer of the corporation, the President shall be the chief executive
officer of the corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business
and officers of the corporation. The President shall perform other duties
commonly incident to his office and
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shall also perform such other duties and have such other powers as the Board
of Directors shall designate from time to time. (Del. Code Ann., tit. 8,
Section 142(a))
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may
assume and perform the duties of the President in the absence or disability
of the President or whenever the office of President is vacant. The Vice
Presidents shall perform other duties commonly incident to their office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. (Del. Code
Ann., tit. 8, Section 142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record
all acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings
of the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. (Del. Code
Ann., tit. 8, Section 142(a))
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief
Financial Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of
the financial affairs of the corporation in such form and as often as
required by the Board of Directors or the President. The Chief Financial
Officer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Chief Financial
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. The President
may direct the Treasurer or any Assistant Treasurer, or the Controller or any
Assistant Controller to assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, and each
Treasurer and Assistant Treasurer and each Controller and Assistant
Controller shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. (Del. Code
Ann., tit. 8, Section 142(a))
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may
from time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is
specified therein, in which event the resignation shall become effective at
such later time. Unless otherwise specified in such notice, the acceptance
of any such resignation shall not be necessary to make it effective. Any
resignation shall be without prejudice to the rights, if any, of the
corporation under any contract with the resigning officer. (Del. Code Ann.,
tit. 8, Section 142(b))
SECTION 31. REMOVAL. Any officer may be removed from office at
any time, either with or without cause, by the affirmative vote of a majority
of the directors in office at the time, or by the
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unanimous written consent of the directors in office at the time, or by any
committee or superior officers upon whom such power of removal may have been
conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on
behalf of the corporation any corporate instrument or document, or to sign on
behalf of the corporation the corporate name without limitation, or to enter
into contracts on behalf of the corporation, except where otherwise provided
by law or these Bylaws, and such execution or signature shall be binding upon
the corporation. (Del. Code Ann., tit. 8, Sections 103(a), 142(a), 158)
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock of the corporation, shall be executed, signed or endorsed by
the Chairman of the Board of Directors, or the President or any Vice
President, and by the Secretary or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of
Directors. (Del. Code Ann., tit. 8, Sections 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall
be signed by such person or persons as the Board of Directors shall authorize
so to do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any
amount. (Del. Code Ann., tit. 8, Sections 103(a), 142(a), 158).
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All
stock and other securities of other corporations owned or held by the
corporation for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the person
authorized so to do by resolution of the Board of Directors, or, in the
absence of such authorization, by the Chairman of the Board of Directors, the
Chief Executive Officer, the President, or any Vice President. (Del. Code
Ann., tit. 8, Section 123)
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates
for the shares of stock of the corporation shall be in such form as is
consistent with the Certificate of Incorporation and applicable law.
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Every holder of stock in the corporation shall be entitled to have a
certificate signed by or in the name of the corporation by the Chairman of
the Board of Directors, or the President or any Vice President and by the
Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary,
certifying the number of shares owned by him in the corporation. Any or all
of the signatures on the certificate may be facsimiles. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued with
the same effect as if he were such officer, transfer agent, or registrar at
the date of issue. Each certificate shall state upon the face or back
thereof, in full or in summary, all of the powers, designations, preferences,
and rights, and the limitations or restrictions of the shares authorized to
be issued or shall, except as otherwise required by law, set forth on the
face or back a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or oter special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical. (Del. Code Ann., tit. 8, Section 158)
SECTION 35. LOST CERTIFICATES. A new certificate or
certificates shall be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. The
corporation may require, as a condition precedent to the issuance of a new
certificate or certificates, the owner of such lost, stolen, or destroyed
certificate or certificates, or his legal representative, to advertise the
same in such manner as it shall require or to give the corporation a surety
bond in such form and amount as it may direct as indemnity against any claim
that may be made against the corporation with respect to the certificate
alleged to have been lost, stolen, or destroyed. (Del. Code Ann., tit. 8,
Section 167)
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in
person or by attorney duly authorized, and upon the surrender of a properly
endorsed certificate or certificates for a like number of shares. (Del. Code
Ann., tit. 8, Section 201, tit. 6, Section 8- 401(1))
(b) The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more
classes of stock of the corporation to restrict the transfer of shares of
stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the Delaware General Corporation
Law. (Del. Code Ann., tit. 8, Section 160 (a))
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board of Directors may fix, in advance, a
record date, which record date shall not precede the date upon which the
resolution fixing the
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record date is adopted by the Board of Directors, and which record date shall
not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the
record date for determining stockholders entitled to notice of or to vote at
a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more than
ten (10) days after the date upon which the resolution fixing the record date
is adopted by the Board of Directors. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board of Directors to
fix a record date. The Board of Directors shall promptly, but in all events
within ten (10) days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed
by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is required by applicable law, shall be the
first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed
by the Board of Directors and prior action by the Board of Directors is
required by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which record date shall not precede the
date upon which the resolution fixing the record date is adopted, and which
record date shall be not more than sixty (60) days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board
of Directors adopts the resolution relating thereto. (Del. Code Ann., tit.
8, Section 213)
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware. (Del. Code Ann., tit. 8, Sections 213(a), 219)
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ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds,
debentures and other corporate securities of the corporation, other than
stock certificates (covered in Section 34), may be signed by the Chairman of
the Board of Directors, the President or any Vice President, or such other
person as may be authorized by the Board of Directors, and the corporate seal
impressed thereon or a facsimile of such seal imprinted thereon and attested
by the signature of the Secretary or an Assistant Secretary, or the Chief
Financial Officer or Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER,
that where any such bond, debenture or other corporate security shall be
authenticated by the manual signature, or where permissible facsimile
signature, of a trustee under an indenture pursuant to which such bond,
debenture or other corporate security shall be issued, the signatures of the
persons signing and attesting the corporate seal on such bond, debenture or
other corporate security may be the imprinted facsimile of the signatures of
such persons. Interest coupons appertaining to any such bond, debenture or
other corporate security, authenticated by a trustee as aforesaid, shall be
signed by the Treasurer or an Assistant Treasurer of the corporation or such
other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any
officer who shall have signed or attested any bond, debenture or other
corporate security, or whose facsimile signature shall appear thereon or on
any such interest coupon, shall have ceased to be such officer before the
bond, debenture or other corporate security so signed or attested shall have
been delivered, such bond, debenture or other corporate security nevertheless
may be adopted by the corporation and issued and delivered as though the
person who signed the same or whose facsimile signature shall have been used
thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the
capital stock of the corporation, subject to the provisions of the
Certificate of Incorporation and applicable law, if any, may be declared by
the Board of Directors pursuant to law at any regular or special meeting.
Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of Incorporation and
applicable law. (Del. Code Ann., tit. 8, Sections 170, 173)
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend,
there may be set aside out of any funds of the corporation available for
dividends such sum or sums as the Board of Directors from time to time, in
their absolute discretion, thinks is proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining
any property of the corporation, or for such other purpose as the Board of
Directors shall think conducive to the interests of the corporation, and the
Board of Directors may modify or abolish any such reserve in the manner in
which it was created. (Del. Code Ann., tit. 8, Section 171)
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ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. Unless otherwise fixed by resolution
of the Board of Directors, the fiscal year of the corporation shall end on
the 31st day of December in each calendar year.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS,
OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation
shall indemnify its directors and executive officers (for the purposes of
this Article XI, "executive officers" shall have the meaning defined in Rule
3b-7 promulgated under the 1934 Act) to the fullest extent not prohibited by
the Delaware General Corporation Law or any other applicable law; PROVIDED,
HOWEVER, that the corporation may modify the extent of such indemnification
by individual contracts with its directors and executive officers; and,
PROVIDED, FURTHER, that the corporation shall not be required to indemnify
any director or executive officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law or any
other applicable law or (iv) such indemnification is required to be made
under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law or any
other applicable law.
(c) EXPENSES. The corporation shall advance to any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he is
or was a director or executive officer of the corporation, or is or was
serving at the request of the corporation as a director or executive officer
of another corporation, partnership, joint venture, trust or other
enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or
executive officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should
be determined ultimately that such person is not entitled to be indemnified
under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to
an officer of the corporation (except by reason of the fact that such officer
is or was a director of the corporation, in which event this paragraph shall
not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if
such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
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opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into
an express contract, all rights to indemnification and advances to directors
and executive officers under this Bylaw shall be deemed to be contractual
rights and be effective to the same extent and as if provided for in a
contract between the corporation and the director or executive officer. Any
right to indemnification or advances granted by this Bylaw to a director or
executive officer shall be enforceable by or on behalf of the person holding
such right in any court of competent jurisdiction if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request
therefor. The claimant in such enforcement action, if successful in whole or
in part, shall be entitled to be paid also the expense of prosecuting his
claim. In connection with any claim for indemnification, the corporation
shall be entitled to raise as a defense to any such action that the claimant
has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law or any other applicable law for the
corporation to indemnify the claimant for the amount claimed. In connection
with any claim by an executive officer of the corporation (except in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled
to raise a defense as to any such action clear and convincing evidence that
such person acted in bad faith or in a manner that such person did not
believe to be in or not opposed to the best interests of the corporation, or
with respect to any criminal action or proceeding that such person acted
without reasonable cause to believe that his conduct was lawful. Neither the
failure of the corporation (including its Board of Directors, independent
legal counsel or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant is proper in
the circumstances because he has met the applicable standard of conduct set
forth in the Delaware General Corporation Law or any other applicable law,
nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that claimant has not met the applicable
standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on
any person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any applicable statute, provision
of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law or any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any
person by this Bylaw shall continue as to a person who has ceased to be a
director, officer, employee or other agent and shall inure to the benefit of
the heirs, executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the
Delaware General Corporation Law, the corporation or any other applicable
law, upon approval by the Board of Directors, may purchase insurance on
behalf of any person required or permitted to be indemnified pursuant to this
Bylaw.
(h) AMENDMENTS. Any repeal or modification of this
Bylaw shall only be prospective and shall not affect the rights under this
Bylaw in effect at the time of the alleged occurrence of any action or
omission to act that is the cause of any proceeding against any agent of the
corporation.
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(i) SAVING CLAUSE. If this Bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction,
then the corporation shall nevertheless indemnify each director and executive
officer to the full extent not prohibited by any applicable portion of this
Bylaw that shall not have been invalidated, or by any other applicable law.
If this Section 43 shall be invalid due to the application of the
indemnification provisions of another jurisdiction, then the corporation
shall indemnify each director and executive officer to the full extent under
applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this
Bylaw, the following definitions shall apply:
(1) The term "proceeding" shall be broadly
construed and shall include, without limitation, the investigation,
preparation, prosecution, defense, settlement, arbitration and appeal of, and
the giving of testimony in, any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Bylaw with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(4) References to a "director," "executive
officer," "officer," "employee," or "agent" of the corporation shall include,
without limitation, situations where such person is serving at the request of
the corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references
to "serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties
on, or involves services by, such director, officer, employee, or agent with
respect to an employee benefit plan, its participants, or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be
in the interest of the participants and beneficiaries of an employee benefit
plan shall be deemed to have acted in a manner "not opposed to the best
interests of the corporation" as referred to in this Bylaw.
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ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any
provisions of these Bylaws, notice is required to be given to any
stockholder, it shall be given in writing, timely and duly deposited in the
United States mail, postage prepaid, and addressed to his last known post
office address as shown by the stock record of the corporation or its
transfer agent. (Del. Code Ann., tit. 8, Section 222)
(b) NOTICE TO DIRECTORS. Any notice required to be
given to any director may be given by the method stated in subsection (a), or
by facsimile, telex or telegram, except that such notice other than one which
is delivered personally shall be sent to such address as such director shall
have filed in writing with the Secretary, or, in the absence of such filing,
to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing,
executed by a duly authorized and competent employee of the corporation or
its transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder
or stockholders, or director or directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall in the
absence of fraud, be prima facie evidence of the facts therein contained.
(Del. Code Ann., tit. 8, Section 222)
(d) TIME NOTICES DEEMED GIVEN. All notices given by
mail, as above provided, shall be deemed to have been given as at the time of
mailing, and all notices given by facsimile, telex or telegram shall be
deemed to have been given as of the sending time recorded at time of
transmission.
(e) METHODS OF NOTICE. It shall not be necessary that
the same method of giving notice be employed in respect of all directors, but
one permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other
or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation
of time within which any stockholder may exercise any option or right, or
enjoy any privilege or benefit, or be required to act, or within which any
director may exercise any power or right, or enjoy any privilege, pursuant to
any notice sent him in the manner above provided, shall not be affected or
extended in any manner by the failure of such stockholder or such director to
receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS
UNLAWFUL. Whenever notice is required to be given, under any provision of
law or of the Certificate of Incorporation or Bylaws of the corporation, to
any person with whom communication is unlawful, the giving of such notice to
such person shall not be required and there shall be no duty to apply to any
governmental authority or agency for a license or permit to give such notice
to such person. Any action or meeting which shall be taken or held without
notice to any such person with whom communication is unlawful shall have the
same force and effect as if such notice had been duly given. In the event
that the action taken by the corporation is such as to require the filing of
a certificate under any provision of the Delaware General Corporation Law,
the certificate shall state, if such is the fact and if notice is required,
that notice was given to all persons entitled to receive notice except such
persons with whom communication is unlawful.
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(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS.
Whenever notice is required to be given, under any provision of law or the
Certificate of Incorporation or Bylaws of the corporation, to any stockholder
to whom (i) notice of two consecutive annual meetings, and all notices of
meetings or of the taking of action by written consent without a meeting to
such person during the period between such two consecutive annual meetings,
or (ii) all, and at least two, payments (if sent by first class mail) of
dividends or interest on securities during a twelve-month period, have been
mailed addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice
to such person shall not be required. Any action or meeting which shall be
taken or held without notice to such person shall have the same force and
effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as
to require the filing of a certificate under any provision of the Delaware
General Corporation Law, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph. (Del. Code Ann, tit. 8, Section 230)
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43
of the Bylaws, these Bylaws may be amended or repealed and new Bylaws adopted
by the stockholders entitled to vote. The Board of Directors shall also have
the power, if such power is conferred upon the Board of Directors by the
Certificate of Incorporation, to adopt, amend, or repeal Bylaws (including,
without limitation, the amendment of any Bylaw setting forth the number of
Directors who shall constitute the whole Board of Directors). (Del. Code
Ann., tit. 8, Sections 109(a), 122(6)).
ARTICLE XIV
RIGHT OF FIRST REFUSAL
SECTION 46. RIGHT OF FIRST REFUSAL. No stockholder shall sell,
assign, pledge, or in any manner transfer any of the shares of stock of the
corporation or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets
the requirements hereinafter set forth in this bylaw:
(a) If the stockholder desires to sell or otherwise
transfer any of his shares of stock, then the stockholder shall first give
written notice thereof to the corporation. The notice shall name the
proposed transferee and state the number of shares to be transferred, the
proposed consideration, and all other terms and conditions of the proposed
transfer.
(b) For thirty (30) days following receipt of such
notice, the corporation shall have the option to purchase all (but not less
than all) of the shares specified in the notice at the price and upon the
terms set forth in such notice; PROVIDED, HOWEVER, that, with the consent of
the stockholder, the corporation shall have the option to purchase a lesser
portion of the shares specified in said notice at the price and upon the
terms set forth therein. In the event of a gift, property settlement or
other transfer in
21
<PAGE>
which the proposed transferee is not paying the full price for the shares,
and that is not otherwise exempted from the provisions of this Section 46,
the price shall be deemed to be the fair market value of the stock at such
time as determined in good faith by the Board of Directors. In the event the
corporation elects to purchase all of the shares or, with consent of the
stockholder, a lesser portion of the shares, it shall give written notice to
the transferring stockholder of its election and settlement for said shares
shall be made as provided below in paragraph (d).
(c) The corporation may assign its rights hereunder.
(d) In the event the corporation and/or its assignee(s)
elect to acquire any of the shares of the transferring stockholder as
specified in said transferring stockholder's notice, the Secretary of the
corporation shall so notify the transferring stockholder and settlement
thereof shall be made in cash within thirty (30) days after the Secretary of
the corporation receives said transferring stockholder's notice; provided
that if the terms of payment set forth in said transferring stockholder's
notice were other than cash against delivery, the corporation and/or its
assignee(s) shall pay for said shares on the same terms and conditions set
forth in said transferring stockholder's notice.
(e) In the event the corporation and/or its assignees(s)
do not elect to acquire all of the shares specified in the transferring
stockholder's notice, said transferring stockholder may, within the sixty
(60) day period following the expiration of the option rights granted to the
corporation and/or its assignees(s) herein, transfer the shares specified in
said transferring stockholder's notice which were not acquired by the
corporation and/or its assignees(s) as specified in said transferring
stockholder's notice. All shares so sold by said transferring stockholder
shall continue to be subject to the provisions of this bylaw in the same
manner as before said transfer.
(f) Anything to the contrary contained herein
notwithstanding, the following transactions shall be exempt from the
provisions of this bylaw:
(1) A stockholder's transfer of any or all shares
held either during such stockholder's lifetime or on death by will or
intestacy to such stockholder's immediate family or to any custodian or
trustee for the account of such stockholder or such stockholder's immediate
family or to any limited partnership of which the shareholder, members of
such shareholder's immediate family or any trust for the account of such
shareholder or such shareholder's immediate family will be the general of
limited partner(s) of such partnership. "Immediate family" as used herein
shall mean spouse, lineal descendant, father, mother, brother, or sister of
the stockholder making such transfer.
(2) A stockholder's bona fide pledge or mortgage of
any shares with a commercial lending institution, provided that any
subsequent transfer of said shares by said institution shall be conducted in
the manner set forth in this bylaw.
(3) A stockholder's transfer of any or all of such
stockholder's shares to the corporation or to any other stockholder of the
corporation.
(4) A stockholder's transfer of any or all of such
stockholder's shares to a person who, at the time of such transfer, is an
officer or director of the corporation.
(5) A corporate stockholder's transfer of any or
all of its shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital
22
<PAGE>
reorganization of the corporate stockholder, or pursuant to a sale of all or
substantially all of the stock or assets of a corporate stockholder.
(6) A corporate stockholder's transfer of any or
all of its shares to any or all of its stockholders.
(7) A transfer by a stockholder which is a limited
or general partnership to any or all of its partners or former partners.
In any such case, the transferee, assignee, or other recipient shall
receive and hold such stock subject to the provisions of this bylaw, and
there shall be no further transfer of such stock except in accord with this
bylaw.
(g) The provisions of this bylaw may be waived with
respect to any transfer either by the corporation, upon duly authorized
action of its Board of Directors, or by the stockholders, upon the express
written consent of the owners of a majority of the voting power of the
corporation (excluding the votes represented by those shares to be
transferred by the transferring stockholder). This bylaw may be amended or
repealed either by a duly authorized action of the Board of Directors or by
the stockholders, upon the express written consent of the owners of a
majority of the voting power of the corporation.
(h) Any sale or transfer, or purported sale or transfer,
of securities of the corporation shall be null and void unless the terms,
conditions, and provisions of this bylaw are strictly observed and followed.
(i) The foregoing right of first refusal shall terminate
on either of the following dates, whichever shall first occur:
(1) On June 1, 2008; or
(2) Upon the date securities of the corporation are
first offered to the public pursuant to a registration statement filed with,
and declared effective by, the United States Securities and Exchange
Commission under the Securities Act of 1933, as amended.
(j) The certificates representing shares of stock of the
corporation shall bear on their face the following legend so long as the
foregoing right of first refusal remains in effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A RIGHT
OF FIRST REFUSAL OPTION IN FAVOR OF THE CORPORATION AND/OR ITS
ASSIGNEE(S), AS PROVIDED IN THE BYLAWS OF THE CORPORATION."
ARTICLE XV
MISCELLANEOUS
SECTION 47. ANNUAL REPORT.
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(a) Subject to the provisions of paragraph (b) of this
Bylaw, the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include
a balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied
by any report thereon of independent accounts or, if there is no such report,
the certificate of an authorized officer of the corporation that such
statements were prepared without audit from the books and records of the
corporation. When there are more than 100 stockholders of record of the
corporation's shares, as determined by Section 605 of the CGCL, additional
information as required by Section 1501(b) of the CGCL shall also be
contained in such report, provided that if the corporation has a class of
securities registered under Section 12 of the 1934 Act, that Act shall take
precedence. Such report shall be sent to stockholders at least fifteen (15)
days prior to the next annual meeting of stockholders after the end of the
fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders
of record of the corporation's shares, the requirement of sending of an
annual report to the stockholders of the corporation is hereby expressly
waived.
24
<PAGE>
BYLAWS
OF
IMPROVENET, INC.
(A DELAWARE CORPORATION)
AS AMENDED ON MARCH 26, 1999
AS AMENDED AND RESTATED ON DECEMBER 3, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I OFFICES.....................................................................................1
Section 1. Registered Office......................................................................1
Section 2. Other Offices..........................................................................1
ARTICLE II CORPORATE SEAL..............................................................................1
Section 3. Corporate Seal.........................................................................1
ARTICLE III STOCKHOLDERS' MEETINGS......................................................................1
Section 4. Place of Meetings......................................................................1
Section 5. Annual Meeting.........................................................................2
Section 6. Special Meetings.......................................................................3
Section 7. Notice of Meetings.....................................................................4
Section 8. Quorum.................................................................................4
Section 9. Adjournment and Notice of Adjourned Meetings...........................................4
Section 10. Voting Rights..........................................................................4
Section 11. Joint Owners of Stock..................................................................5
Section 12. List of Stockholders...................................................................5
Section 13. Organization...........................................................................6
ARTICLE IV DIRECTORS...................................................................................6
Section 14. Number and Term of Office..............................................................6
Section 15. Powers.................................................................................7
Section 16. Classes Of Directors...................................................................7
Section 17. Term of Directors......................................................................7
Section 18. Vacancies..............................................................................8
Section 19. Resignation............................................................................8
Section 20. Removal................................................................................8
Section 21. ........................................................................................
(a) Annual Meetings........................................................................9
(b) Regular Meetings.......................................................................9
(c) Special Meetings.......................................................................9
(d) Telephone Meetings.....................................................................9
(e) Notice of Meetings.....................................................................9
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
(f) Waiver of Notice......................................................................10
Section 22. Quorum and Voting.....................................................................10
Section 23. Action Without Meeting................................................................10
Section 24. Fees and Compensation.................................................................10
Section 25. Committees............................................................................10
(a) Executive Committee...................................................................10
(b) Other Committees......................................................................11
(c) Term..................................................................................11
(d) Meetings..............................................................................11
Section 26. Organization..........................................................................11
ARTICLE V OFFICERS...................................................................................12
Section 27. Officers Designated...................................................................12
Section 28. Tenure and Duties of Officers.........................................................12
(a) General...............................................................................12
(b) Duties of Chairman of the Board of Directors..........................................12
(c) Duties of President...................................................................12
(d) Duties of Vice Presidents.............................................................12
(e) Duties of Secretary...................................................................12
(f) Duties of Chief Financial Officer.....................................................13
Section 29. Delegation of Authority...............................................................13
Section 30. Resignations..........................................................................13
Section 31. Removal...............................................................................13
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION................................................................................13
Section 32. Execution of Corporate Instruments....................................................13
Section 33. Voting of Securities Owned by the Corporation.........................................14
ARTICLE VII SHARES OF STOCK............................................................................14
Section 34. Form and Execution of Certificates....................................................14
Section 35. Lost Certificates.....................................................................15
Section 36. Transfers.............................................................................15
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C>
Section 37. Fixing Record Dates...................................................................15
Section 38. Registered Stockholders...............................................................16
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION........................................................16
Section 39. Execution of Other Securities.........................................................16
ARTICLE IX DIVIDENDS..................................................................................17
Section 40. Declaration of Dividends..............................................................17
Section 41. Dividend Reserve......................................................................17
ARTICLE X FISCAL YEAR................................................................................17
Section 42. Fiscal Year...........................................................................17
ARTICLE XI INDEMNIFICATION............................................................................17
Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees
and Other Agents......................................................................17
(a) Directors and Executive Officers......................................................17
(b) Other Officers, Employees and Other Agents............................................18
(c) Expenses..............................................................................18
(d) Enforcement...........................................................................18
(e) Non-Exclusivity of Rights.............................................................19
(f) Survival of Rights....................................................................19
(g) Insurance.............................................................................19
(h) Amendments............................................................................19
(i) Saving Clause.........................................................................19
(j) Certain Definitions...................................................................19
ARTICLE XII NOTICES....................................................................................20
Section 44. Notices...............................................................................20
(a) Notice to Stockholders................................................................20
(b) Notice to Directors...................................................................20
(c) Affidavit of Mailing..................................................................20
(d) Time Notices Deemed Given.............................................................21
(e) Methods of Notice.....................................................................21
(f) Failure to Receive Notice.............................................................21
iii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
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(g) Notice to Person with Whom Communication Is Unlawful..................................21
(h) Notice to Person with Undeliverable Address...........................................21
ARTICLE XIII AMENDMENTS.................................................................................21
Section 45. Amendments............................................................................21
ARTICLE XIV MISCELLANEOUS..............................................................................24
Section 46. Annual Report.........................................................................24
</TABLE>
iv.
<PAGE>
BYLAWS
OF
IMPROVENET, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the
corporation in the State of Delaware shall be in the City of Dover, County of
Kent. (Del. Code Ann., tit. 8, Section 131)
SECTION 2. OTHER OFFICES. The corporation shall also have and
maintain an office or principal place of business at such place as may be
fixed by the Board of Directors, and may also have offices at such other
places, both within and without the State of Delaware, as the Board of
Directors may from time to time determine or the business of the corporation
may require. (Del. Code Ann., tit. 8, Section 122(8))
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. If the Board of Directors adopts a
corporate seal, such corporate seal shall consist of a die bearing the name
of the corporation and the inscription, "Corporate Seal-Delaware." Said seal
may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise. (Del. Code Ann., tit. 8, Section 122(3))
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State
of Delaware, as may be designated from time to time by the Board of
Directors, or, if not so designated, then at the principal office of the
corporation required to be maintained pursuant to Section 2 hereof. (Del.
Code Ann., tit. 8, Section 211(a))
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<PAGE>
SECTION 5. ANNUAL MEETING.
(a) The annual meeting of the stockholders of the
corporation, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at
such time as may be designated from time to time by the Board of Directors.
(Del. Code Ann., tit. 8, Section 211(b))
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the Board of Directors, (B) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (C)
otherwise properly brought before the meeting by a stockholder. For business
to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary
of the corporation. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the corporation
not later than the close of business on the sixtieth (60th) day nor earlier
than the close of business on the ninetieth (90th) day prior to the first
anniversary of the preceding year's annual meeting; PROVIDED, HOWEVER, that
in the event that no annual meeting was held in the previous year or the date
of the annual meeting has been changed by more than thirty (30) days from the
date contemplated at the time of the previous year's proxy statement, notice
by the stockholder to be timely must be so received not earlier than the
close of business on the ninetieth (90th) day prior to such annual meeting
and not later than the close of business on the later of the sixtieth (60th)
day prior to such annual meeting or, in the event public announcement of the
date of such annual meeting is first made by the corporation fewer than
seventy (70) days prior to the date of such annual meeting, the close of
business on the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the corporation. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii) the
name and address, as they appear on the corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of
the corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business and (v) any other
information that is required to be provided by the stockholder pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect
to a stockholder proposal in the proxy statement and form of proxy for a
stockholders' meeting, stockholders must provide notice as required by the
regulations promulgated under the 1934 Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual meeting
except in accordance with the procedures set forth in this paragraph (b). The
chairman of the annual meeting shall, if the facts warrant, determine and
declare at the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this paragraph (b), and, if
he should so determine, he shall so declare at the meeting that any such
business not properly brought before the meeting shall not be transacted.
(Del. Code Ann., tit. 8: Section 211(b))
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the corporation may be made at a meeting of stockholders by or at the
direction of the Board of Directors or by any stockholder of the corporation
entitled to vote in the election of directors at the meeting who complies
with the notice procedures set forth in this paragraph (c). Such nominations,
other than those made by or at the direction of the Board of Directors, shall
be made pursuant to timely notice in writing to the Secretary of the
corporation in accordance with the provisions of paragraph (b) of
2
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this Section 5. Such stockholder's notice shall set forth (i) as to each
person, if any, whom the stockholder proposes to nominate for election or
re-election as a director: (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of such
person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person
or persons (naming such person or persons) pursuant to which the nominations
are to be made by the stockholder, and (E) any other information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the 1934 Act (including without limitation such person's
written consent to being named in the proxy statement, if any, as a nominee
and to serving as a director if elected); and (ii) as to such stockholder
giving notice, the information required to be provided pursuant to paragraph
(b) of this Section 5. At the request of the Board of Directors, any person
nominated by a stockholder for election as a director shall furnish to the
Secretary of the corporation that information required to be set forth in the
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth in this paragraph (c).
The chairman of the meeting shall, if the facts warrant, determine and
declare at the meeting that a nomination was not made in accordance with the
procedures prescribed by these Bylaws, and if he should so determine, he
shall so declare at the meeting, and the defective nomination shall be
disregarded.
(d) For purposes of this Section 5, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News
Service, Associated Press or comparable national news service or in a
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation
may be called, for any purpose or purposes, by (i) the Chairman of the Board
of Directors, (ii) the Chief Executive Officer, or (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total number
of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is
presented to the Board of Directors for adoption) and shall be held at such
place, on such date, and at such time as the Board of Directors shall fix. At
any time or times that the corporation is subject to Section 2115(b) of the
California General Corporation Law ("CGCL"), stockholders holding five
percent (5%) or more of the outstanding shares shall have the right to call a
special meeting of stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is called by any person or persons
other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may
be transacted at such special meeting otherwise than specified in such
notice. The Board of Directors shall determine the time and place of such
special meeting, which shall be held not less than thirty-five (35) nor more
than one hundred twenty (120) days after the date of the receipt of the
request. Upon determination of the time and place of the meeting, the officer
receiving the request shall cause notice to be given to the stockholders
entitled to vote, in accordance with the provisions of Section 7 of these
Bylaws. If the notice is not given within twenty (20) days after the receipt
of the request, the person or persons requesting the meeting may set the time
and place of the meeting and give the notice. Nothing contained in this
paragraph (b) shall be construed as limiting,
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fixing, or affecting the time when a meeting of stockholders called by action
of the Board of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law
or the Certificate of Incorporation, written notice of each meeting of
stockholders shall be given not less than ten (10) nor more than sixty (60)
days before the date of the meeting to each stockholder entitled to vote at
such meeting, such notice to specify the place, date and hour and purpose or
purposes of the meeting. Notice of the time, place and purpose of any meeting
of stockholders may be waived in writing, signed by the person entitled to
notice thereof, either before or after such meeting, and will be waived by
any stockholder by his attendance thereat in person or by proxy, except when
the stockholder attends a meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Any stockholder so waiving notice
of such meeting shall be bound by the proceedings of any such meeting in all
respects as if due notice thereof had been given. (Del. Code Ann., tit. 8,
Sections 222, 229)
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote
shall constitute a quorum for the transaction of business. In the absence of
a quorum, any meeting of stockholders may be adjourned, from time to time,
either by the chairman of the meeting or by vote of the holders of a majority
of the shares represented thereat, but no other business shall be transacted
at such meeting. The stockholders present at a duly called or convened
meeting, at which a quorum is present, may continue to transact business
until adjournment, notwithstanding the withdrawal of enough stockholders to
leave less than a quorum. Except as otherwise provided by law, the
Certificate of Incorporation or these Bylaws, all action taken by the holders
of a majority of the vote cast, including abstentions, at any meeting at
which a quorum is present shall be valid and binding upon the corporation;
PROVIDED, HOWEVER, that, except as set forth in Section 17 herein, directors
shall be elected by a plurality of the votes of the shares present in person
or represented by proxy at the meeting and entitled to vote on the election
of directors. Where a separate vote by a class or classes or series is
required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented
by proxy, shall constitute a quorum entitled to take action with respect to
that vote on that matter and, except where otherwise provided by statute or
by the Certificate of Incorporation or these Bylaws, the affirmative vote of
the majority (plurality, in the case of the election of directors) of the
votes cast, including abstentions, by the holders of shares of such class or
classes or series shall be the act of such class or classes or series. (Del.
Code Ann., tit. 8, Section 216)
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to
time either by the chairman of the meeting or by the vote of a majority of
the shares casting votes, excluding abstentions. When a meeting is adjourned
to another time or place, notice need not be given of the adjourned meeting
if the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting, the corporation may transact
any business which might have been transacted at the original meeting. If the
adjournment is for more than thirty (30) days or if after the adjournment a
new record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. (Del. Code Ann., tit. 8, Section 222(c))
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the
stock records of the corporation on the record date, as provided in Section
12 of these Bylaws, shall be entitled to vote at any meeting of stockholders.
Every person entitled to vote or
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execute consents shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Delaware
law. An agent so appointed need not be a stockholder. No proxy shall be voted
after three (3) years from its date of creation unless the proxy provides for
a longer period. (Del. Code Ann., tit. 8, Sections 211(e), 212(b))
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, tenants by the entirety, or otherwise, or if two (2) or more persons
have the same fiduciary relationship respecting the same shares, unless the
Secretary is given written notice to the contrary and is furnished with a
copy of the instrument or order appointing them or creating the relationship
wherein it is so provided, their acts with respect to voting shall have the
following effect: (a) if only one (1) votes, his act binds all; (b) if more
than one (1) votes, the act of the majority so voting binds all; (c) if more
than one (1) votes, but the vote is evenly split on any particular matter,
each faction may vote the securities in question proportionally, or may apply
to the Delaware Court of Chancery for relief as provided in the Delaware
General Corporation Law, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a
majority or even-split for the purpose of subsection (c) shall be a majority
or even-split in interest. (Del. Code Ann., tit. 8, Section 217(b))
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior
to the meeting, either at a place within the city where the meeting is to be
held, which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time
thereof and may be inspected by any stockholder who is present. (Del. Code
Ann., tit. 8, Section 219(a))
SECTION 13. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the
Board of Directors, or, if a Chairman has not been appointed or is absent,
the President, or, if the President is absent, a chairman of the meeting
chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in
his absence, an Assistant Secretary directed to do so by the President, shall
act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject
to such rules and regulations of the Board of Directors, if any, the chairman
of the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of
such chairman, are necessary, appropriate or convenient for the proper
conduct of the meeting, including, without limitation, establishing an agenda
or order of business for the meeting, rules and procedures for maintaining
order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation
and their duly authorized and constituted proxies and such other persons as
the chairman shall permit, restrictions on entry to the meeting after the
time fixed for the commencement thereof, limitations on the time allotted to
questions or comments by participants and regulation of the opening and
closing of the polls for balloting on matters which are to be voted on by
ballot. Unless and to the extent determined by the Board of
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Directors or the chairman of the meeting, meetings of stockholders shall not
be required to be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 14. NUMBER AND TERM OF OFFICE.
The exact number of directors shall be set from time to
time (a) by the approval of the Board of Directors, or (b) by the affirmative
vote of a majority of the shares represented and voting at a duly held
meeting at which a quorum is present (which shares voting affirmatively also
constitute at least a majority of the required quorum) or by the written
consent of shareholders pursuant to Section 13 herein above.
Directors need not be stockholders unless so required by the Certificate of
Incorporation. If for any cause, the directors shall not have been elected at
an annual meeting, they may be elected as soon thereafter as convenient at a
special meeting of the stockholders called for that purpose in the manner
provided in these Bylaws. (Del. Code Ann., tit. 8, Sections 141(b), 211(b), (c))
SECTION 15. POWERS. The powers of the corporation shall be
exercised, its business conducted and its property controlled by the Board of
Directors, except as may be otherwise provided by statute or by the
Certificate of Incorporation. (Del. Code Ann., tit. 8, Section 141(a))
SECTION 16. CLASSES OF DIRECTORS. Unless otherwise provided in the
Certificate of Incorporation and subject to the rights of the holders of any
series of Preferred Stock to elect additional directors under specified
circumstances, following the closing of the Initial Public Offering, the
directors shall be divided into three classes designated as Class I, Class
II, and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of
Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Closing of
the Initial Public Offering, the term of office of the Class II directors
shall expire and Class II directors shall be elected for a full term of three
years. At the third annual meeting of stockholders following the closing of
the Initial Public Offering, the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of
three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of
the class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this Article, each
director shall serve until his successor is duly elected and qualified or
until his death, resignation or removal. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
SECTION 17. TERM OF DIRECTORS.
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(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
directors shall be elected at each annual meeting of stockholders for a term
of one year. Each director shall serve until his successor is duly elected
and qualified or until his death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
(b) No person entitled to vote at an election for directors
may cumulate votes to which such person is entitled, unless, at the time of
such election, the corporation is subject to Section 2115(b) of the CGCL.
(i) During such time or times that the corporation
is subject to Section 2115(b) of the CGCL:
(ii) Every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholders votes on the same
principal among as many candidates as such stockholder thinks fit. No
stockholder, however, shall be entitled to so cumulate such stockholder's
votes unless (a) the names of such candidate or candidates have been placed
in nomination prior to the voting and (b) the stockholder has given notice at
the meeting, prior to the voting, of such stockholder's intention to cumulate
such stockholder's votes. If any stockholder has given proper notice, all
stockholders may cumulate their votes for any candidates who have been
properly placed in nomination. The candidates receiving the highest number of
votes, up to the number of directors to be elected, are elected.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such
vacancies or newly created directorships shall be filled by stockholders, be
filled only by the affirmative vote of a majority of the directors then in
office, even though less than a quorum of the Board of Directors. Any
director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the director for which the vacancy was
created or occurred and until such director's successor shall have been
elected and qualified. A vacancy in the Board of Directors shall be deemed to
exist under this Bylaw in the case of the death, removal or resignation of
any director. (Del. Code Ann., tit. 8, Section 223(a), (b)).
(b) If at the time of filling any vacancy or any newly
created directorship, the directors then in office shall constitute less than
a majority of the whole board (as constituted immediately prior to any such
increase), the Delaware Court of Chancery may, upon application of any
stockholder holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors
then in offices as aforesaid, which election shall be governed by Section 211
of the Delaware General Corporation Law (Del. Code Ann. tit. 8,
Section 223(c)).
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall
constitute less than a majority of the directors then in office, then
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(i) any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for those directors may call a special meeting of
stockholders; or
(ii) the Superior Court of the proper county
shall, upon application of such stockholder or stockholders, summarily order
a special meeting of the stockholders, to be held to elect the entire board,
all in accordance with Section 305(c) of the CGCL, the term of office of any
director shall terminate upon that election of a successor (CGCL
Section 305(c)).
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to
specify whether it will be effective at a particular time, upon receipt by
the Secretary or at the pleasure of the Board of Directors. If no such
specification is made, it shall be deemed effective at the pleasure of the
Board of Directors. When one or more directors shall resign from the Board of
Directors, effective at a future date, a majority of the directors then in
office, including those who have so resigned, shall have power to fill such
vacancy or vacancies, the vote thereon to take effect when such resignation
or resignations shall become effective, and each Director so chosen shall
hold office for the unexpired portion of the term of the Director whose place
shall be vacated and until his successor shall have been duly elected and
qualified. (Del. Code Ann., tit. 8, Sections 141(b), 223(d))
SECTION 20. REMOVAL.
(a) Subject to any limitations imposed by applicable law
(and assuming the corporation is not subject to Section 2115 of the CGCL),
the Board of Directors or any director may be removed from office at any time
(i) with cause by the affirmative vote of the holders of a majority of the
voting power of all then-outstanding shares of voting stock of the
corporation entitled to vote at an election of directors or (ii) without
cause by the affirmative vote of the holders of two-thirds of the voting
power of all then-outstanding shares of voting stock of the corporation,
entitled to vote at an election of directors.
(b) During such time or times that the corporation is
subject to Section 2115(b) of the CGCL, the Board of Directors or any
individual director may be removed from office at any time without cause by
the affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote on such removal; provided, however, that unless the
entire Board is removed, no individual director may be removed when the votes
cast against such director's removal, or not consenting in writing to such
removal, would be sufficient to elect that director if voted cumulatively at
an election which the same total number of votes were cast (or, if such
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of such director's
most recent election were then being elected
SECTION 21.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as
(b) REGULAR MEETINGS. Except as hereinafter otherwise
provided, regular meetings of the Board of Directors shall be held in the
office of the corporation required to be maintained pursuant to Section 2
hereof. Unless otherwise restricted by the Certificate of Incorporation,
regular meetings of
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the Board of Directors may also be held at any place within or without the
State of Delaware which has been designated by resolution of the Board of
Directors or the written consent of all directors. (Del. Code Ann., tit. 8,
Section 141(g))
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may
be held at any time and place within or without the State of Delaware
whenever called by the Chairman of the Board, the President or any two (2) of
the directors. (Del. Code Ann., tit. 8, Section 141(g))
(d) TELEPHONE MEETINGS. Any member of the Board of
Directors, or of any committee thereof, may participate in a meeting by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and
participation in a meeting by such means shall constitute presence in person
at such meeting. (Del. Code Ann., tit. 8, Section 141(i))
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex,
or by electronic mail or other electronic means, during normal business
hours, at least twenty-four (24) hours before the date and time of the
meeting, or sent in writing to each director by first class mail, postage
prepaid, at least three (3) days before the date of the meeting. Notice of
any meeting may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. (Del. Code Ann., tit. 8, Section
229)
(f) WAIVER OF NOTICE. The transaction of all business at
any meeting of the Board of Directors, or any committee thereof, however
called or noticed, or wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present and
if, either before or after the meeting, each of the directors not present
shall sign a written waiver of notice. All such waivers shall be filed with
the corporate records or made a part of the minutes of the meeting. (Del.
Code Ann., tit. 8, Section 229)
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a
greater number and except with respect to indemnification questions arising
under Section 43 hereof, for which a quorum shall be one-third of the exact
number of directors fixed from time to time, a quorum of the Board of
Directors shall consist of a majority of the exact number of directors fixed
from time to time by the Board of Directors in accordance with the
Certificate of Incorporation; PROVIDED, HOWEVER, at any meeting, whether a
quorum be present or otherwise, a majority of the directors present may
adjourn from time to time until the time fixed for the next regular meeting
of the Board of Directors, without notice other than by announcement at the
meeting. (Del. Code Ann., tit. 8, Section 141(b))
(b) At each meeting of the Board of Directors at which a
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different
vote be required by law, the Certificate of Incorporation or these Bylaws.
(Del. Code Ann., tit. 8, Section 141(b))
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SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these Bylaws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board
of Directors or committee, as the case may be, consent thereto in writing,
and such writing or writings are filed with the minutes of proceedings of the
Board of Directors or committee. (Del. Code Ann., tit. 8, Section 141(f))
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to
such compensation for their services as may be approved by the Board of
Directors, including, if so approved, by resolution of the Board of
Directors, a fixed sum and expenses of attendance, if any, for attendance at
each regular or special meeting of the Board of Directors and at any meeting
of a committee of the Board of Directors. Nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee, or otherwise and receiving
compensation therefor. (Del. Code Ann., tit. 8, Section 141(h))
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint
an Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and
provided in the resolution of the Board of Directors shall have and may
exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to (i)
approving or adopting, or recommending to the stockholders, any action or
matter expressly required by the Delaware General Corporation Law to be
submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation. (Del. Code Ann., tit. 8, Section
141(c))
(b) OTHER COMMITTEES. The Board of Directors may, from time
to time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or
more members of the Board of Directors and shall have such powers and perform
such duties as may be prescribed by the resolution or resolutions creating
such committees, but in no event shall any such committee have the powers
denied to the Executive Committee in these Bylaws. (Del. Code Ann., tit. 8,
Section 141(c))
(c) TERM. Each member of a committee of the Board of
Directors shall serve a term on the committee coexistent with such member's
term on the Board of Directors. The Board of Directors, subject to the
provisions of subsections (a) or (b) of this Bylaw may at any time increase
or decrease the number of members of a committee or terminate the existence
of a committee. The membership of a committee member shall terminate on the
date of his death or voluntary resignation from the committee or from the
Board of Directors. The Board of Directors may at any time for any reason
remove any individual committee member and the Board of Directors may fill
any committee vacancy created by death, resignation, removal or increase in
the number of members of the committee. The Board of Directors may designate
one or more directors as alternate members of any committee, who may replace
any absent or disqualified member at any meeting of the committee, and, in
addition, in the absence or disqualification of any member of a committee,
the member or members thereof present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member. (Del. Code Ann., tit. 8,
Section 141(c))
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(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places
as are determined by the Board of Directors, or by any such committee, and
when notice thereof has been given to each member of such committee, no
further notice of such regular meetings need be given thereafter. Special
meetings of any such committee may be held at any place which has been
determined from time to time by such committee, and may be called by any
director who is a member of such committee, upon written notice to the
members of such committee of the time and place of such special meeting given
in the manner provided for the giving of written notice to members of the
Board of Directors of the time and place of special meetings of the Board of
Directors. Notice of any special meeting of any committee may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends such special
meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. A majority of the authorized number of members
of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee. (Del. Code Ann., tit.
8, Sections 141(c), 229)
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed
or is absent, the President, or if the President is absent, the most senior
Vice President, or, in the absence of any such officer, a chairman of the
meeting chosen by a majority of the directors present, shall preside over the
meeting. The Secretary, or in his absence, an Assistant Secretary directed to
do so by the President, shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation
shall include, if and when designated by the Board of Directors, the Chairman
of the Board of Directors, the Chief Executive Officer, the President, one or
more Vice Presidents, the Secretary, the Chief Financial Officer, the
Treasurer and the Controller, all of whom shall be elected at the annual
organizational meeting of the Board of Directors. The Board of Directors may
also appoint one or more Assistant Secretaries, Assistant Treasurers,
Assistant Controllers and such other officers and agents with such powers and
duties as it shall deem necessary. The Board of Directors may assign such
additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the corporation
at any one time unless specifically prohibited therefrom by law. The salaries
and other compensation of the officers of the corporation shall be fixed by
or in the manner designated by the Board of Directors. (Del. Code Ann., tit.
8, Sections 122(5), 142(a), (b))
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure
of the Board of Directors and until their successors shall have been duly
elected and qualified, unless sooner removed. Any officer elected or
appointed by the Board of Directors may be removed at any time by the Board
of Directors. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board of Directors. (Del. Code Ann., tit. 8,
Section 141(b), (e))
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(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The
Chairman of the Board of Directors, when present, shall preside at all
meetings of the stockholders and the Board of Directors. The Chairman of the
Board of Directors shall perform other duties commonly incident to his office
and shall also perform such other duties and have such other powers as the
Board of Directors shall designate from time to time. If there is no
President, then the Chairman of the Board of Directors shall also serve as
the Chief Executive Officer of the corporation and shall have the powers and
duties prescribed in paragraph (c) of this Section 28. (Del. Code Ann., tit.
8, Section 142(a))
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is
present. Unless some other officer has been elected Chief Executive Officer
of the corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of
the corporation. The President shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors shall designate from time to time. (Del.
Code Ann., tit. 8, Section 142(a))
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may
assume and perform the duties of the President in the absence or disability
of the President or whenever the office of President is vacant. The Vice
Presidents shall perform other duties commonly incident to their office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. (Del. Code
Ann., tit. 8, Section 142(a))
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record
all acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings
of the stockholders and of all meetings of the Board of Directors and any
committee thereof requiring notice. The Secretary shall perform all other
duties given him in these Bylaws and other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. The President may
direct any Assistant Secretary to assume and perform the duties of the
Secretary in the absence or disability of the Secretary, and each Assistant
Secretary shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. (Del. Code
Ann., tit. 8, Section 142(a))
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the
corporation in a thorough and proper manner and shall render statements of
the financial affairs of the corporation in such form and as often as
required by the Board of Directors or the President. The Chief Financial
Officer, subject to the order of the Board of Directors, shall have the
custody of all funds and securities of the corporation. The Chief Financial
Officer shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time. The President
may direct the Treasurer or any Assistant Treasurer, or the Controller or any
Assistant Controller to assume and perform the duties of the Chief Financial
Officer in the absence or disability of the Chief Financial Officer, and each
Treasurer and Assistant Treasurer and each Controller and Assistant
Controller shall perform other duties commonly incident to his office and
shall also perform such other duties and have such other powers as the Board
of Directors or the President shall designate from time to time. (Del. Code
Ann., tit. 8, Section 142(a))
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SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other
officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by
giving written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the
person or persons to whom such notice is given, unless a later time is
specified therein, in which event the resignation shall become effective at
such later time. Unless otherwise specified in such notice, the acceptance of
any such resignation shall not be necessary to make it effective. Any
resignation shall be without prejudice to the rights, if any, of the
corporation under any contract with the resigning officer. (Del. Code Ann.,
tit. 8, Section 142(b))
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of
the directors in office at the time, or by the unanimous written consent of
the directors in office at the time, or by any committee or superior officers
upon whom such power of removal may have been conferred by the Board of
Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of
Directors may, in its discretion, determine the method and designate the
signatory officer or officers, or other person or persons, to execute on
behalf of the corporation any corporate instrument or document, or to sign on
behalf of the corporation the corporate name without limitation, or to enter
into contracts on behalf of the corporation, except where otherwise provided
by law or these Bylaws, and such execution or signature shall be binding upon
the corporation. (Del. Code Ann., tit. 8, Sections 103(a), 142(a), 158)
Unless otherwise specifically determined by the Board of Directors
or otherwise required by law, promissory notes, deeds of trust, mortgages and
other evidences of indebtedness of the corporation, and other corporate
instruments or documents requiring the corporate seal, and certificates of
shares of stock of the corporation, shall be executed, signed or endorsed by
the Chairman of the Board of Directors, or the President or any Vice
President, and by the Secretary or Treasurer or any Assistant Secretary or
Assistant Treasurer. All other instruments and documents requiring the
corporate signature, but not requiring the corporate seal, may be executed as
aforesaid or in such other manner as may be directed by the Board of
Directors. (Del. Code Ann., tit. 8, Sections 103(a), 142(a), 158)
All checks and drafts drawn on banks or other depositaries on funds
to the credit of the corporation or in special accounts of the corporation
shall be signed by such person or persons as the Board of Directors shall
authorize so to do.
Unless authorized or ratified by the Board of Directors or within
the agency power of an officer, no officer, agent or employee shall have any
power or authority to bind the corporation by any contract or engagement or
to pledge its credit or to render it liable for any purpose or for any
amount. (Del. Code Ann., tit. 8, Sections 103(a), 142(a), 158).
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SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation
for itself, or for other parties in any capacity, shall be voted, and all
proxies with respect thereto shall be executed, by the person authorized so
to do by resolution of the Board of Directors, or, in the absence of such
authorization, by the Chairman of the Board of Directors, the Chief Executive
Officer, the President, or any Vice President. (Del. Code Ann., tit. 8,
Section 123)
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent
with the Certificate of Incorporation and applicable law. Every holder of
stock in the corporation shall be entitled to have a certificate signed by or
in the name of the corporation by the Chairman of the Board of Directors, or
the President or any Vice President and by the Treasurer or Assistant
Treasurer or the Secretary or Assistant Secretary, certifying the number of
shares owned by him in the corporation. Any or all of the signatures on the
certificate may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate is issued, it may be issued with the same
effect as if he were such officer, transfer agent, or registrar at the date
of issue. Each certificate shall state upon the face or back thereof, in full
or in summary, all of the powers, designations, preferences, and rights, and
the limitations or restrictions of the shares authorized to be issued or
shall, except as otherwise required by law, set forth on the face or back a
statement that the corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions
of such preferences and/or rights. Within a reasonable time after the
issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section
or otherwise required by law or with respect to this section a statement that
the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of certificates representing stock of the same
class and series shall be identical. (Del. Code Ann., tit. 8, Section 158)
SECTION 35. LOST CERTIFICATES. A new certificate or certificates
shall be issued in place of any certificate or certificates theretofore
issued by the corporation alleged to have been lost, stolen, or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost, stolen, or destroyed. The corporation may
require, as a condition precedent to the issuance of a new certificate or
certificates, the owner of such lost, stolen, or destroyed certificate or
certificates, or his legal representative, to advertise the same in such
manner as it shall require or to give the corporation a surety bond in such
form and amount as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost, stolen, or destroyed. (Del. Code Ann., tit. 8, Section 167)
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SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the
corporation shall be made only upon its books by the holders thereof, in
person or by attorney duly authorized, and upon the surrender of a properly
endorsed certificate or certificates for a like number of shares. (Del. Code
Ann., tit. 8, Section 201, tit. 6, Section 8- 401(1))
(b) The corporation shall have power to enter into and
perform any agreement with any number of stockholders of any one or more
classes of stock of the corporation to restrict the transfer of shares of
stock of the corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the Delaware General Corporation
Law. (Del. Code Ann., tit. 8, Section 160 (a))
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the Board of Directors may fix, in advance, a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting. If no record date is fixed by the Board
of Directors, the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; PROVIDED, HOWEVER, that the Board of Directors
may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be more than
ten (10) days after the date upon which the resolution fixing the record date
is adopted by the Board of Directors. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board of Directors to
fix a record date. The Board of Directors shall promptly, but in all events
within ten (10) days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has been fixed
by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is required by applicable law, shall be the
first date on which a signed written consent setting forth the action taken
or proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business
or an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed
by the Board of Directors and prior action by the Board of Directors is
required by law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
(c) In order that the corporation may determine the
stockholders entitled to receive payment of any dividend or other
distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any
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other lawful action, the Board of Directors may fix, in advance, a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted, and which record date shall be not more
than sixty (60) days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. (Del. Code Ann., tit. 8, Section 213)
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends, and to vote as such owner, and
shall not be bound to recognize any equitable or other claim to or interest
in such share or shares on the part of any other person whether or not it
shall have express or other notice thereof, except as otherwise provided by
the laws of Delaware. (Del. Code Ann., tit. 8, SectionsSections 213(a), 219)
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may
be authorized by the Board of Directors, and the corporate seal impressed
thereon or a facsimile of such seal imprinted thereon and attested by the
signature of the Secretary or an Assistant Secretary, or the Chief Financial
Officer or Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where
any such bond, debenture or other corporate security shall be authenticated
by the manual signature, or where permissible facsimile signature, of a
trustee under an indenture pursuant to which such bond, debenture or other
corporate security shall be issued, the signatures of the persons signing and
attesting the corporate seal on such bond, debenture or other corporate
security may be the imprinted facsimile of the signatures of such persons.
Interest coupons appertaining to any such bond, debenture or other corporate
security, authenticated by a trustee as aforesaid, shall be signed by the
Treasurer or an Assistant Treasurer of the corporation or such other person
as may be authorized by the Board of Directors, or bear imprinted thereon the
facsimile signature of such person. In case any officer who shall have signed
or attested any bond, debenture or other corporate security, or whose
facsimile signature shall appear thereon or on any such interest coupon,
shall have ceased to be such officer before the bond, debenture or other
corporate security so signed or attested shall have been delivered, such
bond, debenture or other corporate security nevertheless may be adopted by
the corporation and issued and delivered as though the person who signed the
same or whose facsimile signature shall have been used thereon had not ceased
to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital
stock of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting. Dividends may be
paid in cash, in property, or in shares of the capital stock, subject to the
provisions of the Certificate of Incorporation and applicable law. (Del. Code
Ann., tit. 8, Sections 170, 173)
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SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there
may be set aside out of any funds of the corporation available for dividends
such sum or sums as the Board of Directors from time to time, in its absolute
discretion, thinks is proper as a reserve or reserves to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of
the corporation, or for such other purpose as the Board of Directors shall
think conducive to the interests of the corporation, and the Board of
Directors may modify or abolish any such reserve in the manner in which it
was created. (Del. Code Ann., tit. 8, Section 171)
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. Unless otherwise fixed by resolution of the
Board of Directors, the fiscal year of the corporation shall end on the 31st
day of December in each calendar year.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this
Article XI, "executive officers" shall have the meaning defined in Rule 3b-7
promulgated under the 1934 Act) to the fullest extent not prohibited by the
Delaware General Corporation Law or any other applicable law; PROVIDED,
HOWEVER, that the corporation may modify the extent of such indemnification
by individual contracts with its directors and executive officers; and,
PROVIDED, FURTHER, that the corporation shall not be required to indemnify
any director or executive officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by
the Board of Directors of the corporation, (iii) such indemnification is
provided by the corporation, in its sole discretion, pursuant to the powers
vested in the corporation under the Delaware General Corporation Law or any
other applicable law or (iv) such indemnification is required to be made
under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The
corporation shall have power to indemnify its other officers, employees and
other agents as set forth in the Delaware General Corporation Law or any
other applicable law.
(c) EXPENSES. The corporation shall advance to any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he is or was a
director or executive officer of the corporation, or is or was serving at the
request of the corporation as a director or executive officer of another
corporation, partnership, joint venture, trust or other enterprise, prior to
the final disposition of the proceeding, promptly following request therefor,
all expenses incurred by any director or executive officer in connection with
such proceeding upon receipt of an undertaking by or on
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behalf of such person to repay said amounts if it should be determined
ultimately that such person is not entitled to be indemnified under this
Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to
an officer of the corporation (except by reason of the fact that such officer
is or was a director of the corporation, in which event this paragraph shall
not apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if
such quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, that the facts known to the decision-making party at the time such
determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in
or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights
and be effective to the same extent and as if provided for in a contract
between the corporation and the director or executive officer. Any right to
indemnification or advances granted by this Bylaw to a director or executive
officer shall be enforceable by or on behalf of the person holding such right
in any court of competent jurisdiction if (i) the claim for indemnification
or advances is denied, in whole or in part, or (ii) no disposition of such
claim is made within ninety (90) days of request therefor. The claimant in
such enforcement action, if successful in whole or in part, shall be entitled
to be paid also the expense of prosecuting his claim. In connection with any
claim for indemnification, the corporation shall be entitled to raise as a
defense to any such action that the claimant has not met the standards of
conduct that make it permissible under the Delaware General Corporation Law
or any other applicable law for the corporation to indemnify the claimant for
the amount claimed. In connection with any claim by an executive officer of
the corporation (except in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
executive officer is or was a director of the corporation) for advances, the
corporation shall be entitled to raise a defense as to any such action clear
and convincing evidence that such person acted in bad faith or in a manner
that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that
his conduct was lawful. Neither the failure of the corporation (including its
Board of Directors, independent legal counsel or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law or any other applicable law, nor an actual determination by
the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard
of conduct, shall be a defense to the action or create a presumption that
claimant has not met the applicable standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such
person may have or hereafter acquire under any applicable statute, provision
of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding office. The
corporation is specifically authorized to enter into individual contracts
with any or all of its directors, officers, employees or agents respecting
indemnification and advances, to the fullest extent not prohibited by the
Delaware General Corporation Law or any other applicable law.
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(f) SURVIVAL OF RIGHTS. The rights conferred on any person
by this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the
Delaware General Corporation Law, the corporation or any other applicable
law, upon approval by the Board of Directors, may purchase insurance on
behalf of any person required or permitted to be indemnified pursuant to this
Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof
shall be invalidated on any ground by any court of competent jurisdiction,
then the corporation shall nevertheless indemnify each director and executive
officer to the full extent not prohibited by any applicable portion of this
Bylaw that shall not have been invalidated, or by any other applicable law.
If this Section 43 shall be invalid due to the application of the
indemnification provisions of another jurisdiction, then the corporation
shall indemnify each director and executive officer to the full extent under
applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw,
the following definitions shall apply:
(1) The term "proceeding" shall be broadly
construed and shall include, without limitation, the investigation,
preparation, prosecution, defense, settlement, arbitration and appeal of, and
the giving of testimony in, any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed
and shall include, without limitation, court costs, attorneys' fees, witness
fees, fines, amounts paid in settlement or judgment and any other costs and
expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Bylaw with respect to
the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
(4) References to a "director," "executive
officer," "officer," "employee," or "agent" of the corporation shall include,
without limitation, situations where such person is serving at the request of
the corporation as, respectively, a director, executive officer, officer,
employee, trustee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
(5) References to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan;
and references to "serving at the request of the corporation" shall include
any service as a director, officer, employee or agent of the corporation
which imposes duties on, or involves services by,
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such director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the interest of
the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions
of these Bylaws, notice is required to be given to any stockholder, it shall
be given in writing, timely and duly deposited in the United States mail,
postage prepaid, and addressed to his last known post office address as shown
by the stock record of the corporation or its transfer agent. (Del. Code
Ann., tit. 8, Section 222)
(b) NOTICE TO DIRECTORS. Any notice required to be given to
any director may be given by the method stated in subsection (a), or by
facsimile, telex or telegram, except that such notice other than one which is
delivered personally shall be sent to such address as such director shall
have filed in writing with the Secretary, or, in the absence of such filing,
to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed
by a duly authorized and competent employee of the corporation or its
transfer agent appointed with respect to the class of stock affected,
specifying the name and address or the names and addresses of the stockholder
or stockholders, or director or directors, to whom any such notice or notices
was or were given, and the time and method of giving the same, shall in the
absence of fraud, be prima facie evidence of the facts therein contained.
(Del. Code Ann., tit. 8, Section 222)
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail,
as above provided, shall be deemed to have been given as at the time of
mailing, and all notices given by facsimile, telex or telegram shall be
deemed to have been given as of the sending time recorded at time of
transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the
same method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any
other permissible method or methods may be employed in respect of any other
or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of
time within which any stockholder may exercise any option or right, or enjoy
any privilege or benefit, or be required to act, or within which any director
may exercise any power or right, or enjoy any privilege, pursuant to any
notice sent him in the manner above provided, shall not be affected or
extended in any manner by the failure of such stockholder or such director to
receive such notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person
shall not be required and there shall be no duty to apply to any governmental
authority or agency
20
<PAGE>
for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with
whom communication is unlawful shall have the same force and effect as if
such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall
state, if such is the fact and if notice is required, that notice was given
to all persons entitled to receive notice except such persons with whom
communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate
of Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such person
during the period between such two consecutive annual meetings, or (ii) all,
and at least two, payments (if sent by first class mail) of dividends or
interest on securities during a twelve-month period, have been mailed
addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice
to such person shall not be required. Any action or meeting which shall be
taken or held without notice to such person shall have the same force and
effect as if such notice had been duly given. If any such person shall
deliver to the corporation a written notice setting forth his then current
address, the requirement that notice be given to such person shall be
reinstated. In the event that the action taken by the corporation is such as
to require the filing of a certificate under any provision of the Delaware
General Corporation Law, the certificate need not state that notice was not
given to persons to whom notice was not required to be given pursuant to this
paragraph. (Del. Code Ann, tit. 8, Section 230)
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of
the Bylaws, these Bylaws may be altered or amended or repealed and new Bylaws
adopted by the affirmative vote of at least sixty-six and two-thirds percent
(66-2/3%) of the voting power of all of the then outstanding shares of Voting
Stock. The Board of Directors shall also have the power, if such power is
conferred upon the Board of Directors by the Certificate of Incorporation, to
adopt, amend, or repeal Bylaws (including, without limitation, the amendment
of any Bylaw setting forth the number of Directors who shall constitute the
whole Board of Directors). (Del. Code Ann., tit. 8, Sections 109(a), 122(6)).
ARTICLE XIV
MISCELLANEOUS
SECTION 46. ANNUAL REPORT.
(a) Subject to the provisions of paragraph (b) of this
Bylaw, the Board of Directors shall cause an annual report to be sent to each
stockholder of the corporation not later than one hundred twenty (120) days
after the close of the corporation's fiscal year. Such report shall include a
balance sheet as of the end of such fiscal year and an income statement and
statement of changes in financial position for such fiscal year, accompanied
by any report thereon of independent accounts or, if there is no such report,
the certificate of an authorized officer of the corporation that such
statements were prepared
21
<PAGE>
without audit from the books and records of the corporation. When there are
more than 100 stockholders of record of the corporation's shares, as
determined by Section 605 of the CGCL, additional information as required by
Section 1501(b) of the CGCL shall also be contained in such report, provided
that if the corporation has a class of securities registered under Section 12
of the 1934 Act, that Act shall take precedence. Such report shall be sent to
stockholders at least fifteen (15) days prior to the next annual meeting of
stockholders after the end of the fiscal year to which it relates.
(b) If and so long as there are fewer than 100 holders of
record of the corporation's shares, the requirement of sending of an annual
report to the stockholders of the corporation is hereby expressly waived.
22
<PAGE>
NO. CW-____
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE _______ SHARES
OF COMMON STOCK OF
IMPROVENET, INC.
(VOID AFTER NOVEMBER 23, 2003)
This certifies that ______________ or its assigns (the "HOLDER"), for value
received, is entitled to purchase from IMPROVENET, INC., a Delaware corporation
(the "COMPANY"), having a place of business at 720 Bay Road, Suite 200, Redwood
City, California, a maximum of ________ fully paid and nonassessable shares of
the Company's Common Stock ("COMMON STOCK") for cash at a price equal to $0.01
per share (the "STOCK PURCHASE PRICE") at any time or from time to time up to
and including 5:00 p.m. (Pacific time) five years from the date of this Warrant,
(the "EXPIRATION DATE"), upon surrender to the Company at its principal office
(or at such other location as the Company may advise the Holder in writing) of
this Warrant properly endorsed with the Form of Subscription attached hereto
duly filled in and signed and, if applicable, upon payment in cash or by check
of the aggregate Stock Purchase Price for the number of shares for which this
Warrant is being exercised determined in accordance with the provisions hereof.
The Stock Purchase Price and the number of shares purchasable hereunder are
subject to adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the
holder of record hereof, at any time or from time to time, up to the Expiration
Date or as specified in Section 3.3 hereto for all or any part of the shares of
Common Stock (but not for a fraction of a share) which may be purchased
hereunder. The Company agrees that the shares of Common Stock purchased under
this Warrant shall be and are deemed to be issued to the Holder hereof as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, properly endorsed, the completed,
executed Form of Subscription delivered and payment made for such shares.
Certificates for the shares of Common Stock so purchased, together with any
other securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver a new Warrant or Warrants of like tenor for the
balance of the shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time. Each stock certificate
so delivered shall be in such denominations of Common Stock as may be requested
by the Holder hereof and shall be registered in the name of such Holder.
<PAGE>
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's Common
Stock is greater than the Stock Purchase Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of Common Stock computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of
Common Stock to be issued to the
Holder
Y = the number of shares of Common
Stock purchasable under the Warrant
or, if only a portion of the Warrant
is being exercised, the portion of
the Warrant being canceled (at the
date of such calculation)
A = the fair market value of one
share of the Company's Common Stock
(at the date of such calculation)
B = Stock Purchase Price (as
adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value of one share
of Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event the Company makes an initial public
offering of its common stock the fair market value per share shall be the per
share offering price to the public of the Company's initial public offering if
this Warrant is exercised prior to or upon the closing of such initial public
offering, and if exercised after the closing of the initial public offering the
fair market value of one share shall be the average of the closing prices quoted
on the Nasdaq National Market or any other exchange in which the Common Stock is
listed, for the five trading dates prior to the date of exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, or other securities and property, when and as required to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed; provided, however, that the
Company shall not be required to effect a registration under federal or state
securities laws with respect to such exercise. The Company will not take any
action which would result
2.
<PAGE>
in any adjustment of the Stock Purchase Price (as set forth in Section 3
hereof) if the total number of shares of Common Stock issuable after such
action upon exercise of all outstanding warrants, together with all shares of
Common Stock then outstanding and all shares of Common Stock then issuable
upon exercise of all options and upon the conversion of all convertible
securities then outstanding, would exceed the total number of shares of
Common Stock then authorized by the Company's Third Restated Certificate of
Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Common Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Common Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other distribution,
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Common Stock issued as a stock split or adjustments in respect of which shall be
covered by the terms of Section 3.1 above),
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c)) which such Holder would hold on
the date of such exercise had he been the holder of record of such Common Stock
as of the date on which holders of Common Stock received or became entitled to
receive such shares or all other additional stock and other securities and
property.
3.
<PAGE>
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, or other assets or property (an
"ORGANIC CHANGE"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets or
property (determined in good faith by the Board of Directors of the Company)
issuable or payable with respect to one share of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company will not effect any such consolidation, merger or
sale unless, prior to the consummation thereof, the successor corporation (if
other than the Company) resulting from such consolidation or the corporation
purchasing such assets shall assume by written instrument reasonably
satisfactory in form and substance to the Holders of a majority of the warrants
to purchase Common Stock then outstanding, executed and mailed or delivered to
the registered Holder hereof at the last address of such Holder appearing on the
books of the Company, the obligation to deliver to such Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such Holder may be entitled to purchase.
3.4 CERTAIN EVENTS. If any change in the outstanding Common Stock
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price or the application of such provisions, so as to protect
such purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price
the total number, class and kind of shares as he would have owned had the
Warrant been exercised prior to the event and had he continued to hold such
shares until after the event requiring adjustment.
4.
<PAGE>
3.5 NOTICES OF CHANGE.
(a) Immediately upon any adjustment in the number or class of
shares subject to this Warrant and of the Stock Purchase Price, the Company
shall give written notice thereof to the Holder, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at
least ten business days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions.
(c) The Company shall also give written notice to the Holder
at least thirty (30) business days prior to the date on which an Organic Change
shall take place.
4. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. MARKET STAND-OFF AGREEMENT. The Company (or a representative of the
underwriters) may, in connection with an underwritten registration of the
offering of any securities of the Company under the Act, require that the Holder
not sell, dispose of (other than to donees who agree to be similarly bound),
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any common stock or other securities of the Company held by the undersigned (the
"RESTRICTED SECURITIES"), for a period of time specified by the underwriters(s)
(not to exceed one hundred eighty (180) days) following the effective date of
the registration statement of the Company filed under the Act relating to the
Company's initial public offering. The Holder agrees to enter into any
agreements as may be reasonably requested by the Company and/or the
underwriter(s) which are consistent with the foregoing or which are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Restricted
Securities held by the Holder until the end of such period.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by its creditors.
5.
<PAGE>
8. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, shall survive the
exercise of this Warrant.
10. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
11. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
12. BINDING EFFECT ON SUCCESSORS. Except as specified in Section 3.3
hereof, this Warrant shall be binding upon any corporation succeeding the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets. All of the obligations of the Company relating to the
Common Stock issuable upon the exercise of this Warrant shall survive the
exercise and termination of this Warrant. All of the covenants and agreements of
the Company shall inure to the benefit of the successors and assigns of the
holder hereof.
13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of New York. Each party hereto hereby
irrevocably and unconditionally submits to the exclusive jurisdiction of the
state and federal courts located in the State of New York for any actions, suits
or proceedings arising out of or relating to this Warrant and the transactions
contemplated hereby. Each party hereto agrees not to commence any action, suit
or proceeding relating thereto except in such courts. The parties hereto
irrevocably and unconditionally waive any objection to the laying of venue in
any action, suit or proceeding arising out of this Warrant or the transactions
contemplated hereby, in such state or federal courts aforesaid and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
6.
<PAGE>
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS WARRANT.
14. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
15. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
7.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ____ day of November,
1999.
IMPROVENET, INC.
a Delaware corporation
By:
--------------------------
President
ATTEST:
- -----------------------------
Secretary
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date: _________________, 19___
ImproveNet, Inc.
720 Bay Road, Suite 200
Redwood City, CA 94063-2469
Attn: President
Ladies and Gentlemen:
/ / The undersigned hereby elects to exercise the warrant issued to it by
ImproveNet, Inc. (the "Company") and dated November , 1999 Warrant No.
CW-4 (the "WARRANT") and to purchase thereunder ______________________
__________________________________ shares of the Common Stock of the
Company (the "SHARES") at a purchase price of $0.01 per Share or an
aggregate purchase price of __________________________________ Dollars
($__________) (the "PURCHASE PRICE").
/ / The undersigned hereby elects to convert _______________________
percent (____%) of the value of the Warrant pursuant to the provisions
of Section 1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
----------------------------
By:
--------------------------
Title:
-----------------------
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE __________ SHARES
OF COMMON STOCK OF IMPROVENET, INC.
(VOID AFTER JUNE 16, 2007)
This certifies that ______________, or his assigns (the "Holder"), for
value received, is entitled to purchase from IMPROVENET, INC., a California
corporation (the "Company"), a maximum of ____________ fully paid and
nonassessable shares of the Company's Common Stock (the "Common Stock") for cash
at a price of $1.00 per share (the "Stock Purchase Price") at any time or from
time to time up to and including 5:00 p.m. (Pacific time) on June 16, 2007 (the
"Expiration Date"), upon surrender to the Company at its principal office (or at
such other location as the Company may advise the Holder in writing) of this
Warrant properly endorsed with the Form of Subscription attached hereto duly
filled in and signed and, if applicable, upon payment in cash or by check of the
aggregate Stock Purchase Price for the number of shares for which this Warrant
is being exercised determined in accordance with the provisions hereof. The
Stock Purchase Price and the number of shares purchasable hereunder are subject
to adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the
Holder of record hereof, at any time or from time to time, up to the Expiration
Date for all or any part of the shares of (but not for a fraction of a share)
which may be purchased hereunder. The Company agrees that the shares of Common
Stock purchased under this Warrant shall be and are deemed to be issued to the
Holder hereof as the record owner of such shares as of the close of business on
the date on which this Warrant shall have been surrendered, properly endorsed,
the completed, executed Form of Subscription delivered and payment made for such
shares. Certificates for the shares of Common Stock so purchased, together with
any other securities or property to which the Holder hereof is entitled upon
such exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver a new Warrant or Warrants of like tenor for the
balance of the shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time. Each
1.
<PAGE>
stock certificate so delivered shall be in such denominations of Common Stock
as may be requested by the Holder hereof and shall be registered in the name
of such Holder.
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein
to the contrary, if the fair market value of one share of the Company's Common
Stock is greater than the Stock Purchase Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of Common Stock computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock
to be issued to the Holder
Y = the number of shares of Common
Stock purchasable under the Warrant
or, if only a portion of the Warrant
is being exercised, the portion of
the Warrant being canceled (at the
date of such calculation)
A = the fair market value of one share
of the Company's Common Stock (at
the date of such calculation)
B = Stock Purchase Price (as adjusted to
the date of such calculation)
For purposes of the above calculation, fair market value of one share
of Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event this Warrant is being exercised upon
the initial public offering of the Company (the "Initial Public Offering"), the
fair market value per share shall be the per share offering price to the public
of the Initial Public Offering.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any shareholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, or other securities and property, when and as required to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be
2.
<PAGE>
issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the Common Stock may be listed; provided, however, that the Company
shall not be required to effect a registration under Federal or State
securities laws with respect to such exercise.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares, the Stock Purchase Price in effect immediately prior
to such subdivision shall be proportionately reduced, and conversely, in case
the outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Common Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Common Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other distribution;
(b) any cash paid or payable otherwise than as a cash
dividend; or
(c) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Common Stock issued as a stock split or adjustments in respect of which shall be
covered by the terms of Section 3.1 above);
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c) above) which such Holder would
hold on the date of such exercise had he been the holder of record of such
Common Stock as of the date on which holders of Common Stock received or became
entitled to receive such shares or all other additional stock and other
securities and property.
3.
<PAGE>
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, or other assets or property (an
"Organic Change"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets or
property (determined in good faith by the Board of Directors of the Company)
issuable or payable with respect to one share of the Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to the
rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments of
the Stock Purchase Price and of the number of shares purchasable and receivable
upon the exercise of this Warrant) shall thereafter be applicable, in relation
to any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof.
3.4 CERTAIN EVENTS. If any change in the outstanding Common
Stock of the Company or any other event occurs as to which the other provisions
of this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the purchase rights of the Holder of the Warrant in
accordance with such provisions, then the Board of Directors of the Company
shall make an adjustment in the number and class of shares available under the
Warrant, the Stock Purchase Price or the application of such provisions, so as
to protect such purchase rights as aforesaid. The adjustment shall be such as
will give the Holder of the Warrant upon exercise for the same aggregate Stock
Purchase Price the total number, class and kind of shares as he would have owned
had the Warrant been exercised prior to the event and had he continued to hold
such shares until after the event requiring adjustment.
3.5 NOTICES OF CHANGE.
(a) Immediately upon any adjustment in the number or class of
shares subject to this Warrant and of the Stock Purchase Price, the Company
shall give written notice thereof to the Holder, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at
least 10 business days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions.
4.
<PAGE>
(c) The Company shall also give written notice to the Holder
at least 20 business days prior to the date on which an Organic Change shall
take place.
4. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a shareholder of the Company,
whether such liability is asserted by the Company or by its creditors.
7. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the Holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, shall survive the
exercise of this Warrant.
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
5.
<PAGE>
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
Holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the Company's assets. All of the obligations of
the Company relating to the Common Stock issuable upon the exercise of this
Warrant shall survive the exercise and termination of this Warrant. All of the
covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the Holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the Holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
15. RELEASE OF CLAIMS. Holder hereby releases, acquits and forever
discharges the Company, and where applicable, its officers, directors, agents,
servants, attorneys, employees, shareholders, successors, assigns and
affiliates, of and from any and all claims, liabilities, demands, causes of
action, costs, expenses, attorneys' fees, damages, indemnities and obligations
of every kind and nature, in law, equity, or otherwise, known and unknown,
suspected and unsuspected, disclosed and undisclosed, arising out of or in any
way related to any and all claims and demands directly or indirectly arising out
of or in any way related to salary, bonuses, commissions, vacation pay, fringe
benefits, expense reimbursements, or any other form of compensation.
6.
<PAGE>
16. SECTION 1542 WAIVER. Holder acknowledges that he has read and
understands Section 1542 of the Civil Code of the State of California, which
reads as follows:
A GENERAL RELEASE DOES NOT EXTEND CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE
RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR.
Holder hereby expressly waives and relinquishes all rights and benefits under
that section and any law or legal principle of similar effect in any
jurisdiction with respect to the release granted herein.
[THIS SPACE INTENTIONALLY LEFT BLANK]
7.
<PAGE>
WARRANT
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 16th day of June, 1997.
IMPROVENET, INC.
By:
---------------------------------
Title:
-------------------------------
ATTEST:
By:
----------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date:_________________, 19___
ImproveNet, Inc.
- --------------------
- --------------------
Attn: President
Ladies and Gentlemen:
/ / The undersigned hereby elects to exercise the warrant issued to it by
ImproveNet, Inc. (the "Company") and dated June _____, 1997 Warrant No.
W-1 (the "Warrant") and to purchase thereunder
__________________________________ shares of the Common Stock of the
Company (the "Shares") at a purchase price of
___________________________________________ Dollars ($__________) per
Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the "Purchase
Price").
/ / The undersigned hereby elects to convert _______________________
percent (____%) of the value of the Warrant pursuant to the provisions
of Section 1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned also makes the representations set forth on the attached Exhibit
B of the Warrant.
Very truly yours,
-------------------------------------
By:
----------------------------------
Title:
-------------------------------
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION
THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED ALONG WITH THE
SUBSCRIPTION FORM BEFORE THE STOCK ISSUABLE UPON EXERCISE OF THE WARRANT DATED
JUNE ____, 1997, WILL BE ISSUED.
_____________________, 19__
ImproveNet, Inc.
- -------------------
- -------------------
Attn: President
Ladies and Gentlemen:
The undersigned, _________________________ ("Purchaser"), intends to
acquire up to ______________ shares of the Common Stock (the "Stock") of
ImproveNet, Inc. (the "Company") from the Company pursuant to the exercise or
conversion of certain Warrants to purchase Stock held by Purchaser. The Stock
will be issued to Purchaser in a transaction not involving a public offering and
pursuant to an exemption from registration under the Securities Act of 1933, as
amended (the "1933 Act") and applicable state securities laws. In connection
with such purchase and in order to comply with the exemptions from registration
relied upon by the Company, Purchaser represents, warrants and agrees as
follows:
Purchaser is acquiring the Stock for its own account, to hold for
investment, and Purchaser shall not make any sale, transfer or other disposition
of the Stock in violation of the 1933 Act or the General Rules and Regulations
promulgated thereunder by the Securities and Exchange Commission (the "SEC") or
in violation of any applicable state securities law.
Purchaser has been advised that the Stock has not been registered under
the 1933 Act or state securities laws on the ground that this transaction is
exempt from registration, and that reliance by the Company on such exemptions is
predicated in part on Purchaser's representations set forth in this letter.
Purchaser has been informed that under the 1933 Act, the Stock must be
held indefinitely unless it is subsequently registered under the 1933 Act or
unless an exemption from such registration (such as Rule 144) is available with
respect to any proposed transfer or disposition by Purchaser of the Stock.
Purchaser further agrees that the Company may refuse to permit Purchaser to
sell, transfer or dispose of the Stock (except as permitted under Rule 144)
unless there is in effect a registration statement under the 1933 Act and any
applicable state securities laws covering such transfer, or unless Purchaser
furnishes an opinion of counsel reasonably satisfactory to counsel for the
Company, to the effect that such registration is not required.
<PAGE>
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Stock, or any substitutions therefor, a legend stating in
substance:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws. These shares have been
acquired for investment and may not be sold or otherwise transferred in
the absence of an effective registration statement for these shares
under the Securities Act and applicable state securities laws, or an
opinion of counsel satisfactory to the Company that registration is not
required and that an applicable exemption is available."
Purchaser has carefully read this letter and has discussed its
requirements and other applicable limitations upon Purchaser's resale of the
Stock with Purchaser's counsel.
Very truly yours,
----------------------------------------
By:
-------------------------------------
Title:
----------------------------------
<PAGE>
NO. CW-___
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE ___________ SHARES
OF COMMON STOCK OF
IMPROVENET, INC.
(VOID AFTER ___________, 2004)
This certifies that ___________________ or its assigns (the "HOLDER"), for value
received, is entitled to purchase from IMPROVENET, INC., a Delaware corporation
(the "COMPANY"), having a place of business at 720 Bay Road, Suite 200, Redwood
City, California, a maximum of __________ fully paid and nonassessable shares of
the Company's Common Stock ("COMMON STOCK") for cash at a price equal to $13.50
per share (the "STOCK PURCHASE PRICE") at any time or from time to time up to
and including 5:00 p.m. (Pacific time) five years from the date of this Warrant,
(the "EXPIRATION DATE"), upon surrender to the Company at its principal office
(or at such other location as the Company may advise the Holder in writing) of
this Warrant properly endorsed with the Form of Subscription attached hereto
duly filled in and signed and, if applicable, upon payment in cash or by check
of the aggregate Stock Purchase Price for the number of shares for which this
Warrant is being exercised determined in accordance with the provisions hereof.
The Stock Purchase Price and the number of shares purchasable hereunder are
subject to adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the
holder of record hereof, at any time or from time to time, up to the Expiration
Date or as specified in Section 3.3 hereto for all or any part of the shares of
Common Stock (but not for a fraction of a share) which may be purchased
hereunder. The Company agrees that the shares of Common Stock purchased under
this Warrant shall be and are deemed to be issued to the Holder hereof as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, properly endorsed, the completed,
executed Form of Subscription delivered and payment made for such shares.
Certificates for the shares of Common Stock so purchased, together with any
other securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver a new Warrant or Warrants of like tenor for the
balance of the shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time. Each stock certificate
so delivered shall be in such denominations of Common Stock as may be requested
by the Holder hereof and shall be registered in the name of such Holder.
<PAGE>
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's Common
Stock is greater than the Stock Purchase Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of Common Stock computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of
Common Stock to be issued to the
Holder
Y = the number of shares of Common
Stock purchasable under the Warrant
or, if only a portion of the Warrant
is being exercised, the portion of
the Warrant being canceled (at the
date of such calculation)
A = the fair market value of one
share of the Company's Common Stock
(at the date of such calculation)
B = Stock Purchase Price (as
adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value of one share
of Common Stock shall be determined by the Company's Board of Directors in good
faith; provided, however, that in the event the Company makes an initial public
offering of its common stock the fair market value per share shall be the per
share offering price to the public of the Company's initial public offering if
this Warrant is exercised prior to or upon the closing of such initial public
offering, and if exercised after the closing of the initial public offering the
fair market value of one share shall be the average of the closing prices quoted
on the Nasdaq National Market or any other exchange in which the Common Stock is
listed, for the five trading dates prior to the date of exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Common Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Common Stock, or other securities and property, when and as required to
provide for the exercise of the rights represented by this Warrant. The Company
will take all such action as may be necessary to assure that such shares of
Common Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Common Stock may be listed; provided, however, that the
Company shall not be required to effect a registration under federal or state
securities laws with respect to such exercise. The Company will not take any
action which would result in any adjustment of the Stock Purchase Price (as set
forth in Section 3 hereof) if the total number of
2.
<PAGE>
shares of Common Stock issuable after such action upon exercise of all
outstanding warrants, together with all shares of Common Stock then
outstanding and all shares of Common Stock then issuable upon exercise of all
options and upon the conversion of all convertible securities then
outstanding, would exceed the total number of shares of Common Stock then
authorized by the Company's Third Restated Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Common
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) common stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Common Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other
distribution,
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Common Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares
of Common Stock issued as a stock split or adjustments in respect of which
shall be covered by the terms of Section 3.1 above),
then and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clauses (b) and (c)) which such Holder would hold on
the date of such exercise had he been the holder of record of such Common Stock
as of the date on which holders of Common Stock received or became entitled to
receive such shares or all other additional stock and other securities and
property.
3.3 ANTIDILUTION. In the event the Series E Preferred Conversion
Price (as defined in Section 4(c)(5)(c) of the Company's Third Amended and
Restated Certificate of Incorporation (the
3.
<PAGE>
"Restated Certificate")), is less than the then effective Stock Purchase
Price, then the Stock Purchase Price shall be adjusted to equal the then
effective Series E Conversion Price PROVIDED, HOWEVER, that no further
adjustment shall be made pursuant to this Section 3.3 following the closing
of a firm commitment underwritten public offering of the Company's Common
Stock pursuant to an effective registration statement under the Securities
Act of 1933, as amended, in which all outstanding preferred stock has
converted into common stock.
3.4 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities, or other assets or property (an
"ORGANIC CHANGE"), then, as a condition of such Organic Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares of the
Common Stock of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby) such shares of stock,
securities or other assets or property as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby. In the event of
any Organic Change, appropriate provision shall be made by the Company with
respect to the rights and interests of the Holder of this Warrant to the end
that the provisions hereof (including, without limitation, provisions for
adjustments of the Stock Purchase Price and of the number of shares purchasable
and receivable upon the exercise of this Warrant) shall thereafter be
applicable, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by written
instrument reasonably satisfactory in form and substance to the Holders of a
majority of the warrants to purchase Common Stock then outstanding, executed and
mailed or delivered to the registered Holder hereof at the last address of such
Holder appearing on the books of the Company, the obligation to deliver to such
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such Holder may be entitled to purchase.
3.5 CERTAIN EVENTS. If any change in the outstanding Common Stock
of the Company or any other event occurs as to which the other provisions of
this Section 3 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the Holder of the Warrant in accordance
with such provisions, then the Board of Directors of the Company shall make an
adjustment in the number and class of shares available under the Warrant, the
Stock Purchase Price or the application of such provisions, so as to protect
such purchase rights as aforesaid. The adjustment shall be such as will give the
Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price
the total number, class and kind of shares as he would have owned had the
Warrant been exercised prior to the event and had he continued to hold such
shares until after the event requiring adjustment.
4.
<PAGE>
3.6 NOTICES OF CHANGE.
(a) Immediately upon any adjustment in the number or class
of shares subject to this Warrant and of the Stock Purchase Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at
least ten business days prior to the date on which the Company closes its
books or takes a record for determining rights to receive any dividends or
distributions.
(c) The Company shall also give written notice to the
Holder at least thirty (30) business days prior to the date on which an
Organic Change shall take place.
4. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon the exercise of the Warrant shall be made without charge to the Holder of
the Warrant for any issue tax (other than any applicable income taxes) in
respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. MARKET STAND-OFF AGREEMENT. The Company (or a representative of the
underwriters) may, in connection with an underwritten registration of the
offering of any securities of the Company under the Act, require that the Holder
not sell, dispose of (other than to donees who agree to be similarly bound),
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any common stock or other securities of the Company held by the undersigned (the
"RESTRICTED SECURITIES"), for a period of time specified by the underwriters(s)
(not to exceed one hundred eighty (180) days) following the effective date of
the registration statement of the Company filed under the Act relating to the
Company's initial public offering. The Holder agrees to enter into any
agreements as may be reasonably requested by the Company and/or the
underwriter(s) which are consistent with the foregoing or which are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Restricted
Securities held by the Holder until the end of such period.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Common Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the holder hereof, shall give rise to any liability of
such Holder for the Stock Purchase Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by its creditors.
5.
<PAGE>
8. WARRANTS TRANSFERABLE. Subject to compliance with applicable
federal and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof
(except for transfer taxes), upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the
same, consents and agrees that this Warrant, when endorsed in blank, shall be
deemed negotiable, and that the holder hereof, when this Warrant shall have
been so endorsed, may be treated by the Company, at the Company's option, and
all other persons dealing with this Warrant as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented by
this Warrant, or to the transfer hereof on the books of the Company any
notice to the contrary notwithstanding; but until such transfer on such
books, the Company may treat the registered owner hereof as the owner for all
purposes.
9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Common Stock issued upon exercise of this Warrant, shall survive the
exercise of this Warrant.
10. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
11. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
12. BINDING EFFECT ON SUCCESSORS. Except as specified in Section 3.3
hereof, this Warrant shall be binding upon any corporation succeeding the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets. All of the obligations of the Company relating to the
Common Stock issuable upon the exercise of this Warrant shall survive the
exercise and termination of this Warrant. All of the covenants and agreements of
the Company shall inure to the benefit of the successors and assigns of the
holder hereof.
13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of New York. Each party hereto hereby
irrevocably and unconditionally submits to the exclusive jurisdiction of the
state and federal courts located in the State of New York for any actions, suits
or proceedings arising out of or relating to this Warrant and the transactions
contemplated hereby. Each party hereto agrees not to commence any action, suit
or proceeding relating thereto except in such courts. The parties hereto
irrevocably and unconditionally waive any objection to the laying of venue in
any action, suit or proceeding arising out of this Warrant or the transactions
contemplated hereby, in such state or federal courts aforesaid and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS WARRANT.
6.
<PAGE>
14. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
15. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
7.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ____ day of December,
1999.
IMPROVENET, INC.
a Delaware corporation
By:__________________________
President
ATTEST:
___________________________
Secretary
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date: _________________, 19___
ImproveNet, Inc.
720 Bay Road, Suite 200
Redwood City, CA 94063-2469
Attn: President
Ladies and Gentlemen:
/ / The undersigned hereby elects to exercise the warrant issued to it by
ImproveNet, Inc. (the "COMPANY") and dated December , 1999 Warrant No.
CW-___ (the "WARRANT") and to purchase thereunder
__________________________________ shares of the Common Stock of the
Company (the "SHARES") at a purchase price of $13.50 per Share or an
aggregate purchase price of __________________________________ Dollars
($__________) (the "PURCHASE PRICE").
/ / The undersigned hereby elects to convert _______________________
percent (____%) of the value of the Warrant pursuant to the provisions
of Section 1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
_____________________________
By:__________________________
Title:_______________________
<PAGE>
NO. PDW-______
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE _______ SHARES
OF SERIES A PREFERRED STOCK OF IMPROVENET, INC.
(VOID AFTER JUNE 30, 2001)
This certifies that ______________, or its assigns (the "Holder"),
for value received, is entitled to purchase from IMPROVENET, INC., a
California corporation (the "Company"), having a place of business at 444
High Street, Suite 275, Palo Alto, California 94301, a maximum of
________________ fully paid and nonassessable shares of the Company's Series
A Preferred Stock ("Series A Preferred Stock") for cash at a price of $1.00
per share (the "Stock Purchase Price") at any time or from time to time up to
and including 5:00 p.m. (Pacific time) on the earlier of (i) the closing of
the initial public offering of the Company's Common Stock pursuant to a
registration statement under the Securities Act of 1933, as amended, with net
cash proceeds to the Company (before underwriting discounts, commissions and
fees) (the "Initial Public Offering") in excess of ten million dollars
($10,000,000) or, (ii) June 30, 2001, such earlier date being referred to
herein as the "Expiration Date", upon surrender to the Company at its
principal office (or at such other location as the Company may advise the
Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and, if applicable,
upon payment in cash or by check of the aggregate Stock Purchase Price for
the number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. The Company shall deliver notice of an
Initial Public Offering to the Holder at least 20 days prior to the closing
thereof. The Stock Purchase Price and the number of shares purchasable
hereunder are subject to adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of
the Holder of record hereof, at any time or from time to time, up to the
Expiration Date for all or any part of the shares of Series A Preferred Stock
(but not for a fraction of a share) which may be purchased hereunder. The
Company agrees that the shares of Series A Preferred Stock purchased under
this Warrant shall be and are deemed to be issued to the Holder hereof as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, properly endorsed, the completed,
executed Form of Subscription delivered and payment made for such
1.
<PAGE>
shares. Certificates for the shares of Series A Preferred Stock so purchased,
together with any other securities or property to which the Holder hereof is
entitled upon such exercise, shall be delivered to the Holder hereof by the
Company at the Company's expense within a reasonable time after the rights
represented by this Warrant have been so exercised. In case of a purchase of
less than all the shares which may be purchased under this Warrant, the
Company shall cancel this Warrant and execute and deliver a new Warrant or
Warrants of like tenor for the balance of the shares purchasable under the
Warrant surrendered upon such purchase to the Holder hereof within a
reasonable time. Each stock certificate so delivered shall be in such
denominations of Series A Preferred Stock as may be requested by the Holder
hereof and shall be registered in the name of such Holder.
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions
herein to the contrary, if the fair market value of one share of the
Company's Series A Preferred Stock is greater than the Stock Purchase Price
(at the date of calculation as set forth below), in lieu of exercising this
Warrant for cash, the Holder may elect to receive shares equal to the value
(as determined below) of this Warrant (or the portion thereof being canceled)
by surrender of this Warrant at the principal office of the Company together
with the properly endorsed Form of Subscription and notice of such election
in which event the Company shall issue to the Holder a number of shares of
Series A Preferred Stock computed using the following formula:
X = Y (A-B)
-----
A
Where X = the number of shares of Series A Preferred
Stock to be issued to the Holder
Y = the number of shares of Series A
Preferred Stock purchasable under
the Warrant or, if only a portion of
the Warrant is being exercised, the
portion of the Warrant being
canceled (at the date of such
calculation)
A = the fair market value of one share
of the Company's Series A Preferred
Stock (at the date of such
calculation)
B = Stock Purchase Price (as adjusted to the
date of such calculation)
For purposes of the above calculation, fair market value of one share of
Series A Preferred Stock shall be determined by the Company's Board of
Directors in good faith; provided, however, that in the event this Warrant is
being exercised upon the Initial Public Offering, the fair market value per
share shall be the product of (i) the per share offering price to the public
of the Initial Public Offering, and (ii) the number of shares of Common Stock
into which each share of Series A Preferred Stock is convertible at the time
of such exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Series A Preferred Stock which may be
issued upon the
2.
<PAGE>
exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from
all preemptive rights of any shareholder and free of all taxes, liens and
charges with respect to the issue thereof. The Company further covenants and
agrees that, during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant, a sufficient number of shares
of authorized but unissued Series A Preferred Stock, or other securities and
property, when and as required to provide for the exercise of the rights
represented by this Warrant. The Company will take all such action as may be
necessary to assure that such shares of Series A Preferred Stock may be
issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the Series A Preferred Stock may be listed; provided, however, that the
Company shall not be required to effect a registration under Federal or State
securities laws with respect to such exercise. The Company will not take any
action which would result in any adjustment of the Stock Purchase Price (as
set forth in Section 3 hereof) if the total number of shares of Series A
Preferred Stock issuable after such action upon exercise of all outstanding
warrants, together with all shares of Series A Preferred Stock then
outstanding and all shares of Series A Preferred Stock then issuable upon
exercise of all options and upon the conversion of all convertible securities
then outstanding, would exceed the total number of shares of Series A
Preferred Stock then authorized by the Company's Restated Articles of
Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The
Stock Purchase Price and the number of shares purchasable upon the exercise
of this Warrant shall be subject to adjustment from time to time upon the
occurrence of certain events described in this Section 3. Upon each
adjustment of the Stock Purchase Price, the Holder of this Warrant shall
thereafter be entitled to purchase, at the Stock Purchase Price resulting
from such adjustment, the number of shares obtained by multiplying the Stock
Purchase Price in effect immediately prior to such adjustment by the number
of shares purchasable pursuant hereto immediately prior to such adjustment,
and dividing the product thereof by the Stock Purchase Price resulting from
such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the
Company shall at any time subdivide its outstanding shares of Series A
Preferred Stock into a greater number of shares, the Stock Purchase Price in
effect immediately prior to such subdivision shall be proportionately
reduced, and conversely, in case the outstanding shares of Series A Preferred
Stock of the Company shall be combined into a smaller number of shares, the
Stock Purchase Price in effect immediately prior to such combination shall be
proportionately increased.
3.2 DIVIDENDS IN SERIES A PREFERRED STOCK, OTHER STOCK,
PROPERTY, RECLASSIFICATION. If at any time or from time to time the Holders
of Series A Preferred Stock (or any shares of stock or other securities at
the time receivable upon the exercise of this Warrant) shall have received or
become entitled to receive, without payment therefor,
(a) Series A Preferred Stock or any shares of stock or
other securities which are at any time directly or indirectly convertible
into or exchangeable for Series A Preferred
3.
<PAGE>
Stock, or any rights or options to subscribe for, purchase or otherwise
acquire any of the foregoing by way of dividend or other distribution;
(b) any cash paid or payable otherwise than as a cash
dividend; or
(c) Series A Preferred Stock or additional stock or other
securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Series A Preferred Stock issued as a stock split or
adjustments in respect of which shall be covered by the terms of Section 3.1
above);
then and in each such case, the Holder hereof shall, upon the exercise of
this Warrant, be entitled to receive, in addition to the number of shares of
Series A Preferred Stock receivable thereupon, and without payment of any
additional consideration therefor, the amount of stock and other securities
and property (including cash in the cases referred to in clauses (b) and (c)
above) which such Holder would hold on the date of such exercise had he been
the holder of record of such Series A Preferred Stock as of the date on which
holders of Series A Preferred Stock received or became entitled to receive
such shares or all other additional stock and other securities and property.
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER
OR SALE. If any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its
assets or other transaction shall be effected in such a way that holders of
Series A Preferred Stock shall be entitled to receive stock, securities, or
other assets or property (an "Organic Change"), then, as a condition of such
Organic Change, lawful and adequate provisions shall be made by the Company
whereby the Holder hereof shall thereafter have the right to purchase and
receive (in lieu of the shares of the Series A Preferred Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby) such shares of stock, securities or other assets
or property as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Series A Preferred Stock equal to the
number of shares of such stock immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby; provided,
however, that in the event the value of the stock, securities or other assets
or property (determined in good faith by the Board of Directors of the
Company) issuable or payable with respect to one share of the Series A
Preferred Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby is in excess of
the Stock Purchase Price hereof effective at the time of a merger and
securities received in such reorganization, if any, are publicly traded, then
this Warrant shall expire unless exercised prior to such Organic Change. In
the event of any Organic Change, appropriate provision shall be made by the
Company with respect to the rights and interests of the Holder of this
Warrant to the end that the provisions hereof (including, without limitation,
provisions for adjustments of the Stock Purchase Price and of the number of
shares purchasable and receivable upon the exercise of this Warrant) shall
thereafter be applicable, in relation to any shares of stock, securities or
assets thereafter deliverable upon the exercise hereof.
4.
<PAGE>
3.4 CERTAIN EVENTS. If any change in the outstanding Series
A Preferred Stock of the Company or any other event occurs as to which the
other provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with such provisions, then the Board of Directors of
the Company shall make an adjustment in the number and class of shares
available under the Warrant, the Stock Purchase Price or the application of
such provisions, so as to protect such purchase rights as aforesaid. The
adjustment shall be such as will give the Holder of the Warrant upon exercise
for the same aggregate Stock Purchase Price the total number, class and kind
of shares as he would have owned had the Warrant been exercised prior to the
event and had he continued to hold such shares until after the event
requiring adjustment.
3.5 NOTICES OF CHANGE.
(a) Immediately upon any adjustment in the number or class
of shares subject to this Warrant and of the Stock Purchase Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at
least 10 business days prior to the date on which the Company closes its
books or takes a record for determining rights to receive any dividends or
distributions.
(C) The Company shall also give written notice to the
Holder at least 20 business days prior to the date on which an Organic Change
shall take place.
4. ISSUE TAX. The issuance of certificates for shares of Series A
Preferred Stock upon the exercise of the Warrant shall be made without charge
to the Holder of the Warrant for any issue tax (other than any applicable
income taxes) in respect thereof; provided, however, that the Company shall
not be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of any certificate in a name
other than that of the then Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Series A
Preferred Stock issued or issuable upon the exercise of any warrant in any
manner which interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder
of the Company or any other matters or any rights whatsoever as a shareholder
of the Company. No dividends or interest shall be payable or accrued in
respect of this Warrant or the interest represented hereby or the shares
purchasable hereunder until, and only to the extent that, this Warrant shall
have been exercised. No provisions hereof, in the absence of affirmative
action by the Holder to purchase shares of Series A Preferred Stock, and no
mere enumeration herein of the rights or privileges of the Holder hereof,
shall give rise to any liability of such Holder for the Stock Purchase Price
or as a
5.
<PAGE>
shareholder of the Company, whether such liability is asserted by the Company
or by its creditors.
7. WARRANTS TRANSFERABLE. Subject to compliance with applicable
federal and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Holder hereof
(except for transfer taxes), upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the
same, consents and agrees that this Warrant, when endorsed in blank, shall be
deemed negotiable, and that the Holder hereof, when this Warrant shall have
been so endorsed, may be treated by the Company, at the Company's option, and
all other persons dealing with this Warrant as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented by
this Warrant, or to the transfer hereof on the books of the Company any
notice to the contrary notwithstanding; but until such transfer on such
books, the Company may treat the registered owner hereof as the owner for all
purposes.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights
and obligations of the Company, of the Holder of this Warrant and of the
holder of shares of Series A Preferred Stock issued upon exercise of this
Warrant, shall survive the exercise of this Warrant.
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof
may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall
be delivered or shall be sent by certified mail, postage prepaid, to each
such Holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor in the first paragraph of this
Warrant or such other address as either may from time to time provide to the
other.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets. All of the
obligations of the Company relating to the Series A Preferred Stock issuable
upon the exercise of this Warrant shall survive the exercise and termination
of this Warrant. All of the covenants and agreements of the Company shall
inure to the benefit of the successors and assigns of the Holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction, or mutilation of this Warrant and, in the
case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will
6.
<PAGE>
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the Holder entitled to such fraction a sum in cash
equal to such fraction multiplied by the then effective Stock Purchase Price.
[THIS SPACE INTENTIONALLY LEFT BLANK]
7.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ______ day of July,
1997.
IMPROVENET, INC.
By:
---------------------------------
Robert L. Stevens, President
ATTEST:
By:
----------------------------------
Jan Sherman, Secretary
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date: _________________, 19___
ImproveNet, Inc.
- -------------------
- -------------------
Attn: President
Ladies and Gentlemen:
/ / The undersigned hereby elects to exercise the warrant issued to it by
ImproveNet, Inc. (the "Company") and dated July _____, 1997 Warrant No.
PDW-___ (the "Warrant") and to purchase thereunder
__________________________________ shares of the Series A Preferred
Stock of the Company (the "Shares") at a purchase price of
___________________________________________ Dollars ($__________) per
Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the "Purchase
Price").
/ / The undersigned hereby elects to convert _______________________
percent (____%) of the value of the Warrant pursuant to the provisions
of Section 1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered
the Purchase Price herewith in full in cash or by certified check or wire
transfer. The undersigned also makes the representations set forth on the
attached Exhibit B of the Warrant.
Very truly yours,
--------------------------------------
By:
--------------------------------
Title:
--------------------------------
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION
THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED ALONG WITH THE
SUBSCRIPTION FORM BEFORE THE SERIES A PREFERRED STOCK ISSUABLE UPON EXERCISE
OF THE WARRANT DATED JULY ___, 1997, WILL BE ISSUED.
_____________________, 19__
ImproveNet, Inc.
- -------------------
- -------------------
Attn: President
Ladies and Gentlemen:
The undersigned, _________________________ ("Purchaser"), intends to
acquire up to ______________ shares of the Series A Preferred Stock (the
"Series A Preferred Stock") of ImproveNet, Inc. (the "Company") from the
Company pursuant to the exercise or conversion of certain Warrants to
purchase Series A Preferred Stock held by Purchaser. The Series A Preferred
Stock will be issued to Purchaser in a transaction not involving a public
offering and pursuant to an exemption from registration under the Securities
Act of 1933, as amended (the "1933 Act") and applicable state securities
laws. In connection with such purchase and in order to comply with the
exemptions from registration relied upon by the Company, Purchaser
represents, warrants and agrees as follows:
Purchaser is acquiring the Series A Preferred Stock for its own
account, to hold for investment, and Purchaser shall not make any sale,
transfer or other disposition of the Series A Preferred Stock in violation of
the 1933 Act or the General Rules and Regulations promulgated thereunder by
the Securities and Exchange Commission (the "SEC") or in violation of any
applicable state securities law.
Purchaser has been advised that the Series A Preferred Stock has not
been registered under the 1933 Act or state securities laws on the ground
that this transaction is exempt from registration, and that reliance by the
Company on such exemptions is predicated in part on Purchaser's
representations set forth in this letter.
Purchaser has been informed that under the 1933 Act, the Series A
Preferred Stock must be held indefinitely unless it is subsequently
registered under the 1933 Act or unless an exemption from such registration
(such as Rule 144) is available with respect to any proposed transfer or
disposition by Purchaser of the Series A Preferred Stock. Purchaser further
agrees that the Company may refuse to permit Purchaser to sell, transfer or
dispose of the Series A Preferred Stock (except as permitted under Rule 144)
unless there is in effect a registration statement under the 1933 Act and any
applicable state securities laws covering such transfer, or
<PAGE>
unless Purchaser furnishes an opinion of counsel reasonably satisfactory to
counsel for the Company, to the effect that such registration is not required.
Purchaser also understands and agrees that there will be placed on
the certificate(s) for the Series A Preferred Stock, or any substitutions
therefor, a legend stating in substance:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933, as amended
(the "Securities Act"), or any state securities laws. These
shares have been acquired for investment and may not be sold
or otherwise transferred in the absence of an effective
registration statement for these shares under the Securities
Act and applicable state securities laws, or an opinion of
counsel satisfactory to the Company that registration is not
required and that an applicable exemption is available."
Purchaser has carefully read this letter and has discussed its
requirements and other applicable limitations upon Purchaser's resale of the
Series A Preferred Stock with Purchaser's counsel.
Very truly yours,
--------------------------------------
By:
--------------------------------
Title:
--------------------------------
<PAGE>
NO. PBW_______
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR ANY
STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE ______ SHARES
OF SERIES B PREFERRED STOCK OF IMPROVENET, INC.
(VOID AFTER MARCH 17, 2004)
This certifies that ________ or its assigns (the "Holder"), for value
received, is entitled to purchase from IMPROVENET, INC., a California
corporation (the "Company"), having a place of business at 125 University
Avenue, Palo Alto, California 94301, a maximum of ____________ fully paid and
nonassessable shares of the Company's Series B Preferred Stock ("Series B
Preferred Stock") for cash at a price of $2.52 per share (the "Stock Purchase
Price") at any time or from time to time up to and including 5:00 p.m. (Pacific
time) on the earlier of (i) the closing of the initial public offering of the
Company's Common Stock pursuant to a registration statement under the Securities
Act of 1933, as amended, in which (a) the price per share is at least $6.00
(adjusted for any stock dividends, combinations, splits, recapitalization and
the like with respect to such shares), and (b) the net cash proceeds to the
Company (before underwriting discounts, commissions and fees) (the "Initial
Public Offering") in excess of twenty million dollars ($20,000,000) or, (ii)
March 17, 2004, such earlier date being referred to herein as the "Expiration
Date", upon surrender to the Company at its principal office (or at such other
location as the Company may advise the Holder in writing) of this Warrant
properly endorsed with the Form of Subscription attached hereto duly filled in
and signed and, if applicable, upon payment in cash or by check of the aggregate
Stock Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof or by Net Issue
Exercise (as defined in Section 1.2 hereof). The Company shall deliver notice of
an Initial Public Offering to the Holder at least 20 days prior to the closing
thereof. The Stock Purchase Price and the number of shares purchasable hereunder
are subject to adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the
Holder of record hereof, at any time or from time to time, up to the Expiration
Date for all or any part of the shares of Series B Preferred Stock (but not for
a fraction of a share) which may be purchased hereunder. The Company agrees that
the shares of Series B Preferred Stock purchased under this Warrant shall be and
are deemed to be issued to the Holder hereof as the record owner of such shares
as of the close of business on the date on which this Warrant shall have been
surrendered, properly endorsed, the completed, executed Form of Subscription
delivered and payment made for such shares. Certificates for the shares of
Series B Preferred Stock so purchased, together with any other securities or
property to which the Holder hereof is entitled upon such exercise, shall be
delivered to the Holder hereof by the Company at the Company's expense within a
reasonable time after the rights represented by this Warrant
1.
<PAGE>
have been so exercised. In case of a purchase of less than all the shares which
may be purchased under this Warrant, the Company shall cancel this Warrant and
execute and deliver a new Warrant or Warrants of like tenor for the balance of
the shares purchasable under the Warrant surrendered upon such purchase to the
Holder hereof within a reasonable time. Each stock certificate so delivered
shall be in such denominations of Series B Preferred Stock as may be requested
by the Holder hereof and shall be registered in the name of such Holder.
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein
to the contrary, if the fair market value of one share of the Company's Series B
Preferred Stock is greater than the Stock Purchase Price (at the date of
calculation as set forth below), in lieu of exercising this Warrant for cash,
the Holder may elect to receive shares equal to the value (as determined below)
of this Warrant (or the portion thereof being canceled) by surrender of this
Warrant at the principal office of the Company together with the properly
endorsed Form of Subscription and notice of such election in which event the
Company shall issue to the Holder a number of shares of Series B Preferred Stock
computed using the following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Series B
Preferred Stock to be issued to the
Holder
Y = the number of shares of Series B
Preferred Stock purchasable under
the Warrant or, if only a portion of
the Warrant is being exercised, the
portion of the Warrant being
canceled (at the date of such
calculation)
A = the fair market value of one share
of the Company's Series B Preferred
Stock (at the date of such
calculation)
B = Stock Purchase Price (as adjusted to the
date of such calculation)
For purposes of the above calculation, fair market value of one share of Series
B Preferred Stock shall be determined by the Company's Board of Directors in
good faith; provided, however, that in the event this Warrant is being exercised
upon the Initial Public Offering, the fair market value per share shall be the
product of (i) the per share offering price to the public of the Initial Public
Offering, and (ii) the number of shares of Common Stock into which each share of
Series B Preferred Stock is convertible at the time of such exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Series B Preferred Stock which may be
issued upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable and
free from all preemptive rights of any shareholder and free of all taxes, liens
and charges with respect to the issue thereof. The Company further covenants and
agrees that, during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized and
reserved, for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of authorized
but unissued Series B Preferred Stock, or other securities and property, when
and as required to provide for the exercise of the
2.
<PAGE>
rights represented by this Warrant. The Company will take all such action as may
be necessary to assure that such shares of Series B Preferred Stock may be
issued as provided herein without violation of any applicable law or regulation,
or of any requirements of any domestic securities exchange upon which the Series
B Preferred Stock may be listed; provided, however, that the Company shall not
be required to effect a registration under Federal or State securities laws with
respect to such exercise. The Company will not take any action which would
result in any adjustment of the Stock Purchase Price (as set forth in Section 3
hereof) if the total number of shares of Series B Preferred Stock issuable after
such action upon exercise of all outstanding warrants, together with all shares
of Series B Preferred Stock then outstanding and all shares of Series B
Preferred Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Series B Preferred Stock then authorized by the
Company's Restated Articles of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Series B Preferred Stock
into a greater number of shares, the Stock Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced, and conversely, in
case the outstanding shares of Series B Preferred Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
3.2 DIVIDENDS IN SERIES B PREFERRED STOCK, OTHER STOCK,
PROPERTY, RECLASSIFICATION. If at any time or from time to time the Holders of
Series B Preferred Stock (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefor,
(a) Series B Preferred Stock or any shares of stock
or other securities which are at any time directly or indirectly convertible
into or exchangeable for Series B Preferred Stock, or any rights or options to
subscribe for, purchase or otherwise acquire any of the foregoing by way of
dividend or other distribution;
(b) any cash paid or payable otherwise than as a cash
dividend; or
(c) Series B Preferred Stock or additional stock or
other securities or property (including cash) by way of spinoff, split-up,
reclassification, combination of shares or similar corporate rearrangement,
(other than shares of Series B Preferred Stock issued as a stock split or
adjustments in respect of which shall be covered by the terms of Section 3.1
above); then and in each such case, the Holder hereof shall, upon the exercise
of this Warrant, be entitled to receive, in addition to the number of shares of
Series B Preferred Stock receivable thereupon, and without payment of any
additional consideration therefor, the amount of stock and other securities and
property (including cash in the cases referred to in clauses (b) and (c) above)
which such Holder would hold on the date of such exercise had it been the holder
of record of such Series B Preferred Stock as of the date on which holders
3.
<PAGE>
of Series B Preferred Stock received or became entitled to receive such shares
or all other additional stock and other securities and property.
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the capital
stock of the Company, or any consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets or other
transaction shall be effected in such a way that holders of Series B Preferred
Stock shall be entitled to receive stock, securities, or other assets or
property (an "Organic Change"), then, as a condition of such Organic Change,
lawful and adequate provisions shall be made by the Company whereby the Holder
hereof shall thereafter have the right to purchase and receive (in lieu of the
shares of the Series B Preferred Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby)
such shares of stock, securities or other assets or property as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such Series B Preferred Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby; provided, however, that in the event the value of the
stock, securities or other assets or property (determined in good faith by the
Board of Directors of the Company) issuable or payable with respect to one share
of the Series B Preferred Stock of the Company immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby is
in excess of the Stock Purchase Price hereof effective at the time of a merger
and securities received in such reorganization, if any, are publicly traded,
then this Warrant shall expire unless exercised prior to such Organic Change. In
the event of any Organic Change, appropriate provision shall be made by the
Company with respect to the rights and interests of the Holder of this Warrant
to the end that the provisions hereof (including, without limitation, provisions
for adjustments of the Stock Purchase Price and of the number of shares
purchasable and receivable upon the exercise of this Warrant) shall thereafter
be applicable, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof.
3.4 CERTAIN EVENTS. If any change in the outstanding Series B
Preferred Stock of the Company or any other event occurs as to which the other
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with such provisions, then the Board of Directors of the
Company shall make an adjustment in the number and class of shares available
under the Warrant, the Stock Purchase Price or the application of such
provisions, so as to protect such purchase rights as aforesaid. The adjustment
shall be such as will give the Holder of the Warrant upon exercise for the same
aggregate Stock Purchase Price the total number, class and kind of shares as it
would have owned had the Warrant been exercised prior to the event and had it
continued to hold such shares until after the event requiring adjustment.
3.5 NOTICES OF CHANGE.
(a) Immediately upon any adjustment in the number or
class of shares subject to this Warrant and of the Stock Purchase Price, the
Company shall give written notice thereof to the Holder, setting forth in
reasonable detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the
Holder at least ten (10) business days prior to the date on which the Company
closes its books or takes a record for determining rights to receive any
dividends or distributions.
(c) The Company shall also give written notice to the
Holder at least thirty (30) business days prior to the date on which an Organic
Change shall take place.
4.
<PAGE>
4. ISSUE TAX. The issuance of certificates for shares of Series B
Preferred Stock upon the exercise of the Warrant shall be made without charge to
the Holder of the Warrant for any issue tax (other than any applicable income
taxes) in respect thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than that of the
then Holder of the Warrant being exercised.
5. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Series B Preferred
Stock issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a shareholder of
the Company or any other matters or any rights whatsoever as a shareholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
Holder to purchase shares of Series B Preferred Stock, and no mere enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder for the Stock Purchase Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by its creditors.
7. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the Holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the Holder of this Warrant and of the holder of
shares of Series B Preferred Stock issued upon exercise of this Warrant, shall
survive the exercise of this Warrant.
9. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
10. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the Holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
Holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
11. BINDING EFFECT ON SUCCESSORS. This Warrant shall be binding upon
any corporation succeeding the Company by merger, consolidation or acquisition
of all or substantially all of the
5.
<PAGE>
Company's assets unless such Warrant expires prior to such an Organic Change
pursuant to Section 3.3 hereof. All of the obligations of the Company relating
to the Series B Preferred Stock issuable upon the exercise of this Warrant shall
survive the exercise and termination of this Warrant. All of the covenants and
agreements of the Company shall inure to the benefit of the successors and
assigns of the Holder hereof.
12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of California.
13. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
14. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the Holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
[THIS SPACE INTENTIONALLY LEFT BLANK]
6.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 17th day of March,
1998.
IMPROVENET, INC.
By:
----------------------------------
Robert L. Stevens, President
ATTEST:
By:
----------------------------------
Jan Sherman, Secretary
WARRANT
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date: _________________, 19___
ImproveNet, Inc.
125 University Avenue
Palo Alto, CA 94301
Attn: President
Ladies and Gentlemen:
| | The undersigned hereby elects to exercise the warrant issued to it by
ImproveNet, Inc. (the "Company"), dated March 17, 1998, Warrant No.
PBW- < < one > > (the "Warrant") and to purchase thereunder
__________________________________ shares of the Series B Preferred
Stock of the Company (the "Shares") at a purchase price of
___________________________________________ Dollars ($__________) per
Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the "Purchase
Price").
| | The undersigned hereby elects to convert _______________________
percent (____%) of the value of the Warrant pursuant to the provisions
of Section 1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
The undersigned also makes the representations set forth on the attached Exhibit
B of the Warrant.
Very truly yours,
---------------------------------------------
By:
------------------------------------------
Title:
----------------------------------------
WARRANT
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION
THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED ALONG WITH THE
SUBSCRIPTION FORM BEFORE THE SERIES B PREFERRED STOCK ISSUABLE UPON EXERCISE OF
THE WARRANT DATED ___________ , 1998, WILL BE ISSUED.
_____________________, 19__
ImproveNet, Inc.
125 University Avenue
Palo Alto, CA 94301
Attn: President
Ladies and Gentlemen:
The undersigned, _________________________ ("Purchaser"), intends to
acquire up to ______________ shares of the Series B Preferred Stock (the "Series
B Preferred Stock") of ImproveNet, Inc. (the "Company") from the Company
pursuant to the exercise or conversion of certain Warrants to purchase Series B
Preferred Stock held by Purchaser. The Series B Preferred Stock will be issued
to Purchaser in a transaction not involving a public offering and pursuant to an
exemption from registration under the Securities Act of 1933, as amended (the
"1933 Act") and applicable state securities laws. In connection with such
purchase and in order to comply with the exemptions from registration relied
upon by the Company, Purchaser represents, warrants and agrees as follows:
Purchaser is acquiring the Series B Preferred Stock for its own
account, to hold for investment, and Purchaser shall not make any sale, transfer
or other disposition of the Series B Preferred Stock in violation of the 1933
Act or the General Rules and Regulations promulgated thereunder by the
Securities and Exchange Commission (the "SEC") or in violation of any applicable
state securities law.
Purchaser has been advised that the Series B Preferred Stock has not
been registered under the 1933 Act or state securities laws on the ground that
this transaction is exempt from registration, and that reliance by the Company
on such exemptions is predicated in part on Purchaser's representations set
forth in this letter.
Purchaser has been informed that under the 1933 Act, the Series B
Preferred Stock must be held indefinitely unless it is subsequently registered
under the 1933 Act or unless an exemption from such registration (such as Rule
144) is available with respect to any proposed transfer or disposition by
Purchaser of the Series B Preferred Stock. Purchaser further agrees that the
Company may refuse to permit Purchaser to sell, transfer or dispose of the
Series B Preferred Stock (except as permitted under Rule 144) unless there is in
effect a registration statement under the 1933 Act and any applicable state
securities laws covering such transfer, or unless Purchaser furnishes an opinion
of counsel reasonably satisfactory to counsel for the Company, to the effect
that such registration is not required.
Purchaser also understands and agrees that there will be placed on the
certificate(s) for the Series B Preferred Stock, or any substitutions therefor,
a legend stating in substance:
<PAGE>
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or any state securities laws. These shares have been
acquired for investment and may not be sold or otherwise transferred in
the absence of an effective registration statement for these shares
under the Securities Act and applicable state securities laws, or an
opinion of counsel satisfactory to the Company that registration is not
required and that an applicable exemption is available."
Purchaser has carefully read this letter and has discussed its
requirements and other applicable limitations upon Purchaser's resale of the
Series B Preferred Stock with Purchaser's counsel.
Very truly yours,
---------------------------------------------
By:
------------------------------------------
Title:
----------------------------------------
WARRANT
<PAGE>
<TABLE>
<CAPTION>
IMPROVENET, INC
SERIES B PREFERRED STOCK WARRANTS
INDEX
- -------------------------------------------------------------------------------
WARRANTHOLDER NO. OF SHARES ISSUE DATE
------------- ------------- ----------
<S> <C> <C>
1. Allstate Insurance Company 12,054 3/17/98
2. Alta California Partners, L.P. 13,198 3/17/98
3. Alta Embarcadero Partners, LLC 302 3/17/98
4. ARCH Venture Fund III, L.P. 19,768 3/17/98
5. Harold Kawaguchi 241 3/17/98
6. Alex Knight 241 3/17/98
7. Madrona Investment Group, LLC 964 3/17/98
8. Anthony Glaves 241 3/17/98
--------------------------
47,009
</TABLE>
1.
<PAGE>
NO. PCW-1
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE 47,167 SHARES
OF SERIES C PREFERRED STOCK OF
IMPROVENET, INC.
(VOID AFTER MARCH 28, 2004)
This certifies that Hambrecht & Quist LLC or its assigns (the "HOLDER"), for
value received, is entitled to purchase from IMPROVENET, INC., a Delaware
corporation (the "COMPANY"), having a place of business at 1286 Oddstad
Drive, Redwood City, California, a maximum of 47,167 fully paid and
nonassessable shares of the Company's Series C Preferred Stock ("PREFERRED
STOCK") for cash at a price equal to $6.53 per share (the "STOCK PURCHASE
PRICE") at any time or from time to time up to and including 5:00 p.m.
(Pacific time) on the earlier of (i) the closing of the initial public
offering of the Company's common stock pursuant to a registration statement
under the Securities Act of 1933, as amended (the "INITIAL PUBLIC OFFERING")
or (ii) five years from the date of this Warrant, such earlier day being
referred to herein as the "EXPIRATION DATE," upon surrender to the Company at
its principal office (or at such other location as the Company may advise the
Holder in writing) of this Warrant properly endorsed with the Form of
Subscription attached hereto duly filled in and signed and, if applicable,
upon payment in cash or by check of the aggregate Stock Purchase Price for
the number of shares for which this Warrant is being exercised determined in
accordance with the provisions hereof. The Company shall deliver notice of
the Initial Public Offering to the Holder at least thirty (30) days prior to
the closing thereof. The Stock Purchase Price and the number of shares
purchasable hereunder are subject to adjustment as provided in Section 3 of
this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the
holder of record hereof, at any time or from time to time, up to the
Expiration Date or as specified in Section 3.3 hereto for all or any part of
the shares of Preferred Stock (but not for a fraction of a share) which may
be purchased hereunder. The Company agrees that the shares of Preferred
Stock purchased under this Warrant shall be and are deemed to be issued to
the Holder hereof as the record owner of such shares as of the close of
business on the date on which this Warrant shall have been surrendered,
properly endorsed, the completed, executed Form of Subscription delivered and
payment made for such shares. Certificates for the shares of Preferred Stock
so purchased, together with any other securities or property to which the
Holder hereof is entitled upon such exercise, shall be delivered to the
Holder hereof by the Company at the Company's expense within a reasonable
time after the rights represented by this Warrant have been so exercised. In
case of a purchase of less than all the shares which may be purchased under
this Warrant, the Company shall cancel this Warrant and execute and deliver a
new Warrant or Warrants of like tenor for the balance of the shares
purchasable under the Warrant surrendered upon such purchase
<PAGE>
to the Holder hereof within a reasonable time. Each stock certificate so
delivered shall be in such denominations of Preferred Stock as may be
requested by the Holder hereof and shall be registered in the name of such
Holder.
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, if the fair market value of one share of the Company's Preferred Stock
is greater than the Stock Purchase Price (at the date of calculation as set
forth below), in lieu of exercising this Warrant for cash, the Holder may elect
to receive shares equal to the value (as determined below) of this Warrant (or
the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of Preferred Stock computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Preferred
Stock to be issued to the Holder
Y = the number of shares of Preferred Stock
purchasable under the Warrant or, if only a
portion of the Warrant is being exercised, the
portion of the Warrant being canceled (at the
date of such calculation)
A = the fair market value of one share of the
Company's Preferred Stock (at the date of such
calculation)
B = Stock Purchase Price (as adjusted to the
date of such calculation)
For purposes of the above calculation, fair market value of one share of
Preferred Stock shall be determined by the Company's Board of Directors in
good faith; provided, however, that in the event the Company makes an Initial
Public Offering of its common stock the fair market value per share shall be
the product of (i) the per share offering price to the public of the
Company's Initial Public Offering, and (ii) the number of shares of common
stock into which each share of Preferred Stock is convertible at the time of
such exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued
upon the exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized, validly issued, fully paid and nonassessable
and free from all preemptive rights of any stockholder and free of all taxes,
liens and charges with respect to the issue thereof. The Company further
covenants and agrees that, during the period within which the rights
represented by this Warrant may be exercised, the Company will at all times
have authorized and reserved, for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of authorized but unissued Preferred Stock, or other
securities and property, when and as required to provide for the exercise of
the rights represented by this Warrant. The Company will take all such
action as may be necessary to assure that such shares of Preferred Stock may
be issued as provided herein without violation of any applicable law or
regulation, or of any requirements of any domestic securities exchange upon
which the Preferred Stock may be listed;
2.
<PAGE>
provided, however, that the Company shall not be required to effect a
registration under Federal or State securities laws with respect to such
exercise. The Company will not take any action which would result in any
adjustment of the Stock Purchase Price (as set forth in Section 3 hereof) (a)
if the total number of shares of Preferred Stock issuable after such action
upon exercise of all outstanding warrants, together with all shares of
Preferred Stock then outstanding and all shares of Preferred Stock then
issuable upon exercise of all options and upon the conversion of all
convertible securities then outstanding, would exceed the total number of
shares of Preferred Stock then authorized by the Company's Restated
Certificate of Incorporation, or (b) if the total number of shares of common
stock issuable after such action upon the conversion of all such shares of
Preferred Stock, together with all shares of common stock then issuable upon
exercise of all options and upon the conversion of all such shares of
Preferred Stock, together with all shares of common stock then outstanding
and all shares of common stock then issuable upon exercise of all options and
upon the conversion of all convertible securities then outstanding would
exceed the total number of shares of common stock then authorized by the
Company's Restated Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence
of certain events described in this Section 3. Upon each adjustment of the
Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled
to purchase, at the Stock Purchase Price resulting from such adjustment, the
number of shares obtained by multiplying the Stock Purchase Price in effect
immediately prior to such adjustment by the number of shares purchasable
pursuant hereto immediately prior to such adjustment, and dividing the
product thereof by the Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company
shall at any time subdivide its outstanding shares of Preferred Stock into a
greater number of shares, the Stock Purchase Price in effect immediately
prior to such subdivision shall be proportionately reduced, and conversely,
in case the outstanding shares of Preferred Stock of the Company shall be
combined into a smaller number of shares, the Stock Purchase Price in effect
immediately prior to such combination shall be proportionately increased.
3.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of
Preferred Stock (or any shares of stock or other securities at the time
receivable upon the exercise of this Warrant) shall have received or become
entitled to receive, without payment therefor,
(a) Preferred Stock or any shares of stock or other
securities which are at any time directly or indirectly convertible into or
exchangeable for Preferred Stock, or any rights or options to subscribe for,
purchase or otherwise acquire any of the foregoing by way of dividend or
other distribution,
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Preferred Stock or additional stock or other securities
or property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares
of Preferred Stock issued as a stock split or adjustments in respect of which
shall be covered by the terms of Section 3.1 above), then and in each such
case, the Holder hereof
3.
<PAGE>
shall, upon the exercise of this Warrant, be entitled to receive, in addition
to the number of shares of Preferred Stock receivable thereupon, and without
payment of any additional consideration therefor, the amount of stock and
other securities and property (including cash in the cases referred to in
clause (b) above and this clause (c)) which such Holder would hold on the
date of such exercise had he been the holder of record of such Preferred
Stock as of the date on which holders of Preferred Stock received or became
entitled to receive such shares or all other additional stock and other
securities and property.
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its
assets or other transaction shall be effected in such a way that holders of
Preferred Stock shall be entitled to receive stock, securities, or other
assets or property (an "ORGANIC CHANGE"), then, as a condition of such
Organic Change, lawful and adequate provisions shall be made by the Company
whereby the Holder hereof shall thereafter have the right to purchase and
receive (in lieu of the shares of the Preferred Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby) such shares of stock, securities or other assets
or property as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Preferred Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby; provided, however, that in the
event the value of the stock, securities or other assets or property
(determined in good faith by the Board of Directors of the Company) issuable
or payable with respect to one share of the Preferred Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to
the rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments
of the Stock Purchase Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) shall thereafter be applicable,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by
written instrument reasonably satisfactory in form and substance to the
Holders of a majority of the warrants to purchase Preferred Stock then
outstanding, executed and mailed or delivered to the registered Holder hereof
at the last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such Holder may be
entitled to purchase.
3.4 CERTAIN EVENTS. If any change in the outstanding Preferred
Stock of the Company or any other event occurs as to which the other
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the purchase rights of the Holder of the
Warrant in accordance with such provisions, then the Board of Directors of
the Company shall make an adjustment in the number and class of shares
available under the Warrant, the Stock Purchase Price or the application of
such provisions, so as to protect such purchase rights as aforesaid. The
adjustment shall be such as will give the Holder of the Warrant upon exercise
for the same aggregate Stock Purchase Price the total number, class and kind
of shares as he would have owned had the Warrant been exercised prior to the
event and had he continued to hold such shares until after the event
requiring adjustment.
4.
<PAGE>
3.5 NOTICES OF CHANGE.
(a) Immediately upon any adjustment in the number or class of
shares subject to this Warrant and of the Stock Purchase Price, the Company
shall give written notice thereof to the Holder, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at
least ten business days prior to the date on which the Company closes its
books or takes a record for determining rights to receive any dividends or
distributions.
(c) The Company shall also give written notice to the Holder
at least thirty (30) business days prior to the date on which an Organic
Change shall take place.
4. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax (other than any applicable income
taxes) in respect thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the then Holder of the Warrant being exercised.
5. MARKET STAND-OFF AGREEMENT. The Company (or a representative of
the underwriters) may, in connection with an underwritten registration of the
offering of any securities of the Company under the Act, require that the
Holder not sell, dispose of (other than to donees who agree to be similarly
bound), transfer, make any short sale of, grant any option for the purchase
of, or enter into any hedging or similar transaction with the same economic
effect as a sale, any common stock or other securities of the Company held by
the undersigned (the "RESTRICTED SECURITIES"), for a period of time specified
by the underwriters(s) (not to exceed one hundred eighty (180) days)
following the effective date of the registration statement of the Company
filed under the Act relating to the Company's Initial Public Offering. The
Holder agrees to enter into any agreements as may be reasonably requested by
the Company and/or the underwriter(s) which are consistent with the foregoing
or which are necessary to give further effect thereto. In order to enforce
the foregoing covenant, the Company may impose stop-transfer instructions
with respect to the Restricted Securities held by the Holder until the end of
such period.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder
of the Company or any other matters or any rights whatsoever as a stockholder
of the Company. No dividends or interest shall be payable or accrued in
respect of this Warrant or the interest represented hereby or the shares
purchasable hereunder until, and only to the extent that, this Warrant shall
have been exercised. No provisions hereof, in the absence of affirmative
action by the holder to purchase shares of Preferred Stock, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall
give rise to any liability of such Holder for the Stock Purchase
5.
<PAGE>
Price or as a stockholder of the Company, whether such liability is asserted
by the Company or by its creditors.
8. WARRANTS TRANSFERABLE. Subject to compliance with applicable
federal and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof
(except for transfer taxes), upon surrender of this Warrant properly
endorsed. Each taker and holder of this Warrant, by taking or holding the
same, consents and agrees that this Warrant, when endorsed in blank, shall be
deemed negotiable, and that the holder hereof, when this Warrant shall have
been so endorsed, may be treated by the Company, at the Company's option, and
all other persons dealing with this Warrant as the absolute owner hereof for
any purpose and as the person entitled to exercise the rights represented by
this Warrant, or to the transfer hereof on the books of the Company any
notice to the contrary notwithstanding; but until such transfer on such
books, the Company may treat the registered owner hereof as the owner for all
purposes.
9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder
of shares of Preferred Stock issued upon exercise of this Warrant, shall
survive the exercise of this Warrant.
10. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
11. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall
be delivered or shall be sent by certified mail, postage prepaid, to each
such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor in the first paragraph of this
Warrant or such other address as either may from time to time provide to the
other.
12. BINDING EFFECT ON SUCCESSORS. Except as specified in Section 3.3
hereof, this Warrant shall be binding upon any corporation succeeding the
Company by merger, consolidation or acquisition of all or substantially all
of the Company's assets. All of the obligations of the Company relating to
the Preferred Stock issuable upon the exercise of this Warrant shall survive
the exercise and termination of this Warrant. All of the covenants and
agreements of the Company shall inure to the benefit of the successors and
assigns of the holder hereof.
13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings
of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of California.
14. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company
of the loss, theft, destruction, or mutilation of this Warrant and, in the
case of any such loss, theft or destruction, upon receipt of an indemnity
reasonably satisfactory to the Company, or in the case of any such mutilation
upon surrender and cancellation of such Warrant, the Company, at its expense,
will make and deliver a new Warrant, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant.
6.
<PAGE>
15. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any
fractional share, pay the holder entitled to such fraction a sum in cash
equal to such fraction multiplied by the then effective Stock Purchase Price.
7.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this ______ day of March,
1999.
IMPROVENET, INC.
a Delaware corporation
By:________________________________________
Title:_____________________________________
ATTEST:
____________________________
Secretary
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM Date: _________________, 19___
ImproveNet, Inc.
1286 Oddstad Drive
Redwood City, CA 94063
Attn: President
Ladies and Gentlemen:
/ / The undersigned hereby elects to exercise the warrant issued to it by
ImproveNet, Inc. (the "COMPANY") and dated March 29, 1999 Warrant No.
PCW-1 (the "WARRANT") and to purchase thereunder
__________________________________ shares of the Series C Preferred
Stock of the Company (the "SHARES") at a purchase price of $6.53 per
Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the "PURCHASE
PRICE").
/ / The undersigned hereby elects to convert _______________________ percent
(____%) of the value of the Warrant pursuant to the provisions of
Section 1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire
transfer.
Very truly yours,
_________________________________
By:______________________________
Title:___________________________
<PAGE>
NO. PDW-______
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
WARRANT TO PURCHASE ________ SHARES
OF SERIES D PREFERRED STOCK OF
IMPROVENET, INC.
(VOID AFTER SEPTEMBER 9, 2003)
This certifies that ________________ or its assigns (the "HOLDER"), for value
received, is entitled to purchase from IMPROVENET, INC., a Delaware corporation
(the "COMPANY"), having a place of business at 1286 Oddstad Drive, Redwood City,
California, a maximum of __________ fully paid and nonassessable shares of the
Company's Series D Preferred Stock ("PREFERRED STOCK") for cash at a price equal
to $0.01 per share (the "STOCK PURCHASE PRICE") at any time or from time to time
up to and including 5:00 p.m. (Pacific time) three years from the date of this
Warrant, such earlier day being referred to herein as the "EXPIRATION DATE,"
upon surrender to the Company at its principal office (or at such other location
as the Company may advise the Holder in writing) of this Warrant properly
endorsed with the Form of Subscription attached hereto duly filled in and signed
and, if applicable, upon payment in cash or by check of the aggregate Stock
Purchase Price for the number of shares for which this Warrant is being
exercised determined in accordance with the provisions hereof. The Stock
Purchase Price and the number of shares purchasable hereunder are subject to
adjustment as provided in Section 3 of this Warrant.
This Warrant is subject to the following terms and conditions:
1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
1.1 GENERAL. This Warrant is exercisable at the option of the
holder of record hereof, at any time or from time to time, up to the Expiration
Date or as specified in Section 3.3 hereto for all or any part of the shares of
Preferred Stock (but not for a fraction of a share) which may be purchased
hereunder. The Company agrees that the shares of Preferred Stock purchased under
this Warrant shall be and are deemed to be issued to the Holder hereof as the
record owner of such shares as of the close of business on the date on which
this Warrant shall have been surrendered, properly endorsed, the completed,
executed Form of Subscription delivered and payment made for such shares.
Certificates for the shares of Preferred Stock so purchased, together with any
other securities or property to which the Holder hereof is entitled upon such
exercise, shall be delivered to the Holder hereof by the Company at the
Company's expense within a reasonable time after the rights represented by this
Warrant have been so exercised. In case of a purchase of less than all the
shares which may be purchased under this Warrant, the Company shall cancel this
Warrant and execute and deliver a new Warrant or Warrants of like tenor for the
balance of the shares purchasable under the Warrant surrendered upon such
purchase to the Holder hereof within a reasonable time. Each stock certificate
so delivered shall be in such denominations of Preferred Stock as may be
requested by the Holder hereof and shall be registered in the name of such
Holder.
<PAGE>
1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, if the fair market value of one share of the Company's Preferred
Stock is greater than the Stock Purchase Price (at the date of calculation as
set forth below), in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this Warrant
(or the portion thereof being canceled) by surrender of this Warrant at the
principal office of the Company together with the properly endorsed Form of
Subscription and notice of such election in which event the Company shall issue
to the Holder a number of shares of Preferred Stock computed using the following
formula:
X = Y (A-B)
-------
A
Where X = the number of shares of
Preferred Stock to be issued to the
Holder
Y = the number of shares of
Preferred Stock purchasable under
the Warrant or, if only a portion of
the Warrant is being exercised, the
portion of the Warrant being
canceled (at the date of such
calculation)
A = the fair market value of one
share of the Company's Preferred
Stock (at the date of such
calculation)
B = Stock Purchase Price (as
adjusted to the date of such
calculation)
For purposes of the above calculation, fair market value of one share
of Preferred Stock shall be determined by the Company's Board of Directors in
good faith; provided, however, that in the event the Company makes an initial
public offering of its common stock the fair market value per share shall be the
product of (i) the per share offering price to the public of the Company's
initial public offering, and (ii) the number of shares of common stock into
which each share of Preferred Stock is convertible at the time of such exercise.
2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all shares of Preferred Stock which may be issued upon
the exercise of the rights represented by this Warrant will, upon issuance, be
duly authorized, validly issued, fully paid and nonassessable and free from all
preemptive rights of any stockholder and free of all taxes, liens and charges
with respect to the issue thereof. The Company further covenants and agrees
that, during the period within which the rights represented by this Warrant may
be exercised, the Company will at all times have authorized and reserved, for
the purpose of issue or transfer upon exercise of the subscription rights
evidenced by this Warrant, a sufficient number of shares of authorized but
unissued Preferred Stock, or other securities and property, when and as required
to provide for the exercise of the rights represented by this Warrant. The
Company will take all such action as may be necessary to assure that such shares
of Preferred Stock may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of any domestic securities
exchange upon which the Preferred Stock may be listed; provided, however, that
the Company shall not be required to effect a registration under federal or
state securities laws with respect to such exercise. The Company will not take
any action which would result in any adjustment of the Stock Purchase Price (as
set forth in Section 3 hereof) (a) if the total number of shares of Preferred
Stock issuable after such action upon exercise of all outstanding warrants,
together
2
<PAGE>
with all shares of Preferred Stock then outstanding and all shares of
Preferred Stock then issuable upon exercise of all options and upon the
conversion of all convertible securities then outstanding, would exceed the
total number of shares of Preferred Stock then authorized by the Company's
Second Restated Certificate of Incorporation, or (b) if the total number of
shares of common stock issuable after such action upon the conversion of all
such shares of Preferred Stock, together with all shares of common stock then
issuable upon exercise of all options and upon the conversion of all such shares
of Preferred Stock, together with all shares of common stock then outstanding
and all shares of common stock then issuable upon exercise of all options and
upon the conversion of all convertible securities then outstanding would exceed
the total number of shares of common stock then authorized by the Company's
Second Restated Certificate of Incorporation.
3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock
Purchase Price and the number of shares purchasable upon the exercise of this
Warrant shall be subject to adjustment from time to time upon the occurrence of
certain events described in this Section 3. Upon each adjustment of the Stock
Purchase Price, the Holder of this Warrant shall thereafter be entitled to
purchase, at the Stock Purchase Price resulting from such adjustment, the number
of shares obtained by multiplying the Stock Purchase Price in effect immediately
prior to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof by the
Stock Purchase Price resulting from such adjustment.
3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall
at any time subdivide its outstanding shares of Preferred Stock into a greater
number of shares, the Stock Purchase Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Preferred Stock of the Company shall be combined into a
smaller number of shares, the Stock Purchase Price in effect immediately prior
to such combination shall be proportionately increased.
3.2 DIVIDENDS IN PREFERRED STOCK, OTHER STOCK, PROPERTY,
RECLASSIFICATION. If at any time or from time to time the Holders of Preferred
Stock (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or become entitled to receive,
without payment therefor,
(a) Preferred Stock or any shares of stock or other securities
which are at any time directly or indirectly convertible into or exchangeable
for Preferred Stock, or any rights or options to subscribe for, purchase or
otherwise acquire any of the foregoing by way of dividend or other distribution,
(b) any cash paid or payable otherwise than as a cash
dividend, or
(c) Preferred Stock or additional stock or other securities or
property (including cash) by way of spinoff, split-up, reclassification,
combination of shares or similar corporate rearrangement, (other than shares of
Preferred Stock issued as a stock split or adjustments in respect of which shall
be covered by the terms of Section 3.1 above), then and in each such case, the
Holder hereof shall, upon the exercise of this Warrant, be entitled to receive,
in addition to the number of shares of Preferred Stock receivable thereupon, and
without payment of any additional consideration therefor, the amount of stock
and other securities and property (including cash in the cases referred to in
clause (b) above and this clause (c)) which such Holder would hold on the date
of such exercise had he been the
3
<PAGE>
holder of record of such Preferred Stock as of the date on which holders of
Preferred Stock received or became entitled to receive such shares or all
other additional stock and other securities and property.
3.3 REORGANIZATION, RECLASSIFICATION, CONSOLIDATION, MERGER OR
SALE. If any recapitalization, reclassification or reorganization of the
capital stock of the Company, or any consolidation or merger of the Company
with another corporation, or the sale of all or substantially all of its
assets or other transaction shall be effected in such a way that holders of
Preferred Stock shall be entitled to receive stock, securities, or other
assets or property (an "ORGANIC CHANGE"), then, as a condition of such
Organic Change, lawful and adequate provisions shall be made by the Company
whereby the Holder hereof shall thereafter have the right to purchase and
receive (in lieu of the shares of the Preferred Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby) such shares of stock, securities or other assets
or property as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Preferred Stock equal to the number of
shares of such stock immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby; provided, however, that in the
event the value of the stock, securities or other assets or property
(determined in good faith by the Board of Directors of the Company) issuable
or payable with respect to one share of the Preferred Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby is in excess of the Stock Purchase Price hereof
effective at the time of a merger and securities received in such
reorganization, if any, are publicly traded, then this Warrant shall expire
unless exercised prior to such Organic Change. In the event of any Organic
Change, appropriate provision shall be made by the Company with respect to
the rights and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for adjustments
of the Stock Purchase Price and of the number of shares purchasable and
receivable upon the exercise of this Warrant) shall thereafter be applicable,
in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof. The Company will not effect any such
consolidation, merger or sale unless, prior to the consummation thereof, the
successor corporation (if other than the Company) resulting from such
consolidation or the corporation purchasing such assets shall assume by
written instrument reasonably satisfactory in form and substance to the
Holders of a majority of the warrants to purchase Preferred Stock then
outstanding, executed and mailed or delivered to the registered Holder hereof
at the last address of such Holder appearing on the books of the Company, the
obligation to deliver to such Holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such Holder may be
entitled to purchase.
3.4 CERTAIN EVENTS. If any change in the outstanding Preferred
Stock of the Company or any other event occurs as to which the other provisions
of this Section 3 are not strictly applicable or if strictly applicable would
not fairly protect the purchase rights of the Holder of the Warrant in
accordance with such provisions, then the Board of Directors of the Company
shall make an adjustment in the number and class of shares available under the
Warrant, the Stock Purchase Price or the application of such provisions, so as
to protect such purchase rights as aforesaid. The adjustment shall be such as
will give the Holder of the Warrant upon exercise for the same aggregate Stock
Purchase Price the total number, class and kind of shares as he would have owned
had the Warrant been exercised prior to the event and had he continued to hold
such shares until after the event requiring adjustment.
4
<PAGE>
3.5 NOTICES OF CHANGE.
(a) Immediately upon any adjustment in the number or class of
shares subject to this Warrant and of the Stock Purchase Price, the Company
shall give written notice thereof to the Holder, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(b) The Company shall give written notice to the Holder at
least ten business days prior to the date on which the Company closes its books
or takes a record for determining rights to receive any dividends or
distributions.
(c) The Company shall also give written notice to the Holder
at least thirty (30) business days prior to the date on which an Organic Change
shall take place.
4. ISSUE TAX. The issuance of certificates for shares of Preferred
Stock upon the exercise of the Warrant shall be made without charge to the
Holder of the Warrant for any issue tax (other than any applicable income taxes)
in respect thereof; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any certificate in a name other than that of the then
Holder of the Warrant being exercised.
5. MARKET STAND-OFF AGREEMENT. The Company (or a representative of the
underwriters) may, in connection with an underwritten registration of the
offering of any securities of the Company under the Act, require that the Holder
not sell, dispose of (other than to donees who agree to be similarly bound),
transfer, make any short sale of, grant any option for the purchase of, or enter
into any hedging or similar transaction with the same economic effect as a sale,
any common stock or other securities of the Company held by the undersigned (the
"RESTRICTED SECURITIES"), for a period of time specified by the underwriters(s)
(not to exceed one hundred eighty (180) days) following the effective date of
the registration statement of the Company filed under the Act relating to the
Company's initial public offering. The Holder agrees to enter into any
agreements as may be reasonably requested by the Company and/or the
underwriter(s) which are consistent with the foregoing or which are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Restricted
Securities held by the Holder until the end of such period.
6. CLOSING OF BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any shares of Preferred Stock
issued or issuable upon the exercise of any warrant in any manner which
interferes with the timely exercise of this Warrant.
7. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing
contained in this Warrant shall be construed as conferring upon the Holder
hereof the right to vote or to consent or to receive notice as a stockholder of
the Company or any other matters or any rights whatsoever as a stockholder of
the Company. No dividends or interest shall be payable or accrued in respect of
this Warrant or the interest represented hereby or the shares purchasable
hereunder until, and only to the extent that, this Warrant shall have been
exercised. No provisions hereof, in the absence of affirmative action by the
holder to purchase shares of Preferred Stock, and no mere enumeration herein of
the rights or privileges of the holder hereof, shall give rise to any liability
of such Holder for the Stock Purchase Price or as a stockholder of the Company,
whether such liability is asserted by the Company or by its creditors.
5
<PAGE>
8. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal
and state securities laws, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the holder hereof (except
for transfer taxes), upon surrender of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that this Warrant, when endorsed in blank, shall be deemed negotiable,
and that the holder hereof, when this Warrant shall have been so endorsed, may
be treated by the Company, at the Company's option, and all other persons
dealing with this Warrant as the absolute owner hereof for any purpose and as
the person entitled to exercise the rights represented by this Warrant, or to
the transfer hereof on the books of the Company any notice to the contrary
notwithstanding; but until such transfer on such books, the Company may treat
the registered owner hereof as the owner for all purposes.
9. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and
obligations of the Company, of the holder of this Warrant and of the holder of
shares of Preferred Stock issued upon exercise of this Warrant, shall survive
the exercise of this Warrant.
10. MODIFICATION AND WAIVER. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought.
11. NOTICES. Any notice, request or other document required or
permitted to be given or delivered to the holder hereof or the Company shall be
delivered or shall be sent by certified mail, postage prepaid, to each such
holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant or such
other address as either may from time to time provide to the other.
12. BINDING EFFECT ON SUCCESSORS. Except as specified in Section 3.3
hereof, this Warrant shall be binding upon any corporation succeeding the
Company by merger, consolidation or acquisition of all or substantially all of
the Company's assets. All of the obligations of the Company relating to the
Preferred Stock issuable upon the exercise of this Warrant shall survive the
exercise and termination of this Warrant. All of the covenants and agreements of
the Company shall inure to the benefit of the successors and assigns of the
holder hereof.
13. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of
the several sections and paragraphs of this Warrant are inserted for convenience
only and do not constitute a part of this Warrant. This Warrant shall be
construed and enforced in accordance with, and the rights of the parties shall
be governed by, the laws of the State of New York. Each party hereto hereby
irrevocably and unconditionally submits to the exclusive jurisdiction of the
state and federal courts located in the State of New York for any actions, suits
or proceedings arising out of or relating to this Warrant and the transactions
contemplated hereby. Each party hereto agrees not to commence any action, suit
or proceeding relating thereto except in such courts. The parties hereto
irrevocably and unconditionally waive any objection to the laying of venue in
any action, suit or proceeding arising out of this Warrant or the transactions
contemplated hereby, in such state or federal courts aforesaid and hereby
further irrevocably and unconditionally waive and agree not to plead or claim in
any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum.
6
<PAGE>
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY
ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS WARRANT.
14. LOST WARRANTS. The Company represents and warrants to the Holder
hereof that upon receipt of evidence reasonably satisfactory to the Company of
the loss, theft, destruction, or mutilation of this Warrant and, in the case of
any such loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Company, or in the case of any such mutilation upon
surrender and cancellation of such Warrant, the Company, at its expense, will
make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen,
destroyed or mutilated Warrant.
15. FRACTIONAL SHARES. No fractional shares shall be issued upon
exercise of this Warrant. The Company shall, in lieu of issuing any fractional
share, pay the holder entitled to such fraction a sum in cash equal to such
fraction multiplied by the then effective Stock Purchase Price.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its officers, thereunto duly authorized this 10th day of September,
1999.
IMPROVENET, INC.
a Delaware corporation
By:
-------------------------
President
ATTEST:
- -----------------------------
Secretary
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
Date: _________________, 19___
ImproveNet, Inc.
1286 Oddstad Drive
Redwood City, CA 94063
Attn: President
Ladies and Gentlemen:
/ / The undersigned hereby elects to exercise the warrant issued to it by
ImproveNet, Inc. (the "COMPANY") and dated September ____, 1999
Warrant No. PDW-1 (the "WARRANT") and to purchase thereunder
__________________________________ shares of the Series D Preferred
Stock of the Company (the "SHARES") at a purchase price of $0.01 per
Share or an aggregate purchase price of
__________________________________ Dollars ($__________) (the "PURCHASE
PRICE").
/ / The undersigned hereby elects to convert _______________________
percent (____%) of the value of the Warrant pursuant to the provisions
of Section 1.2 of the Warrant.
Pursuant to the terms of the Warrant the undersigned has delivered the
Purchase Price herewith in full in cash or by certified check or wire transfer.
Very truly yours,
-------------------------------
By:
---------------------------
Title:
-------------------------
<PAGE>
SERIES D PREFERRED STOCK FINANCING
WARRANTS
INDEX
- -------------------------------------------------------------------------------
1. General Electric Appliances
2. General Equity Investments
1.
<PAGE>
==============================================================================
IMPROVENET, INC.
FOURTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
DATED NOVEMBER 23, 1999
==============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. TERMINATION OF PRIOR AGREEMENT.. . . . . . . . . . . . . . . . . . . . .1
1.1 Termination of Prior Agreement . . . . . . . . . . . . . . . . . . . . .1
SECTION 2. GENERAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
SECTION 3. REGISTRATION; RESTRICTIONS ON TRANSFER.. . . . . . . . . . . . . . . . .3
3.1 Restrictions on Transfer.. . . . . . . . . . . . . . . . . . . . . . . .3
3.2 Demand Registration. . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.3 Piggyback Registrations. . . . . . . . . . . . . . . . . . . . . . . . .5
3.4 Form S-3 Registration. . . . . . . . . . . . . . . . . . . . . . . . . .6
3.5 Expenses of Registration.. . . . . . . . . . . . . . . . . . . . . . . .7
3.6 Obligations of the Company.. . . . . . . . . . . . . . . . . . . . . . .8
3.7 Termination of Registration Rights.. . . . . . . . . . . . . . . . . . .9
3.8 Delay of Registration; Furnishing Information. . . . . . . . . . . . . .9
3.9 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.10 Assignment of Registration Rights. . . . . . . . . . . . . . . . . . . 11
3.11 Amendment of Registration Rights.. . . . . . . . . . . . . . . . . . . 11
3.12 Limitation on Subsequent Registration Rights.. . . . . . . . . . . . . 11
3.13 "Market Stand-Off" Agreement.. . . . . . . . . . . . . . . . . . . . . 12
3.14 Rule 144 Reporting.. . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4. COVENANTS OF THE COMPANY.. . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Basic Financial Information and Reporting. . . . . . . . . . . . . . . 12
4.2 Additional Information and Rights. . . . . . . . . . . . . . . . . . . 13
4.3 Inspection Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.4 Confidentiality of Records.. . . . . . . . . . . . . . . . . . . . . . 14
4.5 Reservation of Common Stock. . . . . . . . . . . . . . . . . . . . . . 14
4.6 Stock Vesting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.7 Key Man Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.8 Proprietary Information and Inventions Agreement.. . . . . . . . . . . 14
4.9 Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.10 Corporate Properties.. . . . . . . . . . . . . . . . . . . . . . . . . 14
4.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.12 Material Obligations.. . . . . . . . . . . . . . . . . . . . . . . . . 15
4.13 Laws and Regulations.. . . . . . . . . . . . . . . . . . . . . . . . . 15
i.
<PAGE>
TABLE OF CONTENTS, CONT.
4.14 Indebtedness.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.15 Hiring of Key Employees. . . . . . . . . . . . . . . . . . . . . . . . 15
4.16 Observer Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.17 Board and Observer Compensation. . . . . . . . . . . . . . . . . . . . 15
4.18 Board Meetings.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.19 Directors' and Officers' Liability Insurance.. . . . . . . . . . . . . 16
4.20 Budget.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.21 Small Business Concern.. . . . . . . . . . . . . . . . . . . . . . . . 16
4.22 Patent Diligence.. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.23 Nonsolicitation Convenant. . . . . . . . . . . . . . . . . . . . . . . 16
4.24 Termination of Covenants.. . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5. RIGHTS OF FIRST OFFER. . . . . . . . . . . . . . . . . . . . . . . . . 16
5.1 Subsequent Offerings.. . . . . . . . . . . . . . . . . . . . . . . . . 16
5.2 Exercise of Rights.. . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Issuance of Equity Securities to Other Persons.. . . . . . . . . . . . 17
5.4 Termination of Rights of First Offer.. . . . . . . . . . . . . . . . . 17
5.5 Transfer of Rights of First Offer. . . . . . . . . . . . . . . . . . . 17
5.6 Excluded Securities. . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 6. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Successors and Assigns.. . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Severability.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.6 Amendment and Waiver.. . . . . . . . . . . . . . . . . . . . . . . . . 19
6.7 Delays or Omissions. . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.9 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.10 Titles and Subtitles.. . . . . . . . . . . . . . . . . . . . . . . . . 20
6.11 Additional Investors.. . . . . . . . . . . . . . . . . . . . . . . . . 20
6.12 Counterparts.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
ii.
<PAGE>
IMPROVENET, INC.
FOURTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
THIS FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the
"AGREEMENT") is entered into as of the 23rd day of November, 1999, by and
among IMPROVENET, INC., a Delaware corporation (the "COMPANY"), and the
holders of the Company's Series A Preferred Stock ("SERIES A STOCK"), the
holders of the Company's Series B Preferred Stock (the "SERIES B STOCK"), the
holders of the Company's Series C Preferred Stock (the "SERIES C STOCK"), the
holders of the Company's Series D Preferred Stock (the "SERIES D STOCK") and
the purchasers of the Company's Series E Preferred Stock (the "SERIES E
STOCK"), all as set forth on EXHIBIT A hereto. The holders of the Series A
Stock, Series B Stock, Series C Stock, and Series D Stock and purchasers of
the Series E Stock shall be referred to collectively hereinafter as the
"INVESTORS" and each individually as an "INVESTOR."
RECITALS
WHEREAS, the Company issued Series D Stock to certain Investors and
entered into a Third Amended and Restated Investor Rights Agreement dated
September 10, 1999 (the "PRIOR AGREEMENT") by and between the Company, the
holders of Series A Stock, Series B Stock and Series C Stock and the
purchasers of Series D Stock. The holders of Series A Stock, Series B Stock,
Series C Stock and Series D Stock possess certain registration rights,
information rights and other rights under such Prior Agreement;
WHEREAS, the Company and the undersigned holders of Series A Stock,
Series B Stock, Series C Stock and Series D Stock desire to terminate the
Prior Agreement and to accept the rights and obligations created pursuant
hereto in lieu of the rights granted to them under the Prior Agreement;
WHEREAS, the Company proposes to sell and issue up to three million
(3,000,000) shares of its Series E Stock pursuant to the First Series E
Preferred Stock and Warrant Purchase Agreement and the Second Series E
Preferred Stock and Warrant Purchase Agreement (the "PURCHASE AGREEMENTS");
and
WHEREAS, as a condition of entering into the Purchase Agreements, the
purchasers of Series E Stock have requested that the Company extend to them
registration rights, information rights and other rights as set forth below.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement and in the Purchase Agreements, the parties mutually agree as
follows:
SECTION 1. TERMINATION OF PRIOR AGREEMENT.
1.1 TERMINATION OF PRIOR AGREEMENT. The Prior Agreement is terminated
in its entirety and restated herein. Such termination and restatement is
effective upon execution of this Agreement by the holders of at least a
majority in interest of the Registrable Securities (as the term is defined in
the Prior Agreement). Upon such execution, all provisions of, rights granted
and covenants made in the Prior Agreement are hereby waived, released and
terminated in their entirety and shall have no further force or effect. The
rights and covenants contained in this Agreement set forth the sole and
entire agreement
1.
<PAGE>
among the Company and the Investors on the subject matter hereof and
supersede any and all rights granted and covenants made under any prior
agreements.
SECTION 2. GENERAL.
2.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"HOLDER" means (i) any person owning of record Registrable
Securities (as hereinafter defined) that have not been sold to the public or
(ii) any assignee of record of such Registrable Securities in accordance with
Section 3.10 hereof.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its common stock registered under the
Securities Act (as hereinafter defined).
"QUALIFIED PUBLIC OFFERING" means the Company's first underwritten
public offering of its common stock registered under the Securities Act
pursuant to which all outstanding shares of preferred stock have converted
into common stock of the Company.
"REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
"REGISTRABLE SECURITIES" means (i) common stock of the Company
issued or issuable upon conversion of the Shares (as hereinafter defined) or
pursuant to exercise of warrants held by GE Capital Equity Investments, Inc.
and General Electric Appliances; and (ii) any common stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right
or other security which is issued as) a dividend or other distribution with
respect to, or in exchange for or in replacement of, such any securities
described in subsection (i) above. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to
the public either pursuant to a registration statement, Rule 144 or sold in a
private transaction in which the transferor's rights under Section 3 of this
Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
common stock that are Registrable Securities and either (1) are then issued
and outstanding or (2) are issuable pursuant to then exercisable or
convertible securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the
Company in complying with Sections 3.2, 3.3 and 3.4 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, reasonable fees and
disbursements not to exceed twenty-five thousand dollars ($25,000) of a
single special counsel for the Holders, blue sky fees and expenses and the
expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company which shall be paid in any event by the Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
2.
<PAGE>
"SELLING EXPENSES" shall mean all underwriting discounts and
selling commissions applicable to the sale.
"SHARES" shall mean the Company's Series A Stock issued pursuant to
the Series A Preferred Stock and Warrant Purchase Agreement dated June 30,
1997 and shares of Series A Stock issued upon exercise of Warrants to
purchase Series A Stock held by the Investors listed on EXHIBIT A hereto and
their permitted assigns, the Company's Series B Stock issued pursuant to the
Series B Preferred Stock and Warrant Purchase Agreement dated March 17, 1997
and shares of Series B Stock issued upon exercise of the Warrants to purchase
Series B Stock held by the Investors listed on EXHIBIT A hereto and their
permitted assigns, the Company's Series C Stock held by the Investors listed
on EXHIBIT A hereto, the Company's Series D Stock held by the Investors
listed on EXHIBIT A hereto and the Company's Series E Stock held by the
Investors listed on EXHIBIT A hereto and Shares of Common Stock issued upon
the exercise of the Warrants to purchase Common Stock held by the Investors
listed on EXHIBIT A hereto.
"FORM S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC (as hereinafter defined) which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
SECTION 3. REGISTRATION; RESTRICTIONS ON TRANSFER.
3.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by
the terms of this Agreement, (B) such Holder shall have notified the Company
of the proposed disposition and (C) if reasonably requested by the Company,
such Holder shall have furnished the Company with an opinion of counsel,
reasonably satisfactory to the Company, that such disposition will not
require registration of such shares under the Securities Act. It is agreed
that the Company will not require opinions of counsel for transactions made
pursuant to Rule 144.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its
partners or former partners in accordance with partnership interests, (B) a
corporation to its shareholders in accordance with their interest in the
corporation, (C) a limited liability company to its members or former members
in accordance with their interest in the limited liability company or (D) to
a Holder's family member or trust for the benefit of an individual Holder;
provided that in each case the transferee will be subject to the terms of
this Agreement to the same extent as if he were an original Holder hereunder,
or (E) an affiliate of a Holder.
3.
<PAGE>
(b) Each certificate representing Shares or Registrable Securities
shall (unless otherwise permitted by the provisions of the Agreement) be
stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state
securities laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE "ACT")
AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any Holder thereof if the Holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company
or in-house counsel of a Holder) reasonably acceptable to the Company to the
effect that the securities proposed to be disposed of may lawfully be so
disposed of without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
3.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 3.2, if the Company
shall receive a written request from the Holders of more than a majority of
the Registrable Securities then outstanding (the "INITIATING HOLDERS") that
the Company file a registration statement under the Securities Act covering
the registration of Registrable Securities having a net aggregate offering
price to the public in excess of twenty million dollars ($20,000,000), then
the Company shall, within thirty (30) days of the receipt thereof, give
written notice of such request to all Holders, and subject to the limitations
of this Section 3.2, use its best efforts to effect, as soon as practicable,
the registration under the Securities Act of all Registrable Securities that
the Holders request to be registered.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise the Company as a part of their request made pursuant to this
Section 3.2 or any request pursuant to Section 3.4 and the Company shall
include such information in the written notice referred to in Section 3.2(a)
or Section 3.4(a), as applicable. In such event, the right of any Holder to
include its Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of
such Holder's Registrable Securities in the underwriting (unless otherwise
mutually agreed by a majority in interest of the Initiating Holders and such
Holder) to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by a majority in interest of the Initiating Holders (which
underwriter or underwriters shall be reasonably acceptable to the Company).
Notwithstanding any other provision of this Section 3.2 or Section 3.4, if
the underwriter advises the Company that marketing factors require a
limitation of the number of securities to be underwritten
4.
<PAGE>
(including Registrable Securities) then the Company shall so advise all
Holders of Registrable Securities which would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated to the Holders of such Registrable Securities
on a pro rata basis based on the number of Registrable Securities held by all
such Holders (including the Initiating Holders). Any Registrable Securities
excluded or withdrawn from such underwriting shall be withdrawn from the
registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 3.2:
(i) prior to the earlier of (i) March 17, 2001 or (ii) six
months after the closing of the Initial Offering; or
(ii) after the Company has effected three (3) registrations
pursuant to this Section 3.2, and such registrations have been declared or
ordered effective; or
(iii) during the period starting with the date of filing of,
and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to the Initial Offering;
provided that the Company makes reasonable good faith efforts to cause such
registration statement to become effective;
(iv) if within thirty (30) days of receipt of a written
request from Initiating Holders pursuant to Section 3.2(a), the Company gives
notice to the Holders of the Company's intention to file a registration
statement with the SEC in connection with its Initial Offering within ninety
(90) days and the Company shall make reasonable good faith efforts to cause
such registration statement to become effective within ninety (90) days of
such filing with the SEC; provided that such right to delay a request shall
be exercised by the Company not more than once in any twelve (12) month
period; or
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 3.2, a certificate signed by
the Chairman of the Board stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its stockholders for such registration statement to be effected
at such time, in which event the Company shall have the right to defer such
filing for a period of not more than sixty (60) days after receipt of the
request of the Initiating Holders; provided that such right to delay a
request shall be exercised by the Company not more than once in any twelve
(12) month period.
3.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the
filing of any registration statement under the Securities Act for purposes of
a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of
the Company, but excluding registration statements relating to employee
benefit plans or with respect to corporate reorganizations or other
transactions under Rule 145 of the Securities Act) and will afford each such
Holder an opportunity to include in such registration statement all or part
of such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within twenty (20) days after the
above-described notice from the Company, so notify the Company in writing.
Such notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
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registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set forth
herein.
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 3.3 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant
to this Section 3.3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding
any other provision of the Agreement, if the underwriter determines in good
faith that marketing factors require a limitation of the number of shares to
be underwritten, the number of shares that may be included in the
underwriting shall be allocated, first, to the Company; second, to the
Holders on a pro rata basis based on the total number of Registrable
Securities held by the Holders; and third, to any stockholder of the Company
(other than a Holder) on a pro rata basis. No such reduction shall (i)
reduce the securities being offered by the Company for its own account to be
included in the registration and underwriting, or (ii) reduce the amount of
securities of the selling Holders included in the registration below
thirty-three percent (33%) of the total amount of securities included in such
registration, unless such offering is the Initial Offering and such
registration does not include shares of any other selling stockholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event
will shares of any other selling stockholder be included in any such
registration which would reduce the number of shares which may be included by
Holders without the written consent of holders of not less than a majority of
the Registrable Securities proposed to be sold in the offering. For purposes
of pro rata apportionment pursuant to this Section 3.3, for any Holder that
is a partnership or corporation, the partners, retired partners and
shareholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "selling Holder," and any
pro rata reduction with respect to such "selling Holder" shall be based upon
the aggregate amount of Registrable Securities owned by all such related
entities and individuals.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 3.3 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 3.5 hereof.
3.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 or any similar short-form
registration statement and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such
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request as are specified in a written request given within twenty (20) days
after receipt of such written notice from the Company; PROVIDED, HOWEVER,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 3.4:
(i) if Form S-3 is not available for such offering by the
Holders;
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose
to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public of less than five hundred thousand dollars
($500,000);
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form
S-3 registration statement for a period of not more than sixty (60) days
after receipt of the request of the Holder or Holders under this Section 3.4;
provided, that such right to delay a request shall be exercised by the
Company not more than once in any twelve (12) month period;
(iv) if the Company has within the twelve (12) month period
preceding the date of such request, already effected one (1) such
registration on Form S-3 for the Holders pursuant to this Section 3.4; or
(v) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent
to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other
securities so requested to be registered as soon as practicable after receipt
of the request or requests of the Holders. All such Registration Expenses
incurred in connection with registrations requested pursuant to this Section
3.4 after the first three (3) registrations shall be paid by the selling
Holders pro rata in proportion to the number of shares sold by each.
3.5 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 3.2 or the first three
registrations under each of Section 3.3 and Section 3.4 herein shall be borne
by the Company. All Selling Expenses incurred in connection with any
registrations hereunder, shall be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered. The
Company shall not, however, be required to pay for expenses of any
registration proceeding begun pursuant to Section 3.2 or 3.4, the request of
which has been subsequently withdrawn by the Holders unless (a) the
withdrawal is based upon material adverse information concerning the Company
of which the Initiating Holders or Holders, as applicable, were not aware at
the time of such request or (b) the Holders of a majority of Registrable
Securities agree to forfeit their right to one requested registration
pursuant to Section 3.2 or Section 3.4, as applicable, in which event such
right shall be forfeited by all Holders. If the Holders are required to pay
the Registration Expenses, such expenses shall be borne by the holders of
securities (including Registrable Securities) requesting such registration in
proportion to the number of shares for which registration was requested. If
the Company is required to pay the Registration Expenses of a withdrawn
offering pursuant to clause (a) above, then the Holders shall not
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forfeit their rights pursuant to Section 3.2 or Section 3.4 to a demand
registration pursuant to the limitations of Section 3.2 and Section 3.4,
respectively.
3.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to
cause such registration statement to become effective, and, upon the request
of the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one hundred
twenty (120) days or, if earlier, until the Holder or Holders have completed
the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by
them.
(d) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities
or blue sky laws of such jurisdictions as shall be reasonably requested by
the Holders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the
circumstances then existing.
(g) Furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering and reasonably satisfactory to a majority
in interest of the Holders requesting registration, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities and (ii) a letter dated as of such date, from the
independent certified public accountants of the Company,
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in form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
3.7 TERMINATION OF REGISTRATION RIGHTS. A Holder's registration rights
shall expire if (a) the Company has completed its Initial Offering and is
subject to the provisions of the Exchange Act, (b) such Holder (together
with its affiliates, partners and former partners) holds less than 1% of the
Company's outstanding Common Stock (treating all shares of convertible
Preferred Stock on an as converted basis) and (c) all Registrable Securities
held by and issuable to such Holder (and its affiliates, partners and former
partners) may be sold under Rule 144 during any ninety (90) day period.
3.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) No Holder shall have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 3.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 3.2, 3.3 or 3.4 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them and the intended method
of disposition of such securities as shall reasonably be required to effect
the registration of their Registrable Securities.
(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 3.2 or Section 3.4 if, due to the
operation of subsection 3.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's
obligation to initiate such registration as specified in Section 3.2 or
Section 3.4, whichever is applicable.
3.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 3.2, 3.3 or 3.4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers, affiliates, shareholders
and directors of each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities (joint or several) to
which they may become subject under the Securities Act, the Exchange Act or
other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"VIOLATION") by the Company: (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto; (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading; or (iii) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law in connection
with the offering covered by such registration statement; and the Company
will reimburse each such Holder, partner,
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affiliate, shareholder, officer, director, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; PROVIDED HOWEVER, that the indemnity agreement contained in this
Section 3.9(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected
without the consent of the Company, which consent shall not be unreasonably
withheld, nor shall the Company be liable in any such case for any such loss,
claim, damage, liability or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by such Holder, partner, officer, director, legal counsel,
underwriter or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will severally,
but not jointly, if Registrable Securities held by such Holder are included
in the securities as to which such registration, qualification or compliance
is being effected, indemnify and hold harmless the Company, each of its
directors, its officers, and legal counsel and each person, if any, who
controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or
any person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such
Holder will reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or
other Holder, or partner, officer, director or controlling person of such
other Holder in connection with investigating or defending any such loss,
claim, damage, liability or action if it is judicially determined that there
was such a Violation; PROVIDED, HOWEVER, that the indemnity agreement
contained in this Section 3.9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, that in no event shall any
indemnity under this Section 3.9(b) exceed the net proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 3.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 3.9,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in
such proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
materially prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under this
Section 3.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 3.9.
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(d) If the indemnification provided for in this Section 3.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall to the extent permitted by applicable law contribute
to the amount paid or payable by such indemnified party as a result of such
loss, claim, damage or liability in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of
the indemnified party on the other in connection with the Violation(s) that
resulted in such loss, claim, damage or liability, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates
to information supplied by the indemnifying party or by the indemnified party
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided, that
in no event shall any contribution by a Holder hereunder exceed the net
proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section
3.9 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this Agreement. No
indemnifying party, in the defense of any such claim or litigation, shall,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation.
3.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 3 may be assigned
by a Holder to a transferee or assignee of Registrable Securities which (a)
is a subsidiary, parent, affiliate, general partner, limited partner or
retired partner of a Holder, (b) is a Holder's family member or trust for the
benefit of an individual Holder, or (c) acquires at least twenty-five
thousand (25,000) shares of Registrable Securities (as adjusted for stock
splits and combinations); PROVIDED, HOWEVER, (A) the transferor shall, within
ten (10) days after such transfer, furnish to the Company written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned and (B) such
transferee shall agree to be subject to all restrictions set forth in this
Agreement.
3.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 3
may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Holders of at least a
majority of the Registrable Securities then outstanding. Notwithstanding the
foregoing, any amendment adversely affecting the rights or privileges of a
particular series of preferred stock will require the consent of a majority
in interest of the holders of such series so affected. Any amendment or
waiver effected in accordance with this Section 3.11 shall be binding upon
each Holder and the Company. By acceptance of any benefits under this
Section 3, Holders of Registrable Securities hereby agree to be bound by the
provisions hereunder.
3.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, the Company shall not, without the prior written consent of
the Holders of a majority of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any
securities of the Company that would grant such holder registration rights
senior to or pari passu or otherwise conflict with those granted to the
Holders hereunder.
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3.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that such
Holder shall not sell or otherwise transfer, dispose of, make any short sale
of, grant any option for the purpose of, or enter into any hedging or similar
transaction with the same economic effect as a sale, any common stock (or
other securities) of the Company held by such Holder (other than those
included in the registration) for a period specified by the representative of
the underwriters of common stock (or other securities) of the Company not to
exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act,
provided that:
(i) such agreement shall apply only to the Company's Initial
Offering; and
(ii) all officers and directors of the Company and holders of
at least one percent (1%) of the Company's voting securities enter into
similar agreements.
Each Holder agrees to execute and deliver such other agreements as may
be reasonably requested by the Company or the underwriter which are
consistent with the foregoing or which are necessary to give further effect
thereto. The obligations described in this Section 3.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-8 or similar
forms that may be promulgated in the future, or a registration relating
solely to a Commission Rule 145 transaction on Form S-4 or similar forms that
may be promulgated in the future. The Company may impose stop-transfer
instructions with respect to the shares of common stock (or other securities)
subject to the foregoing restriction until the end of said one hundred eighty
(180) day period.
3.14 RULE 144 REPORTING. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date
of the first registration filed by the Company for an offering of its
securities to the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as
to its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become
subject to such reporting requirements); a copy of the most recent annual or
quarterly report of the Company; and such other reports and documents as a
Holder may reasonably request in availing itself of any rule or regulation of
the SEC allowing it to sell any such securities without registration.
SECTION 4. COVENANTS OF THE COMPANY.
4.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will maintain true books and records of account in
which full and correct entries will be made of all its business transactions
pursuant to a system of accounting established and administered in accordance
with generally accepted accounting principles consistently applied and
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will set aside on its books all such proper accruals and reserves as shall be
required under generally accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year of
the Company, and in any event within sixty (60) days thereafter, the Company
will furnish each Investor a balance sheet of the Company, as at the end of
such fiscal year, and a statement of income and a statement of cash flows of
the Company, for such year, all prepared in accordance with generally
accepted accounting principles consistently applied and setting forth in each
case in comparative form the figures for the previous fiscal year, all in
reasonable detail. Such financial statements shall be accompanied by a
report and opinion thereon by independent public accountants of national
standing selected by the Company's Board of Directors.
(c) The Company will furnish each Investor, as soon as practicable
after the end of the first, second and third quarterly accounting periods in
each fiscal year of the Company, and in any event within thirty (30) days
thereafter, a balance sheet of the Company as of the end of each such
quarterly period, and a statement of income and a statement of cash flows of
the Company for such period and for the current fiscal year to date, prepared
in accordance with generally accepted accounting principles, with the
exception that no notes need be attached to such statements and year-end
audit adjustments may not have been made.
4.2 ADDITIONAL INFORMATION AND RIGHTS.
(a) So long as an Investor (with its affiliates) shall own not
less than one hundred thousand (100,000) shares of Registrable Securities (as
adjusted for stock splits and combinations) (a "MAJOR INVESTOR"), the Company
will furnish each such Major Investor at least thirty (30) days prior to the
beginning of each fiscal year an annual budget and operating plans for such
fiscal year (and as soon as available, any subsequent revisions thereto).
(b) The Company will provide to each Major Investor as soon as
practical after the end of the month and in any event within twenty (20) days
thereafter, a consolidated balance sheet of the Company and its subsidiaries,
if any, as at the end of the month and consolidated statements of income and
cash flows of the Company and its subsidiaries, for each month and for the
current fiscal year of the Company to date, all subject to normal year-end
adjustments, prepared in accordance with generally accepted accounting
principles consistently applied and certified by the principal financial or
accounting officer of the Company, together with a comparison of such
statements to the corresponding periods of the prior fiscal year and to the
Company's operating plan then in effect and approved by the Board of
Directors.
(c) The Company will furnish other information reasonably
requested by a Major Investor, including, but not limited to, a monthly
report regarding the Company's key metrics.
4.3 INSPECTION RIGHTS. Each Major Investor shall have the right to
visit and inspect any of the properties of the Company or any of its
subsidiaries, and to discuss the affairs, finances and accounts of the
Company or any of its subsidiaries with its officers, and to review such
information as is reasonably requested all at such reasonable times and as
often as may be reasonably requested; PROVIDED, HOWEVER, that the Company
shall not be obligated under this Section 4.3 with respect to a competitor of
the Company or with respect to information which the Board of Directors
determines in good faith is confidential and should not, therefore, be
disclosed.
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4.4 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to
use commercially reasonable efforts to ensure that its authorized
representatives use, the same degree of care as such Investor uses to protect
its own confidential information to keep confidential any information
furnished to it which the Company identifies as being confidential or
proprietary (so long as such information is not in the public domain), except
that such Investor may disclose such proprietary or confidential information
(a) to any partner, subsidiary, parent, affiliate, attorney, accountant or
other professional advisor of such Investor for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent is
advised of the confidentiality provisions of this Section 4.4, (b) in any
statement or testimony pursuant to a subpoena or order by any court,
governmental body or other agency asserting jurisdiction over any Investor or
upon the request or demand of any regulatory agency or authority having
jurisdiction over any Investor or as may otherwise be required by law
(provided that such Investor shall give the Company prior notice of the
disclosure permitted by this clause unless such notice is prohibited by the
subpoena, order or law), and (c) as may be required, to any rating agency
that rates the financial condition or claims paying ability of Allstate
Insurance Company.
4.5 RESERVATION OF COMMON STOCK. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the conversion of
the Shares, all common stock issuable from time to time upon such conversion.
4.6 STOCK VESTING. Unless otherwise approved by the Board of
Directors, all stock options and other stock equivalents issued after the
date of this Agreement to employees, directors, consultants and other service
providers shall be subject to vesting as follows: (a) twenty-five percent
(25%) of such stock shall vest at the end of the first year following the
date of issuance or such person's services commencement date with the
Company, as applicable, and (b) seventy-five percent (75%) of such stock
shall vest over the remaining three (3) years. With respect to any unvested
shares of stock purchased by any such person, the Company's repurchase option
shall provide that upon such person's termination of employment or service
with the Company, with or without cause, the Company or its assignee (to the
extent permissible under applicable securities laws and other laws) shall
have the option to purchase at cost any unvested shares of stock held by such
person.
4.7 KEY MAN INSURANCE. For so long as any shares of Series A Stock,
Series B Stock, Series C Stock, Series D Stock or Series E Stock remain
outstanding and subject to the approval of the Board of Directors, the
Company will use its best efforts to obtain and maintain in full force and
effect term life insurance in an amount to be determined by the Board of
Directors, on each of the lives of Robert L. Stevens and Ronald B. Cooper,
naming the Company as beneficiary; provided, however, the amount covering
Robert Stevens shall be no less than $1 million and the amount covering
Ronald Cooper shall be no less than $2 million and the Company shall have
thirty (30) days from the date hereof to put such a policy in place.
4.8 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company
shall require all employees and consultants to execute and deliver a
Proprietary Information and Inventions Agreement in the form attached to the
Purchase Agreements.
4.9 CORPORATE EXISTENCE. The Company shall at all times cause to be
done all things necessary to maintain, preserve and renew its corporate
existence and all material licenses and permits necessary for the conduct of
its business.
4.10 CORPORATE PROPERTIES. The Company shall maintain and keep its
properties in good repair, working order and condition, reasonable wear and
tear excepted, and from time to time make all
14.
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necessary or desirable repairs, renewals and replacements, so that its
business may be properly and advantageously conducted at all times.
4.11 TAXES. The Company shall pay and discharge, when payable, all
taxes, assessments and governmental charges imposed upon its properties or
upon the income or profits therefrom (in each case before the same become
delinquent and before penalties accrue thereon) and all claims for labor,
materials or supplies which if unpaid might by law become a lien upon any of
its property, unless and to the extent that the same are being contested in
good faith and by appropriate proceedings and adequate reserves, determined
in accordance with generally accepted accounting principles, have been set
aside on its books with respect thereto.
4.12 MATERIAL OBLIGATIONS. The Company shall comply with all other
material obligations which it incurs pursuant to any contract or agreement,
whether oral or written, express or implied, as such obligations become due,
unless and to the extent that the same are being contested in good faith and
by appropriate proceedings.
4.13 LAWS AND REGULATIONS. The Company shall comply with all applicable
laws, rules and regulations of all foreign and domestic governmental
authorities (and, to the extent the Company is subject to the laws thereof,
any foreign jurisdiction), the violation of which would have a material
adverse effect upon its businesses or financial condition.
4.14 INDEBTEDNESS. The Company shall not, without the prior approval of
the Board of Directors, have indebtedness at any given time in excess of
three hundred fifty thousand dollars ($350,000) (the "MAXIMUM INDEBTEDNESS"),
unless the Board of Directors has previously approved an increase of the
permitted Maximum Indebtedness.
4.15 HIRING OF KEY EMPLOYEES. The Company shall as soon as possible
after the date hereof initiate a search for and use its best efforts to hire
a Chief Financial Officer, subject to the approval of the Board of Directors.
4.16 OBSERVER RIGHTS. Each Major Investor (or its representative) shall
have the right to attend all meetings of the Board of Directors in a
nonvoting observer capacity (an "OBSERVER"), to receive notice of such
meetings and to receive the information provided by the Company to the Board
of Directors; provided, however, that the Company may require as a condition
precedent to any Holder's rights under this Section 4.16 that each person
proposing to attend any meeting of the Board of Directors and each person to
have access to any of the information provided by the Company to the Board of
Directors shall agree to hold in confidence and trust all information so
received during such meetings or otherwise; and, provided further, that the
Company reserves the right not to provide information and to exclude such
Observer from any meeting or portion thereof if delivery of such information
or attendance at such meeting by such Observer would result in disclosure of
trade secrets to such Observer or its representative or would adversely
affect the attorney-client privilege between the Company and its counsel or
if such Observer is a direct competitor of the Company.
4.17 BOARD AND OBSERVER COMPENSATION. The Company shall reimburse the
reasonable travel and out-of-pocket expenses of each Board member and
Observer against documented receipts incurred in connection with (a) such
Board member's and Observer's attendance at any meeting of the Company's
Board of Directors and (b) such Board member's duties in connection with
representation of the Company.
15.
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4.18 BOARD MEETINGS. The Company shall hold at least six (6) Board of
Directors' meetings each calendar year with at least one (1) such meeting per
calendar quarter.
4.19 DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company will
obtain and keep directors' and officers' liability insurance for all
directors and key officers of at least the current level of coverage at all
times.
4.20 BUDGET. The Company agrees to prepare and submit a proposed budget
to the Board of Directors of the Company and each of the Major Investors at
least 30 days prior to the beginning of each fiscal year (the "BUDGET"). The
Budget shall be accepted as the Budget for such fiscal year when it has been
approved by the Board of Directors of the Company. The Budget shall be
reviewed by the Company periodically and all material changes therein and all
material deviations therefrom which are proposed to be made by the Company
shall be resubmitted and approved in accordance with procedures established
by the Board of Directors, and the Company shall not make any such changes or
material deviations to or from the Budget without compliance with such
procedures.
4.21 SMALL BUSINESS CONCERN. So long as any Small Business Investment
Company (an "SBIC INVESTOR") is an investor in the Company, the Company will
provide the SBIC Investor any information that is reasonably requested by the
Small Business Administration (the "SBA"). The Company will provide SBA
examiners access to its books and records for SBA audit purposes in
accordance with normal SBA procedures.
4.22 PATENT DILIGENCE. The Company agrees within forty-five (45) days
of the date hereof to engage Cooley Godward LLP to perform a website audit
and related patent diligence regarding the Company's intellectual property
(the "AUDIT") within a scope mutually agreed upon by GE Capital Equity
Investments, Inc. and the Company and to prepare a report to the Board of
Directors regarding its findings in the course of such Audit. The Company
agrees within forty-five (45) days of the date that such report is delivered
to the Board of Directors to take commercially reasonable efforts to
implement those items from such Audit that the Board of Directors deems
appropriate. The cost that the Company shall incur in connection with such
Audit shall not exceed an amount deemed reasonable by the Board of Directors.
4.23 NONSOLICITATION COVENANT. Within thirty (30) days of the date
hereof, the Company agrees to enter into non-solicitation agreements with
director level employees and higher to the extent permitted by California law.
4.24 TERMINATION OF COVENANTS. All covenants contained in this Section
4 shall expire and terminate as to each Investor on the effective date of the
registration statement pertaining to the Company's Qualified Public Offering.
Notwithstanding the foregoing, Section 4.21 hereto shall terminate upon the
expiration or termination of the Internet Development, Marketing and
Distribution Agreement attached hereto as Exhibit B.
SECTION 5. RIGHTS OF FIRST OFFER.
5.1 SUBSEQUENT OFFERINGS. Each Major Investor shall have a right of
first offer to purchase its pro rata share of all Equity Securities, as
defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement, other than the Equity Securities
excluded by Section 5.6 hereof. Each Investor's pro rata share is equal to
the ratio of (a) the number of shares of the Company's common stock
(including all shares of common stock issued or issuable upon conversion of
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the Shares) which such Investor is deemed to hold immediately prior to the
issuance of such Equity Securities to (b) the total number of shares of the
Company's outstanding common stock (including all shares of common stock
issued or issuable upon conversion of the Shares or upon the exercise of any
outstanding warrants or options) immediately prior to the issuance of the
Equity Securities. The term "EQUITY SECURITIES" shall mean (i) any common
stock, preferred stock or other security of the Company, (ii) any security
convertible, with or without consideration, into any common stock, preferred
stock or other security (including any option to purchase such a convertible
security), (iii) any security carrying any warrant or right to subscribe to
or purchase any common stock, preferred stock or other security or (iv) any
such warrant or right.
5.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Major Investor written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Major
Investor shall have twenty (20) days from the giving of such notice to agree
to purchase its pro rata share of the Equity Securities for the cash
equivalent price and upon the terms and conditions specified in the notice by
giving written notice to the Company and stating therein the quantity of
Equity Securities to be purchased. Notwithstanding the foregoing, the Company
shall not be required to offer or sell such Equity Securities to any Investor
who would cause the Company to be in violation of applicable federal or state
securities laws by virtue of such offer or sale through no fault of the
Company.
5.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of the
Major Investors elect to purchase their pro rata share of the Equity
Securities, then the Company shall promptly notify in writing the Major
Investors who do so elect and shall offer such Major Investors the right to
acquire such unsubscribed shares. Such Major Investors shall have five (5)
days after receipt of such notice to notify the Company of their election to
purchase all or a portion thereof of the unsubscribed shares. If the
Investors fail to exercise in full the rights of first offer, the Company
shall have ninety (90) days thereafter to sell the Equity Securities in
respect of which the Major Investors' rights were not exercised, at a price
and upon general terms and conditions materially no more favorable to the
purchasers thereof than specified in the Company's notice to the Major
Investors pursuant to Section 5.2 hereof. If the Company has not sold such
Equity Securities within ninety (90) days of the notice provided pursuant to
Section 5.2, the Company shall not thereafter issue or sell any Equity
Securities, without first offering such securities to the Major Investors in
the manner provided above.
5.4 TERMINATION OF RIGHTS OF FIRST OFFER. The rights of first offer
established by this Section 5 shall not apply to and shall terminate upon the
effective date of the registration statement pertaining to the Company's
Qualified Public Offering.
5.5 TRANSFER OF RIGHTS OF FIRST OFFER. The rights of first offer of
each Major Investor under this Section 5 may be transferred to the same
parties, subject to the same restrictions as any transfer of registration
rights pursuant to Section 3.10.
5.6 EXCLUDED SECURITIES. The rights of first offer established by this
Section 5 shall have no application to any of the following Equity Securities:
(a) shares of common stock (and/or options, warrants or other
common stock purchase rights issued pursuant to such options, warrants or
other rights) issued or to be issued to employees, officers or directors of,
or consultants or advisors to the Company or any subsidiary, pursuant to
stock purchase or stock option plans or other arrangements that are approved
in good faith by the Board of Directors including the representatives
designated by the holders of the Shares;
17.
<PAGE>
(b) stock issued pursuant to any rights or agreements outstanding
as of the date of this Agreement, options and warrants outstanding as of the
date of this Agreement as set forth on EXHIBIT G of the Purchase Agreement[s];
and stock issued pursuant to any such rights or agreements granted after
the date of this Agreement, provided that the rights of first offer
established by this Section 5 applied with respect to the initial sale or
grant by the Company of such rights or agreements;
(c) any Equity Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination unanimously approved by the Board of Directors;
(d) shares of common stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
(e) shares of common stock issued upon conversion of the Shares;
(f) shares of Series A Stock issued upon exercise of certain
Warrants to purchase Series A Stock held by certain Investors;
(g) shares of Series B Stock issued upon exercise of certain
Warrants to purchase Series B Stock held by certain Investors;
(h) shares of common stock or preferred stock and/or options,
warrants or other common stock or preferred stock purchase rights issued
pursuant to any equipment leasing arrangement, debt financing from a bank or
similar financial institution or strategic transaction approved by the Board
(so long as Board approval constitutes consent by at least a majority of the
members of the Board representing holders of preferred stock);
(i) shares of Series D Stock issued upon exercise of certain
warrants to purchase Series D Stock held by certain Investors;
(j) 5,666 shares of Series C Stock issued to Ramsey Beirne in
connection with recruiting services rendered to the Company or Series D Stock
issued by the Company; and
(k) any Equity Securities that are issued by the Company pursuant
to a registration statement filed under the Securities Act.
(l) shares of Common Stock issued upon exercise of certain
warrants to purchase Common Stock held by certain Investors.
SECTION 6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements among New
York residents entered into and to be performed entirely within New York
Each party hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of the state and federal courts located in the State
of New York for any actions, suits or proceedings arising out of or relating
to this Agreement or any of the Related Agreements (as defined in the
Purchase Agreements) and the transactions contemplated hereby or thereby.
Each party hereto agrees not to commence any action, suit or proceeding
relating thereto except in such courts. The parties hereto irrevocably and
unconditionally waive any objection to the laying of
18.
<PAGE>
venue in any action, suit or proceeding arising out of this Agreement or any
of the Related Agreements or the transactions contemplated hereby or thereby,
in such state or federal courts aforesaid and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY
WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY OF THE
RELATED AGREEMENTS.
6.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
PROVIDED, HOWEVER, that prior to the receipt by the Company of adequate
written notice of the transfer of any Registrable Securities specifying the
full name and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the absolute
owner and holder of such shares for all purposes, including the payment of
dividends or any redemption price.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto, the Related
Agreements (as defined in the Purchase Agreements) and the other documents
delivered pursuant thereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein
and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
6.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the
Holders of at least a majority of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the Holders of at least a majority of the
Registrable Securities; provided that any amendment adversely affecting the
rights or privileges of a particular series of preferred stock will require
consent of a majority in interest of the holders of such series so affected.
19.
<PAGE>
(c) Notwithstanding the foregoing, this Agreement may be amended
with only the written consent of the Company to include additional purchasers
of Shares as Investors, Holders and parties hereto.
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character
on any Holder's part of any breach, default or noncompliance under the
Agreement or any waiver on such Holder's part 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, by law, or otherwise afforded to Holders, shall be cumulative
and not alternative.
6.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day; (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall
be sent to the party to be notified at the address as set forth on EXHIBIT A
hereto or at such other address as such party may designate by ten (10) days
advance written notice to the other parties hereto.
6.9 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
6.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.11 ADDITIONAL INVESTORS. Notwithstanding anything to the contrary
contained herein, if the Company shall issue additional shares of its Series
E Stock and warrants to purchase additional shares of its Common Stock
pursuant to the Purchase Agreements, any purchaser of such shares of Series E
Stock or Warrants, as the case may be may become a party to this Agreement by
executing and delivering an additional counterpart signature page to this
Agreement and shall be deemed an "INVESTOR" hereunder.
6.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
20.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this FOURTH AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: INVESTORS:
/s/ All Preferred Stock Investors
IMPROVENET, INC. ----------------------------------
NAME OF INVESTOR ENTITY
By: /s/ Ron Cooper By:
------------------------------------ -------------------------------
Ronald Cooper, President and Chief
Executive Officer
Title:
----------------------------
FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
<PAGE>
EXHIBIT A
LIST OF INVESTORS
NAME AND ADDRESS
- ----------------------------------------------
Allstate Insurance Company
2775 Sanders Road
Suite A3
Northbrook, IL 60062
c/o Michael Curran
Alta California Partners, L.P.
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Alta Embarcadero Partners, L.P.
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ARCH Venture Fund III, L.P.
8735 Higgins Road
Suite 225
Chicago, IL 60631
August Capital II, L.P.
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
Anthony Glaves
1030 Parkinson
Palo Alto, CA 94301
William Egan
Burr, Egan, Deleage & Co.
One Post Office Square, #3800
Boston, MA 02109
Charles H. Finnie
Volpe Brown Whelan & Company, LLC
One Maritime Plaza
San Francisco, CA 94111
EXHIBIT A-1
FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
GC&H Investments
Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, CA 94111-3580
Alex Knight
1116 Harvard Avenue East
Seattle, WA 98102
Harold Kawaguchi
626 38th Avenue
Seattle, WA 98122
Madrona Investment Group, LLC
1000 Second Avenue, Suite 3700
Seattle, WA 98104
David S. Smith and Louise H. Smith, Trustees for the David H. Smith
and Louise H. Smith Family Trust Dated 5/4/84
Post Office Box 475
Graton, CA 95444
Lynn Brown Kargman and William M. Kargman
221 Mount Auburn Street
Cambridge, MA 02138
Thomas W. Brugger
805 Bay View Way
Redwood City, CA 94062
Stuart Gannes
1160 Bryant Street
Palo Alto, CA 94301
Zero Stage Capital VI, L.P.
101 Main Street, 17th Floor
Cambridge, MA 02142-1519
MGN Opportunity Group LLC
801 Second Avenue
13th Floor
Seattle, WA 98104
MGN Opportunity LLC
801 Second Avenue
13th Floor
Seattle, WA 98104
EXHIBIT A-1
FOURTH AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
Norman D. Colbert
One Bush Street
San Francisco, CA 94104
Robert A. Keller
One Bush Street
San Francisco, CA 94104
Paul W. Noglows
One Bush Street
San Francisco, CA 94104
Hambrecht & Quist California
One Bush Street
San Francisco, CA 94104
Hambrecht & Quist Employee Venture Fund, L.P. II
One Bush Street
San Francisco, CA 94104
H&Q ImproveNet Investors, LLC
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Access Technology Partners, L.P.
One Bush Street
San Francisco, CA 94104
Access Technology Partners Brokers Fund, L.P.
One Bush Street
San Francisco, CA 94104
Gary Sledge
200 Galleria Parkway
Suite 1800
Atlanta, GA 30339
Kellett Partners, L.P.
200 Galleria Parkway
Suite 1800
Atlanta, GA 30339
Clear Fir Partners, LP
4303 54th Avenue, N.E.
Seattle, WA 98105
GG-JS Joint Venture, LLC
2000 First Avenue, Suite 1001
EXHIBIT A-6
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
Seattle, WA 98121
J2 JV, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Heidorn-Staenberg Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Staenberg Private Capital, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
KFIT-JRS Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Lum-Staenberg Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Carmel Fund LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Blackshirts Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
JR-JS JV, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Alco JV, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
GT-JS JV, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
ANV Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
With a copy to:
Randall L. Price
Karr Tuttle Campbell
1201 Third Avenue, Suite 2900
Seattle, WA 98101
EXHIBIT A-6
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
Lise Buyer
164 Selby Lane
Atherton, CA 94027
Danielle Iuliano
2400 Hanover Street
Palo Alto, CA 94304
Stanford University
2770 Sand Hill Road
Menlo Park, CA 94025
Charles M. Brown
P.O. Box 222e
785 Shiloh Road
Adamsville, TN 38310
Charles Fenton
4010 Cloverland Drive
Phoenix, MD 21131
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Owens Corning
One Owens Corning Boulevard
Toledo, OH 43659
The Dow Chemical Company
2030 Dow Center
Midland, MI 48674
E.I. du Pont de Nemours and Company
1007 Market Street
Wilmington, DE 19898
Attn: Global Financial Manager
Armstrong.Com Holding Co.
2500 Columbia Avenue
Lancaster, PA 17604
Attn: Marco Alvarez
QBB MGMT I, L.L.C.
11 Madison Avenue
New York, NY 10010
Attn: John Carroll
EXHIBIT A-6
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
<PAGE>
IMPROVENET, INC.
1996 STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON JANUARY 19, 1996
APPROVED BY STOCKHOLDERS ON JANUARY 19, 1996
AMENDED AND RESTATED BY THE BOARD OF DIRECTORS ON FEBRUARY 24, 1998
AMENDMENT AND RESTATEMENT APPROVED BY THE STOCKHOLDERS ON FEBRUARY 24, 1998
AMENDED AND RESTATED BY THE BOARD OF DIRECTORS ON MARCH 26, 1999
AMENDMENT AND RESTATEMENT APPROVED BY THE STOCKHOLDERS ON MARCH 26, 1999
AMENDED AND RESTATED BY THE BOARD OF DIRECTORS ON JULY 13, 1999
AMENDMENT AND RESTATEMENT APPROVED BY THE STOCKHOLDERS ON SEPTEMBER 10, 1999
AMENDED AND RESTATED BY THE BOARD OF DIRECTORS ON OCTOBER 12, 1999
AMENDED AND RESTATEMENT APPROVED BY THE STOCKHOLDERS ON NOVEMBER 22, 1999
TERMINATION DATE: JANUARY 18, 2006
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to
receive Options are the Employees, Directors and Consultants of the
Company and its Affiliates.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means
by which eligible recipients of Options may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of
the following Options: (i) Incentive Stock Options and (ii) Nonstatutory
Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive Options, to
secure and retain the services of new members of this group and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means ImproveNet, Inc., a Delaware corporation.
<PAGE>
(g) "CONSULTANT" means any person, including an advisor, (i) engaged
by the Company or an Affiliate to render consulting or advisory services and
who is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include
either Directors of the Company who are not compensated by the Company for
their services as Directors or Directors of the Company who are merely paid a
director's fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Optionholder's service with
the Company or an Affiliate, whether as an Employee, Director or Consultant,
is not interrupted or terminated. The Optionholder's Continuous Service shall
not be deemed to have terminated merely because of a change in the capacity
in which the Optionholder renders service to the Company or an Affiliate as
an Employee, Consultant or Director or a change in the entity for which the
Optionholder renders such service, provided that there is no interruption or
termination of the Optionholder's Continuous Service. For example, a change
in status from an Employee of the Company to a Consultant of an Affiliate or
a Director of the Company will not constitute an interruption of Continuous
Service. The Board or the chief executive officer of the Company, in that
party's sole discretion, may determine whether Continuous Service shall be
considered interrupted in the case of any leave of absence approved by that
party, including sick leave, military leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the
Company.
(k) "DISABILITY" means (i) before the Listing Date, the inability of
a person, in the opinion of a qualified physician acceptable to the Company,
to perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the
greatest volume of trading in the Common Stock) on the last market trading
day prior to the day of determination, as reported in THE WALL STREET JOURNAL
or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
2
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(iii) Prior to the Listing Date, the value of the Common
Stock shall be determined in a manner consistent with Section 260.140.50 of
Title 10 of the California Code of Regulations.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on
any securities exchange or designated (or approved for designation) upon
notice of issuance as a national market security on an interdealer quotation
system if such securities exchange or interdealer quotation system has been
certified in accordance with the provisions of Section 25100(o) of the
California Corporate Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who
either (i) is not a current Employee or Officer of the Company or its parent
or a subsidiary, does not receive compensation (directly or indirectly) from
the Company or its parent or a subsidiary for services rendered as a
consultant or in any capacity other than as a Director (except for an amount
as to which disclosure would not be required under Item 404(a) of Regulation
S-K promulgated pursuant to the Securities Act ("REGULATION S-K")), does not
possess an interest in any other transaction as to which disclosure would be
required under Item 404(a) of Regulation S-K and is not engaged in a business
relationship as to which disclosure would be required under Item 404(b) of
Regulation S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person
designated by the Company as an officer and (ii) on and after the Listing
Date, a person who is an officer of the Company within the meaning of Section
16 of the Exchange Act and the rules and regulations promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.
(w) "OUTSIDE DIRECTOR" means a Director of the Company who either
(i) is not a current employee of the Company or an "affiliated corporation"
(within the meaning of Treasury Regulations promulgated under Section 162(m)
of the Code), is not a former employee of the Company or an "affiliated
corporation" receiving compensation for prior services (other than benefits
under a tax qualified pension plan), was not an officer of the Company or an
"affiliated corporation" at any time and is not currently receiving direct or
indirect remuneration from the Company or an "affiliated corporation" for
services in any capacity other than as a Director or (ii) is otherwise
considered an "outside director" for purposes of Section 162(m) of the Code.
(x) "PLAN" means this ImproveNet, Inc. 1996 Stock Option Plan.
3.
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(y) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed
to own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan
unless and until the Board delegates administration to a Committee, as
provided in subsection 3(c) hereto.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how each Option
shall be granted; what type of Option shall be granted; the provisions of
each Option granted (which need not be identical), including the time or
times when a person shall be permitted to receive stock pursuant to an
Option; and the number of shares with respect to which an Option shall be
granted to each such person.
(ii) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in
a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or an Option as provided in Section 11
hereto.
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan
to a Committee or Committees of one or more members of the Board, and the term
"COMMITTEE" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY
TRADED. At such time as the Common Stock is publicly traded, in the discretion
of the Board, a Committee may consist solely of two or more Outside Directors,
in accordance with Section 162(m) of the Code, and/or solely of
4.
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two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the
scope of such authority, the Board or the Committee may (A) delegate to a
Committee of one or more members of the Board who are not Outside Directors
the authority to grant Options to eligible persons who are either (1) not
then Covered Employees and are not expected to be Covered Employees at the
time of recognition of income resulting from such Option or (2) not persons
with respect to whom the Company wishes to comply with Section 162(m) of the
Code and/or) (B) delegate to a Committee of one or more members of the Board
who are not Non-Employee Directors the authority to grant Options to eligible
persons who are not then subject to Section 16 of the Exchange Act. 4. SHARES
SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 10 relating
to adjustments upon changes in stock, the stock that may be issued pursuant
to Options shall not exceed in the aggregate two million seven hundred
thousand (2,700,000) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall
for any reason expire or otherwise terminate, in whole or in part, without
having been exercised in full, the stock not acquired under such Option shall
revert to and again become available for issuance under the Plan. If any
Common Stock acquired pursuant to the exercise of an Option shall for any
reason be repurchased by the Company under an unvested share repurchase
option provided under the Plan, the stock repurchased by the Company under
such repurchase option shall not revert to and again become available for
issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
(d) SHARE RESERVE LIMITATION. Prior to the Listing Date, at no time
shall the total number of shares issuable upon exercise of all outstanding
Options and the total number of shares provided for under any stock bonus or
similar plan of the Company exceed the applicable percentage as calculated in
accordance with the conditions and exclusions of Section 260.140.45 of Title
10 of the California Code of Regulations, based on the shares of the Company
which are outstanding at the time the calculation is made.1
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC OPTIONS. Incentive Stock
Options may be granted only to Employees. Nonstatutory Stock Options may be
granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent Stockholder shall be
eligible for the grant of an Incentive Stock Option unless the exercise price
of such Option is at least one hundred ten percent
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(1) Section 260.140.45 generally provides that the total number of shares
issuable upon exercise of all outstanding options (exclusive of certain rights)
and the total number of shares called for under any stock bonus or similar plan
shall not exceed a number of shares which is equal to 30% of the then
outstanding shares of the issuer (convertible preferred or convertible senior
common shares counted on an as if converted basis), exclusive of shares subject
to promotional waivers under Section 260.141, unless a percentage higher than
30% is approved by at least two-thirds of the outstanding shares entitled to
vote.
5.
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(110%) of the Fair Market Value of the Common Stock at the date of grant and
the Option is not exercisable after the expiration of five (5) years from the
date of grant.
Prior to the Listing Date, no Ten Percent Stockholder shall
be eligible for the grant of a Nonstatutory Stock Option unless the exercise
price of such Option is at least one hundred ten percent (110%) of the Fair
Market Value of the Common Stock at the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section
10 relating to adjustments upon changes in stock, no employee shall be
eligible to be granted Options covering more than six hundred thousand
(600,000) shares of the Common Stock during any calendar year. This
subsection 5(c) shall not apply prior to the Listing Date and, following the
Listing Date, this subsection 5(c) shall not apply until (i) the earliest of:
(A) the first material modification of the Plan (including any increase in
the number of shares reserved for issuance under the Plan in accordance with
Section 4); (B) the issuance of all of the shares of Common Stock reserved
for issuance under the Plan; (C) the expiration of the Plan; or (D) the first
meeting of stockholders at which Directors of the Company are to be elected
that occurs after the close of the third calendar year following the calendar
year in which occurred the first registration of an equity security under
Section 12 of the Exchange Act; or (ii) such other date required by Section
162(m) of the Code and the rules and regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and a separate certificate or certificates will be
issued for shares purchased on exercise of each type of Option. The
provisions of separate Options need not be identical, but each Option shall
include (through incorporation of provisions hereof by reference in the
Option or otherwise) the substance of each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Incentive Stock Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Incentive Stock Option may be granted with an exercise price lower than that
set forth in the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner satisfying the
provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Nonstatutory Stock Option granted prior to the Listing
Date shall be not less than eighty-five percent (85%) of the Fair Market
Value of the stock subject to the Option on the date the Option is granted.
The exercise price of each Nonstatutory Stock Option granted on or after the
Listing Date shall be not less than eighty-five percent (85%) of the Fair
Market Value of the stock subject to the Option on the date the Option is
granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be
granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution
for another option in a manner satisfying the provisions of Section 424(a) of
the Code.
6.
<PAGE>
(d) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii)
at the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) by (A) delivery to
the Company of other Common Stock, (B) according to a deferred payment or
other arrangement (which may include, without limiting the generality of the
foregoing, the use of other Common Stock) with the Optionholder or (C) in any
other form of legal consideration that may be acceptable to the Board;
provided, however, that at any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the
Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing provisions of this
subsection 6(e), the Optionholder may, by delivering written notice to the
Company, in a form satisfactory to the Company, designate a third party who,
in the event of the death of the Optionholder, shall thereafter be entitled
to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option granted prior to the Listing Date shall not be transferable
except by will or by the laws of descent and distribution and shall be
exercisable during the lifetime of the Optionholder only by the Optionholder.
A Nonstatutory Stock Option granted on or after the Listing Date shall be
transferable to the extent provided in the Option Agreement. If the
Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime
of the Optionholder only by the Optionholder. Notwithstanding the foregoing
provisions of this subsection 6(f), the Optionholder may, by delivering
written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionholder,
shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable
in periodic installments which may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may
be exercised (which may be based on performance or other criteria) as the
Board may deem appropriate. The vesting provisions of individual Options may
vary. The provisions of this subsection 6(g) are subject to any Option
provisions governing the minimum number of shares as to which an Option may
be exercised.
(h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), Options granted prior to the Listing Date shall
provide for vesting of the total number of shares at a rate of at least
twenty percent (20%) per year over five (5) years from the date the Option
was granted, subject to reasonable conditions such as continued employment.
However, in the case of such Options granted to Officers, Directors or
Consultants, the Option may become fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company; for example, the vesting provision of the Option
may provide for vesting of less than twenty percent (20%) per year of the
total number of shares subject to the Option.
7.
<PAGE>
(i) TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the
Optionholder's death or Disability), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise it as of
the date of termination) but only within such period of time ending on the
earlier of (i) the date three (3) months following the termination of the
Optionholder's Continuous Service (or such longer or shorter period specified
in the Option Agreement, which, for Options granted prior to the Listing
Date, shall not be less than thirty (30) days, unless such termination is for
cause), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise
his or her Option within the time specified in the Option Agreement, the
Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares would violate the registration requirements
under the Securities Act, then the Option shall terminate on the earlier of
(i) the expiration of the term of the Option set forth in subsection 6(a) or
(ii) the expiration of a period of three (3) months after the termination of
the Optionholder's Continuous Service during which the exercise of the Option
would not be in violation of such registration requirements.
(k) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability,
the Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise it as of the date of termination), but
only within such period of time ending on the earlier of (i) the date twelve
(12) months following such termination (or such longer or shorter period
specified in the Option Agreement, which, for Options granted prior to the
Listing Date, shall not be less than six (6) months) or (ii) the expiration
of the term of the Option as set forth in the Option Agreement. If, after
termination, the Optionholder does not exercise his or her Option within the
time specified herein, the Option shall terminate.
(l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for
a reason other than death, then the Option may be exercised (to the extent
the Optionholder was entitled to exercise the Option as of the date of death)
by the Optionholder's estate, by a person who acquired the right to exercise
the Option by bequest or inheritance or by a person designated to exercise
the option upon the Optionholder's death pursuant to subsection 6(e) or 6(f),
but only within the period ending on the earlier of (A) the date eighteen
(18) months following the date of death (or such longer or shorter period
specified in the Option Agreement, which, for Options granted prior to the
Listing Date, shall not be less than six (6) months) or (B) the expiration of
the term of such Option as set forth in the Option Agreement. If, after
death, the Option is not exercised within the time specified herein, the
Option shall terminate.
(m) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as to any
part or all of the shares subject to the Option prior to the full vesting of
the Option. Subject to the "Repurchase Limitation" in subsection 9(h), any
unvested shares so purchased may be subject to an unvested share repurchase
option in favor of the Company or to any other restriction the Board
determines to be appropriate.
8.
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(n) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in
subsection 9(h), the Option may, but need not, include a provision whereby
the Company may elect, prior to the Listing Date, to repurchase all or any
part of the vested shares acquired by the Optionholder pursuant to the
exercise of the Option.
(o) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to
exercise a right of first refusal following receipt of notice from the
Optionholder of the intent to transfer all or any part of the shares
exercised pursuant to the Option. Except as expressly provided in this
subsection 6(o), such right of first refusal shall otherwise comply with any
applicable provisions of the Bylaws of the Company.
(p) RE-LOAD OPTIONS. Without in any way limiting the authority of
the Board to make or not to make grants of Options hereunder, the Board shall
have the authority (but not an obligation) to include as part of any Option
Agreement a provision entitling the Optionholder to a further Option (a
"RE-LOAD OPTION") in the event the Optionholder exercises the Option
evidenced by the Option Agreement, in whole or in part, by surrendering other
shares of Common Stock in accordance with this Plan and the terms and
conditions of the Option Agreement. Any such Re-Load Option shall (i) provide
for a number of shares equal to the number of shares surrendered as part or
all of the exercise price of such Option; (ii) have an expiration date which
is the same as the expiration date of the Option the exercise of which gave
rise to such Re-Load Option; and (iii) have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option shall be subject to the same
exercise price and term provisions heretofore described for Options under the
Plan.
Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollars ($100,000) annual limitation on exercisability of Incentive Stock
Options described in subsection 9(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall
be subject to the availability of sufficient shares under subsection 4(a) and
the "Section 162(m) Limitation" on the grants of Options under subsection 5(c)
and shall be subject to such other terms and conditions as the Board may
determine which are not inconsistent with the express provisions of the Plan
regarding the terms of Options.
7. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from any
such regulatory commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under the Plan, the
Company shall be relieved from any liability for failure to issue and sell stock
upon exercise of such Options unless and until such authority is obtained.
9.
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8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which an Option may first be exercised or
the time during which an Option or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Option stating the time
at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Option unless and until such Optionholder has
satisfied all requirements for exercise of the Option pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or
any instrument executed or Option granted pursuant thereto shall confer upon
any Optionholder any right to continue to serve the Company or an Affiliate
in the capacity in effect at the time the Option was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of
an Employee with or without notice and with or without cause, (ii) the
service of a Consultant pursuant to the terms of such Consultant's agreement
with the Company or an Affiliate or (iii) the service of a Director pursuant
to the Bylaws of the Company or an Affiliate, and any applicable provisions
of the corporate law of the state in which the Company or the Affiliate is
incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that
the aggregate Fair Market Value (determined at the time of grant) of stock
with respect to which Incentive Stock Options are exercisable for the first
time by any Optionholder during any calendar year (under all plans of the
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
the Options or portions thereof which exceed such limit (according to the
order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(e) INVESTMENT ASSURANCES. The Company may require an Optionholder,
as a condition of exercising or acquiring stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to
give written assurances satisfactory to the Company stating that the
Optionholder is acquiring the stock subject to the Option for the
Optionholder's own account and not with any present intention of selling or
otherwise distributing the stock. The foregoing requirements, and any
assurances given pursuant to such requirements, shall be inoperative if (A)
the issuance of the shares upon the exercise or acquisition of stock under
the Option has been registered under a then currently effective registration
statement under the Securities Act or (B) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need
not be met in the circumstances under the then applicable securities laws.
The Company may, upon advice of counsel to the Company, place legends on
stock certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including,
but not limited to, legends restricting the transfer of the stock.
10.
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(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of
an Option Agreement, the Optionholder may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of stock
under an Option by any of the following means (in addition to the Company's
right to withhold from any compensation paid to the Optionholder by the
Company) or by a combination of such means: (i) tendering a cash payment;
(ii) authorizing the Company to withhold shares from the shares of the Common
Stock otherwise issuable to the Optionholder as a result of the exercise or
acquisition of stock under the Option; or (iii) delivering to the Company
owned and unencumbered shares of the Common Stock.
(g) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Optionholders at
least annually. This subsection 9(g) shall not apply to key Employees whose
duties in connection with the Company assure them access to equivalent
information.
(h) REPURCHASE LIMITATION. The terms of any repurchase option shall be
specified in the Option and may be either at Fair Market Value at the time of
repurchase or at not less than the original purchase price. To the extent
required by Section 260.140.41 and Section 260.140.42 of Title 10 of the
California Code of Regulations, any repurchase option contained in an Option
granted prior to the Listing Date to a person who is not an Officer, Director or
Consultant shall be upon the terms described below:
(i) FAIR MARKET VALUE. If the repurchase option gives the
Company the right to repurchase the shares upon termination of employment at not
less than the Fair Market Value of the shares to be purchased on the date of
termination of Continuous Service, then (A) the right to repurchase shall be
exercised for cash or cancellation of purchase money indebtedness for the shares
within ninety (90) days of termination of Continuous Service (or in the case of
shares issued upon exercise of Options after such date of termination, within
ninety (90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Optionholder (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock") and (B) the right terminates when the shares
become publicly traded.
(ii) ORIGINAL PURCHASE PRICE. If the repurchase option gives
the Company the right to repurchase the shares upon termination of Continuous
Service at the original purchase price, then (A) the right to repurchase at the
original purchase price shall lapse at the rate of at least twenty percent (20%)
of the shares per year over five (5) years from the date the Option is granted
(without respect to the date the Option was exercised or became exercisable) and
(B) the right to repurchase shall be exercised for cash or cancellation of
purchase money indebtedness for the shares within ninety (90) days of
termination of Continuous Service (or in the case of shares issued upon exercise
of Options after such date of termination, within ninety (90) days after the
date of the exercise) or such longer period as may be agreed to by the Company
and the Optionholder (for example, for purposes of satisfying the requirements
of Section 1202(c)(3) of the Code regarding "qualified small business stock").
(i) CANCELLATION AND RE-GRANT OF OPTIONS.
(i) AUTHORITY TO REPRICE. The Board shall have the authority
to effect, at any time and from time to time, (i) the repricing of any
outstanding Options under the Plan and/or (ii) with the consent of any adversely
affected holders of Options, the cancellation of any outstanding Options under
the Plan and the grant in substitution therefor of new Options under the Plan
covering the same or different numbers of shares of Common Stock. The exercise
price per share shall be not less than that
11.
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specified under the Plan for newly granted Options. Notwithstanding the
foregoing, the Board may grant an Option with an exercise price lower than
that set forth above if such Option is granted as part of a transaction to
which Section 424(a) of the Code applies.
(ii) EFFECT OF REPRICING UNDER SECTION 162(M) OF THE CODE.
Shares subject to an Option which is amended or canceled in order to set a lower
exercise price per share shall continue to be counted against the maximum award
of Options permitted to be granted pursuant to subsection 5(c). The repricing of
an Option under this subsection 9(ii) resulting in a reduction of the exercise
price shall be deemed to be a cancellation of the original Option and the grant
of a substitute Option; in the event of such repricing, both the original and
the substituted Options shall be counted against the maximum awards of Options
permitted to be granted pursuant to subsection 5(c). The provisions of this
subsection 9(i)(ii) shall be applicable only to the extent required by Section
162(m) of the Code.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Options
will be appropriately adjusted in the class(es) and number of securities and
price per share of stock subject to such outstanding Options. The Board, the
determination of which shall be final, binding and conclusive, shall make such
adjustments. (The conversion of any convertible securities of the Company shall
not be treated as a transaction "without receipt of consideration" by the
Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then such Options shall be terminated
if not exercised (if applicable) prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale of substantially all of the assets of the
Company, (ii) a merger or consolidation in which the Company is not the
surviving corporation or (iii) a reverse merger in which the Company is the
surviving corporation but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then any surviving
corporation or acquiring corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options (including an option to acquire the
same consideration paid to the stockholders in the transaction described in this
subsection 10(c) for those outstanding under the Plan. In the event any
surviving corporation or acquiring corporation refuses to assume such Options or
to substitute similar Options for those outstanding under the Plan, then with
respect to Options held by Optionholders whose Continuous Service has not
terminated, the vesting of such Options shall be accelerated in full, and the
Options shall terminate if not exercised at or prior to such event. With respect
to any other Options outstanding under the Plan, such Options shall terminate if
not exercised prior to such event.
12.
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11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 10 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or advisable
to provide eligible Employees with the maximum benefits provided or to be
provided under the provisions of the Code and the regulations promulgated
thereunder relating to Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(e) AMENDMENT OF OPTIONS. The Board at any time, and from time to time,
may amend the terms of any one or more Options; provided, however, that the
rights under any Option shall not be impaired by any such amendment unless (i)
the Company requests the consent of the Optionholder and (ii) the Optionholder
consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Options may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Option granted while the Plan
is in effect except with the written consent of the Optionholder.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Option shall be exercised unless and until the Plan has been approved by the
stockholders of the Company, which approval shall be within twelve (12) months
before or after the date the Plan is adopted by the Board.
13.
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IMPROVENET, INC.
1999 EQUITY INCENTIVE PLAN
ADOPTED December 3, 1999
APPROVED BY STOCKHOLDERS _______________, ______
TERMINATION DATE: December 2, 2009
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the Company and
its Affiliates.
(b) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given an
opportunity to benefit from increases in value of the Common Stock through
the granting of the following Stock Awards: (i) Incentive Stock Options, (ii)
Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to acquire
restricted stock.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive Stock Awards,
to secure and retain the services of new members of this group and to provide
incentives for such persons to exert maximum efforts for the success of the
Company and its Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing, as those terms
are defined in Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the
Board appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means ImproveNet, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged
by the Company or an Affiliate to render consulting or advisory services and
who is compensated for such services or (ii) who is a member of the Board of
Directors of an Affiliate. However, the term "Consultant" shall not include
either Directors who are not compensated by the Company
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for their services as Directors or Directors who are merely paid a director's
fee by the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with
the Company or an Affiliate, whether as an Employee, Director or Consultant,
is not interrupted or terminated. The Participant's Continuous Service shall
not be deemed to have terminated merely because of a change in the capacity
in which the Participant renders service to the Company or an Affiliate as an
Employee, Consultant or Director or a change in the entity for which the
Participant renders such service, provided that there is no interruption or
termination of the Participant's Continuous Service. For example, a change in
status from an Employee of the Company to a Consultant of an Affiliate or a
Director will not constitute an interruption of Continuous Service. The Board
or the chief executive officer of the Company, in that party's sole
discretion, may determine whether Continuous Service shall be considered
interrupted in the case of any leave of absence approved by that party,
including sick leave, military leave or any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the
Company.
(k) "DISABILITY" means (i) before the Listing Date, the inability of
a person, in the opinion of a qualified physician acceptable to the Company,
to perform the major duties of that person's position with the Company or an
Affiliate of the Company because of the sickness or injury of the person and
(ii) after the Listing Date, the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
Market, the Fair Market Value of a share of Common Stock shall be the closing
sales price for such stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or market with the
greatest volume of trading in the Common Stock) on the last market trading
day prior to the day of determination, as reported in THE WALL STREET JOURNAL
or such other source as the Board deems reliable.
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(ii) In the absence of such markets for the Common Stock,
the Fair Market Value shall be determined in good faith by the Board.
(iii) Prior to the Listing Date, the value of the Common
Stock shall be determined in a manner consistent with Section 260.140.50 of
Title 10 of the California Code of Regulations.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on
any securities exchange or designated (or approved for designation) upon
notice of issuance as a national market security on an interdealer quotation
system if such securities exchange or interdealer quotation system has been
certified in accordance with the provisions of Section 25100(o) of the
California Corporate Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary,
does not receive compensation (directly or indirectly) from the Company or
its parent or a subsidiary for services rendered as a consultant or in any
capacity other than as a Director (except for an amount as to which
disclosure would not be required under Item 404(a) of Regulation S-K
promulgated pursuant to the Securities Act ("Regulation S-K")), does not
possess an interest in any other transaction as to which disclosure would be
required under Item 404(a) of Regulation S-K and is not engaged in a business
relationship as to which disclosure would be required under Item 404(b) of
Regulation S-K; or (ii) is otherwise considered a "non-employee director" for
purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(s) "OFFICER" means (i) before the Listing Date, any person
designated by the Company as an officer and (ii) on and after the Listing
Date, a person who is an officer of the Company within the meaning of Section
16 of the Exchange Act and the rules and regulations promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Option.
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(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of Treasury Regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who holds an
outstanding Stock Award.
(y) "PLAN" means this ImproveNet, Inc. 1999 Equity Incentive Plan.
(z) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including
an Option, a stock bonus and a right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and conditions of
an individual Stock Award grant. Each Stock Award Agreement shall be subject
to the terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed
to own pursuant to Section 424(d) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of
the Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan
unless and until the Board delegates administration to a Committee, as
provided in subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards; when and how each
Stock Award shall be granted; what type or combination of types of Stock
Award shall be granted; the provisions of each Stock Award granted (which
need not be identical), including the time or times when a person shall be
permitted to receive Common Stock pursuant to a Stock Award; and the number
of shares of Common Stock with respect to which a Stock Award shall be
granted to each such person.
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(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke rules and regulations
for its administration. The Board, in the exercise of this power, may correct
any defect, omission or inconsistency in the Plan or in any Stock Award
Agreement, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) Generally, to exercise such powers and to perform
such acts as the Board deems necessary or expedient to promote the best
interests of the Company which are not in conflict with the provisions of the
Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the
Plan to a Committee or Committees of one (1) or more members of the Board,
and the term "Committee" shall apply to any person or persons to whom such
authority has been delegated. If administration is delegated to a Committee,
the Committee shall have, in connection with the administration of the Plan,
the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee any of the administrative powers the Committee is
authorized to exercise (and references in this Plan to the Board shall
thereafter be to the Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board may abolish the Committee
at any time and revest in the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY
TRADED. At such time as the Common Stock is publicly traded, in the
discretion of the Board, a Committee may consist solely of two or more
Outside Directors, in accordance with Section 162(m) of the Code, and/or
solely of two or more Non-Employee Directors, in accordance with Rule 16b-3.
Within the scope of such authority, the Board or the Committee may (1)
delegate to a committee of one or more members of the Board who are not
Outside Directors the authority to grant Stock Awards to eligible persons who
are either (a) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Stock
Award or (b) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code and/or) (2) delegate to a committee of one or
more members of the Board who are not Non-Employee Directors the authority to
grant Stock Awards to eligible persons who are not then subject to Section 16
of the Exchange Act.
(d) EFFECT OF BOARD'S DECISION. All determinations, interpretations
and constructions made by the Board in good faith shall not be subject to
review by any person and shall be final, binding and conclusive on all
persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating
to adjustments upon changes in Common Stock, the Common Stock that may be
issued pursuant to Stock
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Awards shall not exceed in the aggregate 1,400,000 (one million four hundred
thousand) shares of Common Stock, plus an annual increase to be added each
January 1, beginning with January 1, 2001, equal to the lesser of (i) four
percent (4%) of the total number of shares of Common Stock outstanding on
such January 1 or (ii) 1,400,000 (one million four hundred thousand) shares of
Common Stock. Notwithstanding the foregoing, the Board may designate a
smaller number of shares of Common Stock to be added to the share reserve as
of a particular January 1.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the shares of Common Stock not
acquired under such Stock Award shall revert to and again become available
for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan
may be unissued shares or reacquired shares, bought on the market or
otherwise.
(d) SHARE RESERVE LIMITATION. Prior to the Listing Date and to the
extent then required by Section 260.140.45 of Title 10 of the California Code
of Regulations, the total number of shares of Common Stock issuable upon
exercise of all outstanding Options and the total number of shares of Common
Stock provided for under any stock bonus or similar plan of the Company shall
not exceed the applicable percentage as calculated in accordance with the
conditions and exclusions of Section 260.140.45 of Title 10 of the California
Code of Regulations, based on the shares of Common Stock of the Company that
are outstanding at the time the calculation is made.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options
may be granted only to Employees. Stock Awards other than Incentive Stock
Options may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS.
(i) A Ten Percent Stockholder shall not be granted an
Incentive Stock Option unless the exercise price of such Option is at least
one hundred ten percent (110%) of the Fair Market Value of the Common Stock
at the date of grant and the Option is not exercisable after the expiration
of five (5) years from the date of grant.
(ii) Prior to the Listing Date, a Ten Percent Stockholder
shall not be granted a Nonstatutory Stock Option unless the exercise price of
such Option is at least (i) one hundred ten percent (110%) of the Fair Market
Value of the Common Stock at the date of grant or (ii) such lower percentage
of the Fair Market Value of the Common Stock at the date of grant as is
permitted by Section 260.140.41 of Title 10 of the California Code of
Regulations at the time of the grant of the Option.
(iii) Prior to the Listing Date, a Ten Percent Stockholder
shall not be granted a restricted stock award unless the purchase price of the
restricted stock is at least (i) one hundred
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percent (100%) of the Fair Market Value of the Common Stock at the date of grant
or (ii) such lower percentage of the Fair Market Value of the Common Stock at
the date of grant as is permitted by Section 260.140.41 of Title 10 of the
California Code of Regulations at the time of the grant of the Option.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than two million five
hundred thousand (2,500,000) shares of Common Stock during any calendar year.
This subsection 5(c) shall not apply prior to the Listing Date and, following
the Listing Date, this subsection 5(c) shall not apply until (i) the earliest
of: (1) the first material modification of the Plan (including any increase in
the number of shares of Common Stock reserved for issuance under the Plan in
accordance with Section 4); (2) the issuance of all of the shares of Common
Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or
(4) the first meeting of stockholders at which Directors are to be elected that
occurs after the close of the third calendar year following the calendar year in
which occurred the first registration of an equity security under Section 12 of
the Exchange Act; or (ii) such other date required by Section 162(m) of the Code
and the rules and regulations promulgated thereunder.
(d) CONSULTANTS.
(i) Prior to the Listing Date, a Consultant shall not be
eligible for the grant of a Stock Award if, at the time of grant, either the
offer or the sale of the Company's securities to such Consultant is not exempt
under Rule 701 of the Securities Act ("Rule 701") because of the nature of the
services that the Consultant is providing to the Company, or because the
Consultant is not a natural person, or as otherwise provided by Rule 701, unless
the Company determines that such grant need not comply with the requirements of
Rule 701 and will satisfy another exemption under the Securities Act as well as
comply with the securities laws of all other relevant jurisdictions.
(ii) From and after the Listing Date, a Consultant shall
not be eligible for the grant of a Stock Award if, at the time of grant, a
Form S-8 Registration Statement under the Securities Act ("Form S-8") is not
available to register either the offer or the sale of the Company's
securities to such Consultant because of the nature of the services that the
Consultant is providing to the Company, or because the Consultant is not a
natural person, or as otherwise provided by the rules governing the use of
Form S-8, unless the Company determines both (i) that such grant (A) shall be
registered in another manner under the Securities Act (E.G., on a Form S-3
Registration Statement) or (B) does not require registration under the
Securities Act in order to comply with the requirements of the Securities
Act, if applicable, and (ii) that such grant complies with the securities
laws of all other relevant jurisdictions.
(iii) Rule 701 and Form S-8 generally are available to
consultants and advisors only if (i) they are natural persons; (ii) they
provide bona fide services to the issuer, its parents, its majority-owned
subsidiaries or majority-owned subsidiaries of the issuer's parent; and (iii)
the services are not in connection with the offer or sale of securities in a
capital-raising transaction, and do not directly or indirectly promote or
maintain a market for the issuer's securities.
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6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be
separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and, if certificates are issued, a separate certificate
or certificates will be issued for shares of Common Stock purchased on
exercise of each type of Option. The provisions of separate Options need not
be identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of
each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Option granted prior to the Listing Date shall be
exercisable after the expiration of ten (10) years from the date it was
granted, and no Incentive Stock Option granted on or after the Listing Date
shall be exercisable after the expiration of ten (10) years from the date it
was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Incentive Stock Option shall be not less than one
hundred percent (100%) of the Fair Market Value of the Common Stock subject
to the Option on the date the Option is granted. Notwithstanding the
foregoing, an Incentive Stock Option may be granted with an exercise price
lower than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the
provisions of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Nonstatutory Stock Option granted prior to the Listing
Date shall be not less than eighty-five percent (85%) of the Fair Market
Value of the Common Stock subject to the Option on the date the Option is
granted. The exercise price of each Nonstatutory Stock Option granted on or
after the Listing Date shall be not less than eighty-five percent (85%) of
the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of
Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the Option is
exercised or (ii) at the discretion of the Board at the time of the grant of
the Option (or subsequently in the case of a Nonstatutory Stock Option) (1)
by delivery to the Company of other Common Stock, (2) according to a deferred
payment or other similar arrangement with the Optionholder or (3) in any
other form of legal consideration that may be acceptable to the Board. Unless
otherwise specifically provided in the Option, the purchase price of Common
Stock acquired pursuant to an Option that is paid by delivery to the Company
of other Common Stock acquired, directly or indirectly from the Company,
shall be paid only by shares of the Common Stock of the Company that have
been held for more than six (6) months
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<PAGE>
(or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by
deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder
may, by delivering written notice to the Company, in a form satisfactory to
the Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory
Stock Option granted prior to the Listing Date shall not be transferable
except by will or by the laws of descent and distribution and, to the extent
provided in the Option Agreement, to such further extent as permitted by
Section 260.140.41(d) of Title 10 of the California Code of Regulations at
the time of the grant of the Option, and shall be exercisable during the
lifetime of the Optionholder only by the Optionholder. A Nonstatutory Stock
Option granted on or after the Listing Date shall be transferable to the
extent provided in the Option Agreement. If the Nonstatutory Stock Option
does not provide for transferability, then the Nonstatutory Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder
may, by delivering written notice to the Company, in a form satisfactory to
the Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore become exercisable
in periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may
be exercised (which may be based on performance or other criteria) as the
Board may deem appropriate. The vesting provisions of individual Options may
vary. The provisions of this subsection 6(g) are subject to any Option
provisions governing the minimum number of shares of Common Stock as to which
an Option may be exercised.
(h) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the
foregoing subsection 6(g), to the extent that the following restrictions on
vesting are required by Section 260.140.41(f) of Title 10 of the California
Code of Regulations at the time of the grant of the Option, then:
(i) Options granted prior to the Listing Date to an
Employee who is not an Officer, Director or Consultant shall provide for
vesting of the total number of shares of
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<PAGE>
Common Stock at a rate of at least twenty percent (20%) per year over five
(5) years from the date the Option was granted, subject to reasonable
conditions such as continued employment; and
(ii) Options granted prior to the Listing Date to Officers,
Directors or Consultants may be made fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company.
(i) TERMINATION OF CONTINUOUS SERVICE. In the event an
Optionholder's Continuous Service terminates (other than upon the
Optionholder's death or Disability), the Optionholder may exercise his or her
Option (to the extent that the Optionholder was entitled to exercise such
Option as of the date of termination) but only within such period of time
ending on the earlier of (i) the date three (3) months following the
termination of the Optionholder's Continuous Service (or such longer or
shorter period specified in the Option Agreement, which period shall not be
less than thirty (30) days for Options granted prior to the Listing Date
unless such termination is for cause), or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified in
the Option Agreement, the Option shall terminate.
(j) EXTENSION OF TERMINATION DATE. An Optionholder's Option
Agreement may also provide that if the exercise of the Option following the
termination of the Optionholder's Continuous Service (other than upon the
Optionholder's death or Disability) would be prohibited at any time solely
because the issuance of shares of Common Stock would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in
subsection 6(a) or (ii) the expiration of a period of three (3) months after
the termination of the Optionholder's Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.
(k) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability,
the Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise such Option as of the date of
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement, which period shall not be
less than six (6) months for Options granted prior to the Listing Date) or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, after termination, the Optionholder does not exercise his or
her Option within the time specified herein, the Option shall terminate.
(l) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the period (if any) specified in the Option
Agreement after the termination of the Optionholder's Continuous Service for
a reason other than death, then the Option may be exercised (to the extent
the Optionholder was entitled to exercise such Option as of the date of
death) by the Optionholder's estate, by a person who acquired the right to
exercise the Option by bequest or inheritance or by a person designated to
exercise the option upon the Optionholder's death
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<PAGE>
pursuant to subsection 6(e) or 6(f), but only within the period ending on the
earlier of (1) the date eighteen (18) months following the date of death (or
such longer or shorter period specified in the Option Agreement, which period
shall not be less than six (6) months for Options granted prior to the Listing
Date) or (2) the expiration of the term of such Option as set forth in the
Option Agreement. If, after death, the Option is not exercised within the time
specified herein, the Option shall terminate.
(m) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionholder may elect at any time before the
Optionholder's Continuous Service terminates to exercise the Option as to any
part or all of the shares of Common Stock subject to the Option prior to the
full vesting of the Option. Subject to the "Repurchase Limitation" in
subsection 10(h), any unvested shares of Common Stock so purchased may be
subject to a repurchase option in favor of the Company or to any other
restriction the Board determines to be appropriate. Provided that the
"Repurchase Limitation" in subsection 10(h) is not violated, the Company will
not exercise its repurchase option until at least six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes) have elapsed following exercise of the Option
unless the Board otherwise specifically provides in the Option.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board shall deem
appropriate. The terms and conditions of stock bonus agreements may change
from time to time, and the terms and conditions of separate stock bonus
agreements need not be identical, but each stock bonus agreement shall
include (through incorporation of provisions hereof by reference in the
agreement or otherwise) the substance of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in
consideration for past services actually rendered to the Company or an
Affiliate for its benefit.
(ii) VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor
of the Company in accordance with a vesting schedule to be determined by the
Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE.
Subject to the "Repurchase Limitation" in subsection 10(h), in the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not
vested as of the date of termination under the terms of the stock bonus
agreement.
(iv) TRANSFERABILITY. For a stock bonus award made before
the Listing Date, rights to acquire shares of Common Stock under the stock
bonus agreement shall not be transferable except by will or by the laws of
descent and distribution and shall be exercisable during the lifetime of the
Participant only by the Participant. For a stock bonus award made on
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<PAGE>
or after the Listing Date, rights to acquire shares of Common Stock under the
stock bonus agreement shall be transferable by the Participant only upon such
terms and conditions as are set forth in the stock bonus agreement, as the
Board shall determine in its discretion, so long as Common Stock awarded
under the stock bonus agreement remains subject to the terms of the stock
bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and conditions
as the Board shall deem appropriate. The terms and conditions of the
restricted stock purchase agreements may change from time to time, and the
terms and conditions of separate restricted stock purchase agreements need
not be identical, but each restricted stock purchase agreement shall include
(through incorporation of provisions hereof by reference in the agreement or
otherwise) the substance of each of the following provisions:
(i) PURCHASE PRICE. Subject to the provisions of
subsection 5(b) regarding Ten Percent Stockholders, the purchase price under
each restricted stock purchase agreement shall be such amount as the Board
shall determine and designate in such restricted stock purchase agreement.
For restricted stock awards made prior to the Listing Date, the purchase
price shall not be less than eighty-five percent (85%) of the Common Stock's
Fair Market Value on the date such award is made or at the time the purchase
is consummated. For restricted stock awards made on or after the Listing
Date, the purchase price shall not be less than eighty-five percent (85%) of
the Common Stock's Fair Market Value on the date such award is made or at the
time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of Common Stock
acquired pursuant to the restricted stock purchase agreement shall be paid
either: (i) in cash at the time of purchase; (ii) at the discretion of the
Board, according to a deferred payment or other similar arrangement with the
Participant; or (iii) in any other form of legal consideration that may be
acceptable to the Board in its discretion; provided, however, that at any
time that the Company is incorporated in Delaware, then payment of the Common
Stock's "par value," as defined in the Delaware General Corporation Law,
shall not be made by deferred payment.
(iii) VESTING. Subject to the "Repurchase Limitation" in
subsection 10(h), shares of Common Stock acquired under the restricted stock
purchase agreement may, but need not, be subject to a share repurchase option
in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE.
Subject to the "Repurchase Limitation" in subsection 10(h), in the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the
terms of the restricted stock purchase agreement.
(v) TRANSFERABILITY. For a restricted stock award made
before the Listing Date, rights to acquire shares of Common Stock under the
restricted stock purchase agreement shall not be transferable except by will
or by the laws of descent and distribution and shall be
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<PAGE>
exercisable during the lifetime of the Participant only by the Participant.
For a restricted stock award made on or after the Listing Date, rights to
acquire shares of Common Stock under the restricted stock purchase agreement
shall be transferable by the Participant only upon such terms and conditions
as are set forth in the restricted stock purchase agreement, as the Board
shall determine in its discretion, so long as Common Stock awarded under the
restricted stock purchase agreement remains subject to the terms of the
restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards,
the Company shall keep available at all times the number of shares of Common
Stock required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Stock Awards and to issue and sell
shares of Common Stock upon exercise of the Stock Awards; provided, however,
that this undertaking shall not require the Company to register under the
Securities Act the Plan, any Stock Award or any Common Stock issued or
issuable pursuant to any such Stock Award. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful
issuance and sale of Common Stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell Common Stock upon
exercise of such Stock Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards
shall constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which a Stock Award may first be
exercised or the time during which a Stock Award or any part thereof will
vest in accordance with the Plan, notwithstanding the provisions in the Stock
Award stating the time at which it may first be exercised or the time during
which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any
shares of Common Stock subject to such Stock Award unless and until such
Participant has satisfied all requirements for exercise of the Stock Award
pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or
any instrument executed or Stock Award granted pursuant thereto shall confer
upon any Participant any right to continue to serve the Company or an
Affiliate in the capacity in effect at the time the Stock Award was granted
or shall affect the right of the Company or an Affiliate to terminate (i) the
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employment of an Employee with or without notice and with or without cause,
(ii) the service of a Consultant pursuant to the terms of such Consultant's
agreement with the Company or an Affiliate or (iii) the service of a Director
pursuant to the Bylaws of the Company or an Affiliate, and any applicable
provisions of the corporate law of the state in which the Company or the
Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that
the aggregate Fair Market Value (determined at the time of grant) of Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by any Optionholder during any calendar year (under all plans of
the Company and its Affiliates) exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit
(according to the order in which they were granted) shall be treated as
Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as
a condition of exercising or acquiring Common Stock under any Stock Award,
(i) to give written assurances satisfactory to the Company as to the
Participant's knowledge and experience in financial and business matters
and/or to employ a purchaser representative reasonably satisfactory to the
Company who is knowledgeable and experienced in financial and business
matters and that he or she is capable of evaluating, alone or together with
the purchaser representative, the merits and risks of exercising the Stock
Award; and (ii) to give written assurances satisfactory to the Company
stating that the Participant is acquiring Common Stock subject to the Stock
Award for the Participant's own account and not with any present intention of
selling or otherwise distributing the Common Stock. The foregoing
requirements, and any assurances given pursuant to such requirements, shall
be inoperative if (1) the issuance of the shares of Common Stock upon the
exercise or acquisition of Common Stock under the Stock Award has been
registered under a then currently effective registration statement under the
Securities Act or (2) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may,
upon advice of counsel to the Company, place legends on stock certificates
issued under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited to,
legends restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of
a Stock Award Agreement, the Participant may satisfy any federal, state or
local tax withholding obligation relating to the exercise or acquisition of
Common Stock under a Stock Award by any of the following means (in addition
to the Company's right to withhold from any compensation paid to the
Participant by the Company) or by a combination of such means: (i) tendering
a cash payment; (ii) authorizing the Company to withhold shares of Common
Stock from the shares of Common Stock otherwise issuable to the Participant
as a result of the exercise or acquisition of Common Stock under the Stock
Award, provided, however, that no shares of Common Stock are withheld with a
value exceeding the minimum amount of tax required to be withheld by law; or
(iii) delivering to the Company owned and unencumbered shares of Common Stock.
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(g) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent
required by Section 260.140.46 of Title 10 of the California Code of
Regulations, the Company shall deliver financial statements to Participants
at least annually. This subsection 10(g) shall not apply to key Employees
whose duties in connection with the Company assure them access to equivalent
information.
(h) REPURCHASE LIMITATION. The terms of any repurchase option shall
be specified in the Stock Award and may be either at Fair Market Value at the
time of repurchase or at not less than the original purchase price. To the
extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of
the California Code of Regulations at the time a Stock Award is made, any
repurchase option contained in a Stock Award granted prior to the Listing
Date to a person who is not an Officer, Director or Consultant shall be upon
the terms described below:
(i) FAIR MARKET VALUE. If the repurchase option gives the
Company the right to repurchase the shares of Common Stock upon termination
of employment at not less than the Fair Market Value of the shares of Common
Stock to be purchased on the date of termination of Continuous Service, then
(i) the right to repurchase shall be exercised for cash or cancellation of
purchase money indebtedness for the shares of Common Stock within ninety (90)
days of termination of Continuous Service (or in the case of shares of Common
Stock issued upon exercise of Stock Awards after such date of termination,
within ninety (90) days after the date of the exercise) or such longer period
as may be agreed to by the Company and the Participant (for example, for
purposes of satisfying the requirements of Section 1202(c)(3) of the Code
regarding "qualified small business stock") and (ii) the right terminates
when the shares of Common Stock become publicly traded.
(ii) ORIGINAL PURCHASE PRICE. If the repurchase option
gives the Company the right to repurchase the shares of Common Stock upon
termination of Continuous Service at the original purchase price, then (i)
the right to repurchase at the original purchase price shall lapse at the
rate of at least twenty percent (20%) of the shares of Common Stock per year
over five (5) years from the date the Stock Award is granted (without respect
to the date the Stock Award was exercised or became exercisable) and (ii) the
right to repurchase shall be exercised for cash or cancellation of purchase
money indebtedness for the shares of Common Stock within ninety (90) days of
termination of Continuous Service (or in the case of shares of Common Stock
issued upon exercise of Options after such date of termination, within ninety
(90) days after the date of the exercise) or such longer period as may be
agreed to by the Company and the Participant (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code regarding
"qualified small business stock").
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common
Stock subject to the Plan, or subject to any Stock Award, without the receipt
of consideration by the Company (through merger, consolidation,
reorganization, recapitalization, reincorporation, stock dividend, dividend
in property other than cash, stock split, liquidating dividend, combination
of shares, exchange of shares, change in corporate structure or other
transaction not involving the receipt of consideration by the Company), the
Plan will be appropriately adjusted in the class(es) and maximum number of
securities subject to the Plan pursuant to subsection 4(a) and the maximum
number of securities subject to award to any person pursuant to subsection
5(c), and the outstanding Stock Awards will be appropriately adjusted in the
class(es)
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and number of securities and price per share of Common Stock subject to such
outstanding Stock Awards. The Board shall make such adjustments, and its
determination shall be final, binding and conclusive. (The conversion of any
convertible securities of the Company shall not be treated as a transaction
"without receipt of consideration" by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation or (iii)
a reverse merger in which the Company is the surviving corporation but the
shares of Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then any surviving corporation or acquiring
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar stock awards (including an award to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 11(c) for those outstanding under the Plan). In the event any
surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, then with respect to Stock Awards held by Participants whose Continuous
Service has not terminated, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall
be accelerated in full, and the Stock Awards shall terminate if not exercised
(if applicable) at or prior to such event. With respect to any other Stock
Awards outstanding under the Plan, such Stock Awards shall terminate if not
exercised (if applicable) prior to such event.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective
unless approved by the stockholders of the Company to the extent stockholder
approval is necessary to satisfy the requirements of Section 422 of the Code,
Rule 16b-3 or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval, including,
but not limited to, amendments to the Plan intended to satisfy the
requirements of Section 162(m) of the Code and the regulations thereunder
regarding the exclusion of performance-based compensation from the limit on
corporate deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems necessary or
advisable to provide eligible
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Employees with the maximum benefits provided or to be provided under the
provisions of the Code and the regulations promulgated thereunder relating to
Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options
granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any amendment of the
Plan unless (i) the Company requests the consent of the Participant and (ii)
the Participant consents in writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time
to time, may amend the terms of any one or more Stock Awards; provided,
however, that the rights under any Stock Award shall not be impaired by any
such amendment unless (i) the Company requests the consent of the Participant
and (ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before
the tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Stock
Awards may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Stock Award granted while
the Plan is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Stock Award shall be exercised (or, in the case of a stock bonus, shall be
granted) unless and until the Plan has been approved by the stockholders of
the Company, which approval shall be within twelve (12) months before or
after the date the Plan is adopted by the Board.
15. CHOICE OF LAW.
The law of the State of California shall govern all questions
concerning the construction, validity and interpretation of this Plan,
without regard to such state's conflict of laws rules.
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IMPROVENET, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS December 3, 1999
APPROVED BY STOCKHOLDERS __________ , 1999
TERMINATION DATE: December 2, 2009
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase shares of the Common Stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.
(c) The Company intends that the Rights to purchase shares of the Common
Stock granted under the Plan be considered options issued under an "employee
stock purchase plan," as that term is defined in Section 423(b) of the Code.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subparagraph 3(c) of the Plan.
(e) "COMMON STOCK" means the Common Stock of ImproveNet, Inc.
(f) "COMPANY" means ImproveNet, Inc., a Delaware corporation.
(g) "DIRECTOR" means a member of the Board.
(h) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.
(i) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.
1.
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(j) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(l) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
relevant determination date, as reported in THE WALL STREET JOURNAL or such
other source as the Board deems reliable, or if such date is not a trading day,
then on the next preceding trading day.
(m) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company or its
parent or subsidiary for services rendered as a consultant or in any capacity
other than as a Director (except for an amount as to which disclosure would
not be required under Item 404(a) of Regulation S-K promulgated pursuant to
the Securities Act ("Regulation S-K")), does not possess an interest in any
other transaction as to which disclosure would be required under Item 404(a)
of Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(n) "OFFERING" means the grant of Rights to purchase shares of the
Common Stock under the Plan to Eligible Employees.
(o) "OFFERING DATE" means a date selected by the Board for an Offering
to commence.
(p) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is
not a former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(q) "PARTICIPANT" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.
(r) "PLAN" means this ImproveNet, Inc. 1999 Employee Stock Purchase
Plan.
2.
<PAGE>
(s) "PURCHASE DATE" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised
and purchases of shares of the Common Stock carried out in accordance with
such Offering.
(t) "RIGHT" means an option to purchase shares of the Common Stock
granted pursuant to the Plan.
(u) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3 as in effect with respect to the Company at the time discretion
is being exercised regarding the Plan.
(v) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have
the final power to determine all questions of policy and expediency that may
arise in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine when and how Rights to purchase shares of the
Common Stock shall be granted and the provisions of each Offering of such
Rights (which need not be identical).
(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent
it shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 14.
(v) To terminate or suspend the Plan as provided in paragraph 16.
(vi) Generally, to exercise such powers and to perform such acts
as it deems necessary or expedient to promote the best interests of the
Company and its Affiliates and to carry out the intent that the Plan be
treated as an Employee Stock Purchase Plan.
(c) The Board may delegate administration of the Plan to a Committee of
the Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors
and/or Outside Directors. If administration is delegated to a Committee, the
Committee shall have, in connection with the administration of the Plan, the
powers theretofore possessed by the Board, including the power to delegate to
a
3.
<PAGE>
subcommittee of two (2) or more Outside Directors any of the administrative
powers the Committee is authorized to exercise (and references in this Plan
to the Board shall thereafter be to the Committee or such a subcommittee),
subject, however, to such resolutions, not inconsistent with the provisions
of the Plan, as may be adopted from time to time by the Board. The Board may
abolish the Committee at any time and revest in the Board the administration
of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 13 relating to adjustments
upon changes in securities, the shares of the Common Stock that may be sold
pursuant to Rights granted under the Plan shall not exceed in the aggregate
[200,000]shares of the Common Stock (the "Reserved Shares"). As of each
January 1, beginning on January 1, 2001, the number of Reserved Shares will
be increased automatically by the lesser of (i) one percent (1%) of the total
number of Common Stock outstanding on such January 1 or (ii) [200,000]
shares. Notwithstanding the foregoing, the Board may designate a smaller
number of shares to be added to the share reserve as of a particular January
1. If any Right granted under the Plan shall for any reason terminate
without having been exercised, the shares of the Common Stock not purchased
under such Right shall again become available for the Plan.
(b) The shares of the Common Stock subject to the Plan may be unissued
shares of the Common Stock or shares of the Common Stock that have been bought
on the open market at prevailing market prices or otherwise.
5. GRANT OF RIGHTS; OFFERING.
The Board may from time to time grant or provide for the grant of Rights to
purchase shares of the Common Stock under the Plan to Eligible Employees in an
Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all Employees granted Rights to purchase shares of
the Common Stock under the Plan shall have the same rights and privileges. The
terms and conditions of an Offering shall be incorporated by reference into the
Plan and treated as part of the Plan. The provisions of separate Offerings need
not be identical, but each Offering shall include (through incorporation of the
provisions of this Plan by reference in the document comprising the Offering or
otherwise) the period during which the Offering shall be effective, which period
shall not exceed twenty-seven (27) months beginning with the Offering Date, and
the substance of the provisions contained in paragraphs 6 through 9, inclusive.
6. ELIGIBILITY.
(a) Rights may be granted only to Employees of the Company or, as the
Board may designate as provided in subparagraph 3(b), to Employees of an
Affiliate. Except as provided in subparagraph 6(b), an Employee shall not be
eligible to be granted Rights under the Plan unless, on the Offering Date,
such Employee has been in the employ of the Company or the Affiliate, as the
case may be, for such continuous period preceding such grant as the Board may
require, but in no event shall the required period of continuous employment
be equal to or greater than two
4.
<PAGE>
(2) years; provided, however, that Employees who are employed by the Company
as of the Effective Date of this Plan who would otherwise be Eligible
Employees if not for the required period of continuous employment with the
Company shall be eligible to participate in the Plan with respect to the
first Offering Period without regard to their period of prior continuous
employment with the Company provided that they remain in continuous
employment through the end of the first Offering Period.
(b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates
specified in the Offering which coincides with the day on which such person
becomes an Eligible Employee or which occurs thereafter, receive a Right
under that Offering, which Right shall thereafter be deemed to be a part of
that Offering. Such Right shall have the same characteristics as any Rights
originally granted under that Offering, as described herein, except that:
(i) the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of
the exercise price of such Right;
(ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering;
and
(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.
(c) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns
stock possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 6(c), the rules of Section 424(d) of the Code
shall apply in determining the stock ownership of any Employee, and stock
which such Employee may purchase under all outstanding rights and options
shall be treated as stock owned by such Employee.
(d) An Eligible Employee may be granted Rights under the Plan only if
such Rights, together with any other Rights granted under all Employee Stock
Purchase Plans of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such Eligible Employee's rights to
purchase shares of the Common Stock or any Affiliate to accrue at a rate
which exceeds twenty five thousand dollars ($25,000) of the fair market value
of such shares of the Common Stock (determined at the time such Rights are
granted) for each calendar year in which such Rights are outstanding at any
time.
(e) The Board may provide in an Offering that Employees who are highly
compensated Employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
5.
<PAGE>
7. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to
the number of shares of the Common Stock purchasable either:
(i) with a percentage designated by the Board not exceeding
fifteen percent (15%) of such Employee's Earnings (as defined by the Board in
each Offering) during the period which begins on the Offering Date (or such
later date as the Board determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than the end of the
Offering; or
(ii) with a maximum dollar amount designated by the Board that,
as the Board determines for a particular Offering, (1) shall be withheld, in
whole or in part, from such Employee's Earnings (as defined by the Board in
each Offering) during the period which begins on the Offering Date (or such
later date as the Board determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such
Employee during such period.
(b) The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and
purchases of shares of the Common Stock carried out in accordance with such
Offering.
(c) In connection with each Offering made under the Plan, the Board may
specify a maximum number of shares of the Common Stock that may be purchased
by any Participant as well as a maximum aggregate number of shares of the
Common Stock that may be purchased by all Participants pursuant to such
Offering. In addition, in connection with each Offering that contains more
than one Purchase Date, the Board may specify a maximum aggregate number of
shares of the Common Stock which may be purchased by all Participants on any
given Purchase Date under the Offering. If the aggregate purchase of shares
of the Common Stock upon exercise of Rights granted under the Offering would
exceed any such maximum aggregate amount, the Board shall make a pro rata
allocation of the shares of the Common Stock available in as nearly a uniform
manner as shall be practicable and as it shall deem to be equitable.
(d) The purchase price of shares of the Common Stock acquired pursuant
to Rights granted under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the shares of the Common Stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the shares of the Common Stock on the Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An Eligible Employee may become a Participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within
the time specified in the Offering, in such form as the Company provides.
Each such agreement shall authorize payroll
6.
<PAGE>
deductions of up to the maximum percentage specified by the Board of such
Employee's Earnings during the Offering (as defined in each Offering). The
payroll deductions made for each Participant shall be credited to a
bookkeeping account for such Participant under the Plan and either may be
deposited with the general funds of the Company or may be deposited in a
separate account in the name of, and for the benefit of, such Participant
with a financial institution designated by the Company. To the extent
provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A Participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the Participant
has not already had the maximum permitted amount withheld during the Offering.
(b) At any time during an Offering, a Participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board in the Offering. Upon such
withdrawal from the Offering by a Participant, the Company shall distribute
to such Participant all of his or her accumulated payroll deductions (reduced
to the extent, if any, such deductions have been used to acquire shares of
the Common Stock for the Participant) under the Offering, without interest
unless otherwise specified in the Offering, and such Participant's interest
in that Offering shall be automatically terminated. A Participant's
withdrawal from an Offering will have no effect upon such Participant's
eligibility to participate in any other Offerings under the Plan but such
Participant will be required to deliver a new participation agreement in
order to participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating Employee's
employment with the Company or a designated Affiliate for any reason (subject
to any post-employment participation period required by law) or other lack of
eligibility. The Company shall distribute to such terminated Employee all of
his or her accumulated payroll deductions (reduced to the extent, if any,
such deductions have been used to acquire shares of the Common Stock for the
terminated Employee) under the Offering, without interest unless otherwise
specified in the Offering. If the accumulated payroll deductions have been
deposited with the Company's general funds, then the distribution shall be
made from the general funds of the Company, without interest. If the
accumulated payroll deductions have been deposited in a separate account with
a financial institution as provided in subparagraph 8(a), then the
distribution shall be made from the separate account, without interest unless
otherwise specified in the Offering.
(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution,
or by a beneficiary designation as provided in paragraph 15 and, otherwise
during his or her lifetime, shall be exercisable only by the person to whom
such Rights are granted.
9. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional
payments specifically
7.
<PAGE>
provided for in the Offering (without any increase for interest) will be
applied to the purchase of shares of the Common Stock up to the maximum
number of shares of the Common Stock permitted pursuant to the terms of the
Plan and the applicable Offering, at the purchase price specified in the
Offering. No fractional shares of the Common Stock shall be issued upon the
exercise of Rights granted under the Plan unless specifically provided for in
the Offering.
(b) Unless otherwise specifically provided in the Offering, the amount,
if any, of accumulated payroll deductions remaining in any Participant's
account after the purchase of shares of the Common Stock that is equal to the
amount required to purchase one or more whole shares of the Common Stock on
the final Purchase Date of the Offering shall be distributed in full to the
Participant at the end of the Offering, without interest. If the accumulated
payroll deductions have been deposited with the Company's general funds, then
the distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subparagraph
8(a), then the distribution shall be made from the separate account, without
interest unless otherwise specified in the Offering. The amount of
accumulated payroll deductions remaining in any Participant's account that is
less than the amount required to purchase one whole share of Common Stock on
the final Purchase Date of the Offering shall be carried over to the next
Offering or shall, if the Participant requests or does not participate in the
next Offering, be refunded.
(c) No Rights granted under the Plan may be exercised to any extent
unless the shares of the Common Stock to be issued upon such exercise under
the Plan (including Rights granted thereunder) are covered by an effective
registration statement pursuant to the Securities Act and the Plan is in
material compliance with all applicable state, foreign and other securities
and other laws applicable to the Plan. If on a Purchase Date in any Offering
hereunder the Plan is not so registered or in such compliance, no Rights
granted under the Plan or any Offering shall be exercised on such Purchase
Date, and the Purchase Date shall be delayed until the Plan is subject to
such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the
Purchase Date shall in no event be more than twenty-seven (27) months from
the Offering Date. If, on the Purchase Date of any Offering hereunder, as
delayed to the maximum extent permissible, the Plan is not registered and in
such compliance, no Rights granted under the Plan or any Offering shall be
exercised and all payroll deductions accumulated during the Offering (reduced
to the extent, if any, such deductions have been used to acquire Shares)
shall be distributed to the Participants, without interest unless otherwise
specified in the Offering. If the accumulated payroll deductions have been
deposited with the Company's general funds, then the distribution shall be
made from the general funds of the Company, without interest. If the
accumulated payroll deductions have been deposited in a separate account with
a financial institution as provided in subparagraph 8(a), then the
distribution shall be made from the separate account, without interest unless
otherwise specified in the Offering.
10. COVENANTS OF THE COMPANY.
(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the number of shares of the Common Stock required to
satisfy such Rights are available.
8.
<PAGE>
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan
such authority as may be required to issue and sell shares of the Common
Stock upon exercise of the Rights granted under the Plan. If, after
reasonable efforts, the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company deems
necessary for the lawful issuance and sale of shares of the Common Stock
under the Plan, the Company shall be relieved from any liability for failure
to issue and sell shares of the Common Stock upon exercise of such Rights
unless and until such authority is obtained.
11. USE OF PROCEEDS FROM SHARES.
Proceeds from the sale of shares of the Common Stock pursuant to Rights
granted under the Plan shall constitute general funds of the Company.
12. RIGHTS AS A STOCKHOLDER.
A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, shares of the Common Stock subject to
Rights granted under the Plan unless and until the Participant's shares of
the Common Stock acquired upon exercise of Rights under the Plan are recorded
in the books of the Company.
13. ADJUSTMENTS UPON CHANGES IN SECURITIES.
(a) If any change is made in the shares of the Common Stock subject to
the Plan, or subject to any Right, without the receipt of consideration by
the Company (through merger, consolidation, reorganization, recapitalization,
reincorporation, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares,
change in corporate structure or other transaction not involving the receipt
of consideration by the Company), the Plan will be appropriately adjusted in
the class(es) and maximum number of shares of the Common Stock subject to the
Plan pursuant to subparagraph 4(a), and the outstanding Rights will be
appropriately adjusted in the class(es), number of shares of the Common Stock
and purchase limits of such outstanding Rights. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a transaction that does not involve the receipt of consideration
by the Company.)
(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or
consolidation in which the Company is not the surviving corporation; or (iii)
a reverse merger in which the Company is the surviving corporation but the
shares of the Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then: (1) any surviving or acquiring
corporation may assume Rights outstanding under the Plan or may substitute
similar rights (including a right to acquire the same consideration paid to
the Company's stockholders in the transaction described in this subparagraph
13(b)) for those outstanding under the Plan, or (2) in the event any
surviving or acquiring corporation does not assume such Rights or substitute
similar rights for those outstanding under the Plan, then, as determined by
the Board in its sole discretion, such Rights
9.
<PAGE>
may continue in full force and effect or the Participants' accumulated
payroll deductions (exclusive of any accumulated interest which cannot be
applied toward the purchase of shares of the Common Stock under the terms of
the Offering) may be used to purchase shares of the Common Stock immediately
prior to the transaction described above under the ongoing Offering and the
Participants' Rights under the ongoing Offering thereafter terminated.
14. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:
(i) Increase the number of shares of the Common Stock reserved for
Rights under the Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3; or
(iii) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to obtain employee stock purchase
plan treatment under Section 423 of the Code or to comply with the requirements
of Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.
(c) Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.
15. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who is
to receive any shares of the Common Stock and/or cash, if any, from the
Participant's account under the Plan in the event of such Participant's death
subsequent to the end of an Offering but prior to delivery to
10.
<PAGE>
the Participant of such shares of the Common Stock and cash. In addition, a
Participant may file a written designation of a beneficiary who is to receive
any cash from the Participant's account under the Plan in the event of such
Participant's death during an Offering.
(b) The Participant may change such designation of beneficiary at any time
by written notice. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such shares of the
Common Stock and/or cash to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its sole discretion, may deliver such
shares of the Common Stock and/or cash to the spouse or to any one or more
dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Company, then to such other person as the Company may
designate.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion may suspend or terminate the Plan at
any time. Unless sooner terminated, the Plan shall terminate at the time
that all of the shares of the Common Stock subject to the Plan's reserve, as
increased and/or adjusted from time to time, have been issued under the terms
of the Plan. No Rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Rights granted while the Plan is
in effect shall not be impaired by suspension or termination of the Plan,
except as expressly provided in the Plan or with the consent of the person to
whom such Rights were granted, or except as necessary to comply with any laws
or governmental regulation, or except as necessary to ensure that the Plan
and/or Rights granted under the Plan comply with the requirements of Section
423 of the Code.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective simultaneously with the effectiveness of
the Company's registration statement under the Securities Act with respect to
the initial public offering of shares of the Company's Common Stock (the
"Effective Date"), but no Rights granted under the Plan shall be exercised
unless and until the Plan has been approved by the stockholders of the
Company within twelve (12) months before or after the date the Plan is
adopted by the Board, which date may be prior to the Effective Date.
11.
<PAGE>
<TABLE>
<CAPTION>
LEASE SCHEDULE
<S> <C> <C>
1. Date of Lease September 2, 1999
2. Landlord: Florcor I Limited Partnership, an Illinois limited partnership
3. Tenant: ImproveNet, Inc., a California corporation
4. Guarantor: Not Applicable
5. Property Address: 1700 N.W. 49th Street, Suite 130
6. Premises: As described on Appendix "A" attached hereto
7. Purpose: General Office
8. Lease Term:. Sixty (60) months beginning on the Commencement Date determined
pursuant to item 19 below
9. Area of Premises in rentable square 8,057
feet ("r.s.f.")
10. Jurisdiction in which the Property is City of Fort Lauderdale, County
located: of Broward, State of Florida
11. Tenant's Share: 18%
12. Annual Base Rent: $104,741.00, escalating by 3% per annum every twelve (12) months
during the Lease Term
13. Monthly Base Rent: $8,728.42, escalating by 3% per annum every twelve (12)
months during the Lease Term; the first month's rent
and operating expenses plus Florida sales tax thereon in
the total amount of $11,565.25 has been paid upon the execution
of this Lease.
14. Initial Year Tax and Operating Cost $3.25 per r.s.f. ($26,185.25) or $2,182.10 per month
Estimate:
15. [Intentionally Omitted]
16. Addresses for Purpose of Notice:
Landlord: Florcor I Limited Partnership, c/o The Alter Group, Ltd., 7303
North Cicero Avenue, Lincolnwood, IL 60646, Fax No.: (847)
676-4303, Attn: Ronald Siegel
With a copy to: Lawrence M. Freedman, Ash, Anos, Freedman & Logan, L.L.C., 77 West
Washington Street, Suite 1211, Chicago, IL 60602, Fax No: (312)
346-7847; and Samuel F. Gould, Alter Asset Management, 1980
Springer Drive, Lombard, IL 60148, Fax No: (630) 620-3606
Tenant: ImproveNet, Inc., 1286 Oddstad Drive, Redwood City, California
94063, Attn: Ronald Cooper; Fax No. 650-261-1198
17. Security Deposit: $10,910.52 (one month's rent plus one month's operating expenses)
18. Brokers: FOR LANDLORD:
The Alter Group, Ltd. and CB Richard Ellis, Inc., One East
Broward Boulevard, Suite 802, Fort Lauderdale, Florida 33301,
Attn: Greg Martin and Jay Adams
FOR TENANT:
Ivan J. Smith & Company, 3350 East Atlantic Boulevard, Pompano
Beach, Florida 33062, Attn: Randy Bates
</TABLE>
1
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<TABLE>
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LEASE SCHEDULE
<S> <C> <C>
19. Special Provisions: Subject to Section 28 of the attached Lease and the Workletter
attached as Appendix D thereto, Landlord shall construct the
tenant improvements in the Premises and shall pay for the cost
thereof, up to an amount which shall not exceed $25.00 times the
number of square feet in the Premises for a total of $201,425.00
(the "TI Allowance"). All additional costs, if any, for such
tenant improvements that are in excess of the TI Allowance shall
be the sole responsibility of Tenant and shall be payable by
Tenant as directed by Landlord. In the event that such tenant
improvements can be constructed for less than the TI Allowance,
any unused portion of the TI Allowance, but in no event more than
$40,285.00 ($5 per square foot), shall be applied in reduction of
Tenant's rental obligation under this Lease.
Notwithstanding anything contained in this Lease Schedule or the
attached Lease to the contrary, the Lease Term shall commence
after completion of said improvements on the date that a
Certificate of Occupancy (whether temporary or permanent) has been
issued allowing the Tenant to legally occupy the Premises (the
"Commencement Date"). Subject to Section 28 of the attached
Lease, the intended Commencement Date is one hundred twelve (112)
days after the later of (i) the date of this Lease, and (ii) the
date Tenant provides Landlord with Tenant's written approval of
the space plan for the tenant improvements to be constructed by
Landlord pursuant to the Workletter attached thereto as Appendix
"D".
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LEASE
THIS LEASE MADE and entered into as of the date set forth on the Lease
Schedule as Date of Lease, which Lease Schedule is appended to this Lease and is
specifically incorporated by reference herein, by and between the Landlord and
Tenant as set forth in the Lease Schedule.
WITNESSETH:
DEMISE
A. Landlord does hereby lease to Tenant and Tenant hereby lets from
Landlord, the Premises set forth in the Lease Schedule, which are situated in
that certain building (the "Building") located as denoted as the Property
Address in the Lease Schedule. The Building and the real estate on which it is
located are hereinafter referred to as the "Property". Tenant acknowledges that
the sole purpose of the attached Appendix "A" is to identify the location of the
Premises in the Building. Landlord makes no representations or warranties in
said Appendix "A" as to the useable or rentable square footage of the Premises.
B. Such letting and hiring is upon and subject to the terms, covenants
and conditions herein set forth and Tenant and Landlord covenant as a material
part of the consideration for this Lease to keep and perform each and all of
said terms, covenants and conditions by them to be kept and performed and that
this Lease is made upon the condition of such performance.
1. PURPOSE
The Premises are to be used for the Purpose set forth in the Lease
Schedule and for no other purpose without the prior written consent of the
Landlord.
2. TERM
The Lease Term shall be as set forth in the Lease Schedule except as
otherwise expressly provided in this Lease.
3. POSSESSION
A. If Landlord, for any reason whatsoever, cannot deliver possession of
the Premises to the Tenant on the intended Commencement Date set forth in the
Lease Schedule, this Lease shall not be void or voidable, nor shall the Landlord
be liable to Tenant for any loss or damage resulting thereform. Under such
circumstances, the rent provided for herein shall not commence until possession
of the Premises is made available to Tenant and no such failure to give
possession on the date of commencement of the Term shall affect the validity of
this Lease or the obligations of the Tenant hereunder, and the Term shall be
extended accordingly; provided, however, if possession of the Premises is not
delivered to Tenant within sixty (60) days after the intended Commencement Date
set forth in the Lease Schedule, then Tenant may, as its sole and exclusive
remedy, terminate this Lease by delivering written notice of such termination to
Landlord, so long as such notice is delivered to Landlord prior to the
Commencement Date and, in that event, Landlord shall refund to Tenant any
security deposit or advance rent due to Tenant and neither party shall have any
further obligation to the other, except for any indemnity or other
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obligations under this Lease which are intended to survive terminate, and
provided further that if possession of the Premises is not delivered to
Tenant on the intended Commencement Date set forth in the Lease Schedule and
the delay in delivering possession does not result from any matter covered by
Section 28 of this Lease or the default or any act or omission of Tenant,
then Landlord shall apply as a credit against the rental obligations first
due under this Lease a sum equal to the equivalent of two (2) days of Base
Rent and operating expenses for every day of such delay.
B. The Premises shall be deemed to be ready for Tenant's occupancy if
only minor or insubstantial details of construction, decoration or mechanical
adjustments remain to be done in the Premises or any part thereof, or if the
delay in the availability of the Premises or any part thereof for occupancy
shall be due to special work, changes, alterations, or additions required or
made by Tenant in the layout or finishing of the Premises. Whether or not the
Premises are ready for occupancy shall be determined by the Jurisdiction in
which the Property is located as set forth in the Lease Schedule, which shall
evidence same by authorizing Tenant's occupancy thereof, which authorization may
be in the form of oral or written permission to occupy which if in the form of
written permission, may be in the form of a temporary or permanent certificate
of occupancy. It is further understood that within 72 hours of initial
occupancy, the parties shall jointly inspect the Premises and prepare and sign a
"punch list" of incomplete items to be completed by Landlord. Tenant and
Landlord shall jointly inspect the Premises and prepare another "punch list"
within thirty (30) days after occupancy encompassing all items not then
completed except for latent defects. Landlord shall have thirty (30) days to
correct any "punch list" items or such longer period of time as may be
reasonably required so long as Landlord is exercising reasonable diligence to
accomplish the correction.
4. DEFINITIONS AS USED IN THIS LEASE
A. The term "Commencement Date" is the date of the beginning of the
Lease as set forth in the Lease Schedule.
B. The term "Tenant's Share" shall mean that amount set forth as such
in the Lease Schedule being the ratio which the rentable area of the Premises
bears to the entire rentable area in the Building. The Tenant's Share allocated
to the Premises as it relates to the Building as a whole, is not meant, nor
shall it be construed, as a representation by Landlord as to the rentable or
useable square footage of the Premises. The parties recognize that this ratio as
well as the area measurements are reasonable approximations that may not be
exactly precise, but both Landlord and Tenant accept such ratio and measurements
as final and binding for ail purposes of this Lease.
C. The term "Taxes" means any and all taxes of every kind and nature
whatsoever which Landlord shall pay or become obligated to pay during a calendar
year (regardless of whether such taxes were assessed or became a lien during,
prior or subsequent to the calendar year of payment) because of or in connection
with the ownership, leasing and operation of the Property including without
limitation, real estate taxes, personal property taxes, sewer rents, water
rents, special assessments, transit taxes, legal fees and court costs charged
for the protest or reduction of property taxes and/or assessments or an increase
therein in connection with the Premises including the Building, any tax or
excise on rent or any other tax (however described)
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on account of rental received for use and occupancy of any or all of the
Building and/or the Premises, whether any such taxes are imposed by the
United States, the state or other local governmental municipality, authority
or agency or any political subdivision of any thereof in the Jurisdiction in
which the Property is located. Taxes shall not include any net income,
capital stock, estate or inheritance taxes.
D. (i) The term "Operating Costs" means any and all expenses, costs and
disbursements (other than Taxes as defined in Section 4C.) of every kind and
nature whatsoever incurred by Landlord in connection with the ownership,
management, maintenance, operation and repair of the Property including, without
limitation, interior and/or exterior energy costs (including but not limited to
the cost of electricity, steam, water, gas, fuel, heating, lighting and air
conditioning), easement maintenance expenses, including assessments applicable
to the Property established by any Declaration as hereinafter defined, any and
all common area expenses in the development in which the Property is located,
including but not limited to landscaping and other maintenance of properties
which benefit the Property, usual and customary property management fees and
on-site management costs (including but not limited to on-site management office
rent, equipment costs, and other typical related office expenses), insurance
costs (including but not limited to fire, extended coverage, liability, workers'
compensation [and elevator] insurance, as well as all deductibles paid by
Landlord for damages and injuries covered by policies of insurance maintenance
for the Property, and all sums paid to satisfy judgments rendered or affecting
the Landlord or the Property to the extent not covered by Landlord's insurance)
and routine repairs, maintenance and interior and/or exterior decorating, wages,
salaries, and benefits of employees working at the Property on a full or
part-time basis (excluding those above the level of property or building
manager), uniforms, supplies, sundries, sales or use taxes on supplies or
services, landscape replacement, snow removal, parking lot repairs, legal and
accounting costs and expenses, janitorial expenses, roof repairs, exterminating,
elevator maintenance, HVAC system maintenance, which Landlord shall be or become
obligated to pay in respect of any calendar year regardless of when such
operating Costs were incurred or any other expense or charge whether or not
hereinbefore mentioned which in accordance with generally accepted accounting or
management principles respecting first class buildings in the Jurisdiction in
which the Property is located would be considered as an expense of owning,
managing, operating, maintaining or repairing the Property. For purposes of this
subparagraph "the development in which the Property is located" shall be deemed
to refer to any subdivision or group of subdivisions containing common areas
and/or utilities and/or services benefiting the Property, including any and all
Property encompassed by any declaration of easements, and/or protective
covenants ("Declaration") effecting the Property.
(ii) Operating Costs shall not include:
(a) The cost of alterations, capital improvements, equipment
replacements, and other items which under generally accepted accounting
principles are properly classified as capital expenditures;
(b) Expenses incurred for business interruption or rental
value insurance;
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(c) Leasing commissions and/or expenses and advertising and
promotional expenses;
(d) Legal fees or other professional or consulting fees in
connection with the negotiation of tenant leases;
(e) Repairs required to cure violations of laws enacted prior
to the date of the Lease;
(f) The cost of repairs or replacements incurred by reason of
fire or other casualty or condemnation to the extent that either (1) Landlord is
compensated therefor through proceeds of insurance or condemnation awards; (2)
Landlord failed to obtain insurance against such fire or casualty, if insurance
was available at a commercially reasonable rate, against a risk of such nature
at the time of same; or (3) Landlord is not fully compensated therefor due to
the coinsurance provisions of its insurance policies on account of Landlord's
failure to obtain a sufficient amount of coverage against such risk.
Notwithstanding the foregoing, Landlord's reasonable insurance deductibles shall
be deemed as Operating Costs;
(g) Damage and repairs necessitated by the negligence or
willful misconduct of Landlord, Landlord's employees, or agents;
(h) Compensation paid to officers or executives of the
Landlord above the level of building or property manager;
(i) That portion of salaries of service personnel to the
extent such salaries are applicable and relate to performance of services by
such personnel other than in connection with the management, operation, repair,
or maintenance of the Building;
(j) The cost of incremental expense to Landlord incurred by
Landlord in curing its defaults;
(k) Legal fees, accounting fees, and other expenses incurred
specifically in connection with disputes with tenants or occupants oft-he
Building or associated with the enforcement of the terms of any leases with
tenants or the defense of Landlord's title or interest in the Building or any
part thereof;
(l) Costs (including permits, licensing, and inspection fees)
incurred in renovations or otherwise improving, decorating, painting, or
altering space for tenants or other occupants of vacant space (excluding common
areas) in the Building;
(m) Any cash or other consideration paid by Landlord on
account of, with respect to, or in lieu of the tenant work or alterations
described in subsection (1) above;
(n) Cost of any service provided to tenants or other occupants
of the Building for which Landlord is entitled to be reimbursed;
(o) Interest and principal payments on mortgages; or
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(p) Depreciation.
Landlord shall not collect in excess of one hundred (100%) percent of
Operating Costs and shall not recover any items of cost more than once.
(iii) Provided however:
(a) The cost of any capital improvements to the Building made
after the date of this Lease which are (1) intended to reduce Operating Costs or
(2) required to cause the Building to comply with the Americans with
Disabilities Act or (3) required under any governmental laws, regulations, or
ordinances which were not applicable to the Building as of the date hereof,
amortized on a level pay debt service basis over fifteen (15) years, with
interest at ten (10%) percent per annum shall be included in Operating Costs.
(b) If the Building is not at least ninety-five (95%) percent
occupied by tenants during all or a portion of any calendar year, then Landlord
may elect to make an appropriate adjustment for such year of components of
Operating Costs and the amounts thereof which may vary depending upon the
occupancy level of the Building or with the number of tenants using the service,
such that tenants then occupying space in the Building will pay their respective
proportionate shares of the amount of such variable components of Operating
Costs which would have been incurred if the Building had been ninety-five (95%)
percent occupied during the entire calendar year and Landlord had paid or
incurred such costs and expenses for the calendar year. Any such adjustments
shall be deemed costs and expenses paid or incurred by Landlord and included in
Operating Costs for such calendar year.
5. BASE RENT
A. Except as otherwise provided herein, Tenant shall pay as initial
Base Rent to Landlord the Annual Base Rent as set forth in the Lease Schedule in
equal monthly installments as set forth as the Monthly Base Rent in the Lease
Schedule in advance on the first day of the first full calendar month and on the
first day of each calendar month thereafter during the Term, and at the same
rate for fractions of a month if the Term shall begin on any day except the
first day or shall end on any day except the last day of a calendar month.
B. Any rent (whether Base Rent or additional rent) or other amount due
from Tenant to Landlord under this Lease not paid when due shall incur a late
fee equal to the greater of: (a) Twenty-Five ($25.00) Dollars; or (b) interest
from the date due until the date paid at the annual rate of Four (4%) Percent
above the prime rate as set forth as the Base Rate on Corporate Loans published
by the Wall Street Journal from time to time, but the payment of such interest
shall not excuse or cure any default by Tenant under this Lease. The covenants
of the Tenant to pay rent (both Base Rent and additional rent) shall be
independent of any covenants of Landlord herein.
C. Base Rent and all of the rent provided herein shall be paid without
deduction or off-set in lawful money of the United States of America to Alter
Asset Management, Inc., 1980 Springer Drive, Lombard, IL 60148 ("the Management
Agent") or as designated from time to time by written notice from Landlord. The
Management Agent has full with Tenant, provided however, that the Management
Agent shall not have the power to amend or modify the terms of this Lease.
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6. ADDITIONAL RENT
TAXES
A. It is further agreed between the parties hereto that in addition to
the rental provided for herein that Tenant will also directly pay or reimburse
Landlord during the term of this Lease, as additional rent, an amount equal to
Tenant's Share of the Taxes. In addition, Tenant shall be responsible for the
payment of the Florida sales tax applicable to the Base Rent, additional rent or
other amounts paid by Tenant hereunder as well as all costs incurred by Landlord
in conjunction with any such sales tax returns.
OPERATING COSTS
B. It is further agreed between the parties hereto that in addition to
the rental provided for herein that Tenant shall also directly pay or reimburse
Landlord during the term of this Lease, as additional rent, an amount equal to
Tenant's Share of the Operating Costs.
7. RENT ADJUSTMENT PAYMENT
A. Sixty (60) days prior to the commencement of the Term, Landlord
shall deliver to Tenant a written statement setting forth Landlord's good faith
estimate of Tenant's Share of Taxes and Operating Costs (a "Taxes and Operating
Cost Statement") for the remainder of the calendar year in which the Term
commences. Thereafter, prior to January 1 of each subsequent calendar year, or
from time to time during each subsequent calendar year, Landlord shall deliver
an estimated Taxes and Operating Cost Statement pertaining to each such
forthcoming calendar year. Commencing on the first full calendar month of the
Term and on the first day of each calendar month thereafter during the Term,
Tenant shall pay one-twelvth (1/12th) of Tenant's Share of Taxes and Operating
Costs as estimated by Landlord. Not less than on or before the first day of June
of each calendar year after the initial year of the Term, Landlord shall furnish
to Tenant a written statement showing in reasonable detail actual Operating
Costs and Taxes for the preceding year for which such statement is furnished and
showing the amount, if any, of rental adjustment due for such year.
B. On the monthly rental payment date (the "adjustment date") next
following Tenant's receipt of each such annual statement, Tenant shall pay to
Landlord as additional rent an amount equal to the sum of the net aggregate
rental adjustment shown on each such annual statement less the amount, if any,
of the total estimated additional rent paid by Tenant during the preceding
calendar year.
C. In the event that any such settlement required above indicates that
the total additional rent paid by Tenant during the preceding calendar year
exceeds the aggregate rental payable by Tenant for such calendar year, Landlord
shall apply such excess on any amounts of additional rent next falling due under
this Lease as long as Tenant is not then in default of any of the terms and
provisions of this Lease.
D. The annual determination of Taxes and Operating Cost Statement shall
be prepared in accordance with generally acceptable cash basis accounting
principles. Tenant using either its own employee(s) or its certified public
accountant shall have the right to inspect at
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reasonable times and in a reasonable manner, at the Landlord's office, such
of the Landlord's books of account and records as pertain to or contain
information concerning the items included in Operating Costs and Taxes for
that year in order to verify the amounts thereof. Any and all information
obtained through the Tenant's inspection with respect to financial matters
(including, without limitation, costs, expenses, income) and any and all
other matters pertaining to the Landlord and/or the Property as well as any
compromise, settlement, or adjustment reached between Landlord and Tenant
relative to the results of any such inspection shall be held in strict
confidence by the Tenant and its officers, agents, and employees; and Tenant
shall cause its certified public accountant and any of its officers, agents,
and employees to be similarly bound. If Tenant shall dispute any item or
items included in the Operating Costs or Taxes for such year, and such
dispute is not resolved by the parties within ninety (90) days after such
statement is delivered to Tenant, then either party may at its sole expense,
within thirty (30) days thereafter, request that a firm of independent
certified public accountants mutually selected by Landlord and Tenant
("Independent Review") render to the parties an opinion as to whether or not
the disputed item or items should have been included in the Operating Costs
and/or Taxes for such year; and the opinion of such firm on such matter shall
be conclusive and binding upon both parties, provided however, it shall be a
further condition of Tenant's right to conduct an Independent Review that the
firm conducting the Independent Review shall not be retained upon the basis
of all or a portion of its fees being contingent based upon the results of
the Independent Review. Landlord and Tenant agree that the firm's opinion
shall be confidential and shall not be disclosed to any other party
whatsoever. In the event such Independent Review discloses that the amount
due from Tenant was overstated in excess of five (5%) percent on an
annualized basis, Landlord shall bear the reasonable cost of such Independent
Review. In all other cases, Tenant shall bear the cost of such Independent
Review. Tenant employee(s) or certified public accountants may examine the
records of Landlord supporting the Taxes and Operating Cost Statement at
Landlord's or the Management Agent's office during normal business hours
within forty-five (45) days after the Taxes and Operating Statement is
furnished. Unless Tenant takes written exception to any item within ninety
(90) days after the furnishing of the Taxes and Operating Statement (which
shall be noted on the item as "paid under protest"), such Statement shall be
considered as final and accepted by Tenant. Tenant shall promptly tender
payment for any undisputed items and shall tender payment for any disputed
items within ten (I0) days after the resolution of any such dispute.
E. In no event shall any rent adjustment result in a decrease of the
Base Rent as set forth in the Lease Schedule.
F. In the event of the termination of this Lease by expiration of the
stated term or for any other cause or reason whatsoever prior to the
determination of rental adjustment as hereinabove set forth, Tenant's agreement
to pay additional rental accrued up to the time of termination shall survive the
expiration or termination of the Lease.
8. HOLDING OVER
Should Tenant hold over after the termination of this Lease, by lapse
of time or otherwise, Tenant shall become a tenant from month to month only upon
each and all of the terms herein provided as may be applicable to such month to
month tenancy and any such holding over shall not constitute an extension of
this Lease; provided, however, during such
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holding over, Tenant shall pay Base Rent and additional rent (as heretofore
adjusted, or as estimated by Landlord) at One Hundred Fifty (150%) Percent of
the rate payable for the month immediately preceding said holding over and
all Additional Rent due for each subsequent month during such holdover
period, and in addition, Tenant shall pay Landlord all damages, consequential
as well as direct, sustained by reason of Tenant's holding over.
Alternatively, at the election of Landlord expressed in a written notice to
the Tenant and not otherwise, such retention of possession shall constitute a
renewal of this Lease for one (1) year at one hundred fifty percent (150%) of
the rent paid in the last year hereof. The provisions of this paragraph do
not exclude the Landlord's rights of re-entry or any other right hereunder.
9. BUILDING SERVICES
A. Landlord agrees to furnish to the Premises and the common areas
during reasonable hours (8:00 A.M. to 6:00 P.M. Mondays through Fridays and 8:00
A.M. to 1:00 P.M. on Saturdays) except for the following legal holidays:
Memorial Day, July 4% Labor Day, Thanksgiving, Christmas and New Years Day, and
subject to the rules and regulations of the Building, passenger and freight
elevator service to the extent applicable, heat and air conditioning in
accordance with the design for such systems and as required in Landlord's
reasonable judgment for the comfortable use and occupancy of the Premises and
common areas, subject to scheduling by Landlord. Tenant shall furnish its own
janitorial and cleaning services in and about the Premises, comparable to the
standard janitor services furnished by other first class office buildings in the
Jurisdiction which the property is located.
B. Landlord shall maintain and operate the common areas and any other
portions of the Building within its control (to the extent not the
responsibility of Tenant in accordance with this Lease) in a manner and to the
standard substantially similar to other first-class single story service center
buildings in the jurisdiction where the Property is located, the expenses of
which shall be included in Operating Costs. Neither Landlord nor Landlord's
beneficiaries, nor any company, firm or individual, operating, maintaining,
managing or supervising the plant or facilities furnishing the services included
in Landlord's energy costs nor any of their respective agents, beneficiaries, or
employees, shall be liable to Tenant, or any of Tenant's employees, agents,
customers or invitees or anyone claiming through or under Tenant, for any
damages, injuries, losses, expenses, claims or causes of action, because of any
interruption or discontinuance at any time for any reason in the furnishing of
any of such services, or any other service to be furnished by Landlord as set
forth herein; nor shall any such interruption or discontinuance relieve Tenant
from full performance of Tenant's obligations under this lease.
C. Electricity shall not be furnished by Landlord, but except as
otherwise hereinafter provided, shall be furnished by the approved electric
utility company serving the area ("Electric Service Provider"). Landlord shall
permit the Tenant to receive such service direct from such public utility
company at Tenant's cost, and shall permit Landlord's wire and conduits, to the
extent available, suitable and safely capable, to be used for such purposes.
Tenant shall make all necessary arrangements with the local utility company for
metering and paying for electric current furnished by it to Tenant and Tenant
shall pay for all charges for electric current consumed on the Premises during
Tenant's occupancy thereof. The electricity used during the performance of
janitorial service, the making of alterations or repairs in the Premises, and
for the operation of the Premises' air conditioning system at times other than
as provided herein; or the
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operation of any special air conditioning systems which may be required for
data processing equipment or for other special equipment or machinery
installed by Tenant, shall be paid for by Tenant. Tenant shall make no
alterations or additions to the electric equipment and/or appliances without
the prior written consent of the Landlord in each instance, which consent
shall not be unreasonably withheld. Tenant also agrees to purchase from the
Landlord or its agent all lamps, bulbs after the initial installation
thereof, ballasts and starters used in the Premises, provided however that
the availability, quality, and cost of any such items shall be comparable to
that available to Tenant from other suppliers. Tenant covenants and agrees
that at all times its use of electric current shall never exceed the capacity
of the feeders to the Building or the risers or wiring installed thereon.
Tenant will not, without the written consent of Landlord, use any apparatus
or device in the Premises to connect to electric current (except through
existing electrical outlets in the Premises) or water pipes, any apparatus or
device for the purpose of using electric current or water. If Tenant shall
require water or electric current in excess of that which is respectively
obtainable from existing water pipes or electrical outlets and normal for use
of the Premises as general office space, Tenant shall first procure the
consent of Landlord, which Landlord may not unreasonably refuse. If Landlord
consents to such excess water or electric requirements, Tenant shall pay all
costs including but not limited to meter service and installation of
facilities necessary to furnishing such excess capacity.
D. Landlord has advised Tenant that presently Electric Service Provider
is the utility company selected by Landlord to provide electricity service for
the Building. Notwithstanding the foregoing, to the extent permitted by law,
Landlord shall have the right at any time and from time to time during the Term
to either contract for service from a different company or companies providing
electricity service (each such company hereinafter described as an "Alternate
Service Provider") or continue to contract for service from the Electric Service
Provider. Tenant shall cooperate with Landlord, the Electric Service Provider,
and any Alternate Service Provider at all times, and as reasonably necessary,
shall allow Landlord, Electric Service Provider and any alternate Service
Provider reasonable access to the Building's electric lines, feeders, risers,
wiring, and any other machinery within the Premises.
10. CONDITION OF THE PREMISES.
A. Subject to "punch lists" heretofore referred to by taking possession
of the Premises, Tenant shall be deemed to have agreed that the Premises were as
of the date of taking possession, in good order, repair and condition. No
promises of the Landlord to alter, remodel, decorate, clean or improve the
Premises or the Building and no representation or warranty expressed or implied,
respecting the condition of the Premises or the Building has been made by the
Landlord to Tenant, unless the same is contained herein or made a part hereof.
B. Tenant shall, at its own expense, keep the Premises in good repair
and tenantable condition, and shall promptly and adequately repair all damages
to the Premises under the supervision and with the approval of Landlord and
within a reasonable period of time as specified by Landlord, loss by ordinary
wear and tear, fire and other casualty excepted. If Tenant does not do so
promptly and adequately, Landlord may, but need not, make such repairs and
Tenant shall reimburse Landlord therefor on demand.
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C. The parties acknowledge that Landlord has furnished hurricane
shutters and related installation equipment, including mounting screws
(collectively, the "Shutters") for attachment to the building, as required by
law, but that it is undesirable for such Shutters to be installed to cover the
outer doors and windows at the Premises, unless and until a hurricane or similar
natural condition threatens for which the use of such Shutters would be desired,
advised, or required. Landlord shall use reasonable efforts to install and
remove the Shutters at such time or times when such installation may be required
by law or deemed advisable by Landlord, but Landlord cannot and does not grant
any assurance to Tenant that the Shutters will be installed or removed when
needed (due to, among other things, the limited mount of time and general chaos
preceding the need) so Tenant shall remain free to install and remove the
Shutters when such installation or removal may be required by law or desired by
Tenant. Accordingly, Tenant hereby releases Landlord from any duty to make such
installations or removals at any time or times and for any loss or damage
(including, but not limited to, the Premises) as may arise from any failure to
make such installations or removals. If Tenant installs or removes the Shutters,
then Tenant assumes responsibility for any loss or damage to the Shutters as a
consequence of Tenant's installation or removal thereof from time to time.
D. The parties acknowledge that the Americans With Disabilities Act of
1990 (42 U.S.C. 12101 et seq.) and regulations and guidelines promulgated
thereunder, as all of the same may be amended and supplemented from time to time
(collectively referred to herein as the "ADA") establish requirements under
Title III of the ADA ("Title III") pertaining to business operations,
accessibility and barrier removal, and that such requirements may be unclear and
may or may not apply to the Premises and the Building depending on, among other
things: (1) whether Tenant's business operations are deemed a "place of public
accommodation" or a "commercial facility," (2) whether compliance with such
requirements is "readily achievable" or "technically infeasible," and (3)
whether a given alteration affects a "primary function area" or triggers
so-called "path of travel" requirements. Landlord represents that the Building,
and any tenant improvements installed by Landlord at the Premises in accordance
with this Lease, comply with Title III as of the date of the Commencement Date.
Tenant shall be responsible for all Title III compliance and costs in connection
with the Premises (including structural work, if any, and including leasehold
improvements or other work to be performed in the Premises under or in
connection with this Lease) to the extent arising out of (i) compliance with new
requirements under Title III required after the Commencement Date, (ii) matters
specific to Tenant's activities or operations, or (iii) alterations to the
Premises made by Tenant.
11. USES PROHIBITED
Tenant shall not use, or permit the Premises or any part thereof to be
used, for any purpose or purposes other than as specified the Lease Schedule. No
use shall be made or permitted to be made of the Premises, nor acts done, which
will increase the existing rate of insurance upon the Building, or cause a
cancellation of any insurance policy covering the Building, or any part thereof,
nor shall Tenant sell, or permit to be kept, used or sold, in or about the
Premises, any article which may be prohibited by Landlord's insurance policies.
Tenant shall not commit or suffer to be committed, any waste upon the Premises,
or any public or private nuisance or other act or thing which may disturb the
quiet enjoyment of any other Tenant in the Building, nor, without limiting the
generality of the foregoing, shall Tenant allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose. Tenant agrees at all
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times to cause the Premises to be operated in compliance with all federal,
state, local or municipal laws, statutes, ordinances, and roles and
regulations, including but not limited to those relating to zoning,
environmental protection, health, and safety. Tenant further agrees to
promptly cure any such violation at its own expense, and shall furthermore
defend and indemnify Landlord, beneficiaries, mortgagees, and officers,
agents, and employees thereof respectively, for any and all liability, loss,
costs (including attorneys' fees and expenses), damages, responsibilities or
obligations incurred as a result of any violation of any of the foregoing.
Tenant shall upon request of Landlord certify in writing that it is in
compliance with applicable local, state and federal environmental roles,
regulations, statutes and laws for the preceding year. At the request of the
Landlord, Tenant shall submit to the Landlord, or shall make available for
inspection and copying upon reasonable notice and at reasonable times, any or
all of the documents and materials prepared by or for Tenant pursuant to any
environmental law or regulation or submitted to any governmental regulatory
agency in conjunction therewith. Landlord shall have reasonable access to the
Premises to inspect the same to confirm that the Tenant is using the Premises
in accordance with local, state and federal environmental roles, regulations,
statutes and laws. Tenant shall, at the request of the Landlord and at the
Tenant's expense, conduct such testing and analysis as is necessary to
ascertain whether the Tenant is using the Premises in compliance with all
local, state and federal environmental rules, regulations, statutes and laws,
provided however, Landlord shall not request that Tenant conduct such tests
unless Landlord has a reasonable suspicion that Tenant may be in violation of
the foregoing rules, regulations, statutes, or laws. Said tests shall be
conducted by qualified independent experts chosen by the Tenant and subject
to Landlord's reasonable approval. Copies of reports of any such tests shall
be provided to the Landlord. Landlord shall give Tenant at least twenty (24)
hours notice prior to any inspection or entry on the Premises, except in an
emergency, when no notice shall be required. The provisions within this
paragraph shall survive termination of this Lease and shall be binding upon
and shall inure to the benefit of the parties hereto, their respective
successors and assigns, and mortgagees thereof.
12. COMPLIANCE WITH LAW
Tenant shall not use the Premises or permit anything to be done in or
about the Premises which in any way conflict with any law, statute, ordinance or
governmental role or regulation now in force or which may hereafter be enacted
or promulgated. Tenant shall, at its sole cost and expense, promptly comply with
all laws, statutes, ordinances and governmental rules, regulations or
requirements now in force or which may hereafter be in force and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to or affecting the condition, use or occupancy
of the Premises, excluding structural changes not related to or affected by
Tenant's improvements or acts. The judgment of any court of competent
Jurisdiction or the admission of Tenant in an action against Tenant whether
Landlord be a party thereto or not, that Tenant has violated any law, statute,
ordinance or governmental rule, regulation or requirement shall be conclusive of
that fact as between Landlord and Tenant.
13. ALTERATIONS AND REPAIRS
A. Tenant shall keep the Premises in good condition and repair ordinary
wear and tear and loss by fire and other casualty excepted, and shall not do any
painting or make any alterations in or additions, changes or repairs to the
Premises without the Landlord's prior
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written approval in each and every instance, such consent not to be
unreasonably withheld. It shall not be unreasonable for Landlord to withhold
approval of any alteration or addition which impacts structure or any
Building system, or which would otherwise result in requiring additional
improvements to the Premises and/or the Property. In the event Landlord
grants the requested approval, Tenant shall be responsible for the cost of
any such alteration or additions, as well as the cost of any improvements to
the Premises and/or Property required as the result thereof. Any such
approval shall further be subject to the terms and conditions of Appendix "B"
attached hereto and specifically incorporated by reference herein. Unless
otherwise agreed by Landlord and Tenant in writing, all such work shall be
performed either by or under the direction of Landlord, but at the cost of
Tenant. During the term of this Lease, no work shall be performed by or under
the direction of Tenant without the express written consent of Landlord.
Unless otherwise provided by written agreement, all alterations,
improvements, and changes shall remain upon and be surrendered with the
Premises, excepting however that at Landlord's option, Tenant shall, at its
expense, when surrendering the Premises, remove from the Premises and the
Building all such alterations, improvements, and changes, if installed or
made without Landlord's approval or Landlord reserved the right to require
such removal when approving the same, and Tenant shall, on the election of
Landlord, remove any trade fixtures, and in any such case restore the
Premises to a condition reasonably satisfactory to Landlord. If Tenant does
not remove said additions, decorations, fixtures, hardware, non-trade
fixtures and improvements after request to do so by Landlord, Landlord may
remove the same and Tenant shall pay the cost of such removal to Landlord
upon demand. Except to the extent of Landlord's negligent or willful act or
omission, Tenant hereby agrees to hold Landlord and Landlord's beneficiaries,
their agents and employees harmless from any and all liabilities of every
kind and description which may arise out of or be connected in any way with
said alterations or additions. Any mechanic's lien filed against Premises, or
the Building or the Property, for work claimed to have been furnished to
Tenant shall be discharged of record by Tenant within ten (10) days
thereafter, at Tenant's expense, provided however Tenant shall have the right
to contest any such lien on the posting of reasonably sufficient security.
Notwithstanding anything contained in this Lease to the contrary, the
interest of the Landlord shall not be subject to liens for improvements made by
the Tenant and the fee title to the Property shall not be encumbered by any
liens arising out of work performed on the Property, by, at the request of,
under contracts entered into with, or by persons or parties claiming under or
through, Tenant, regardless of whether such work is performed pursuant to this
Lease or pursuant to any other agreement now existing or hereafter arising
between Landlord and Tenant. Further, pursuant to Chapter 713.10, Florida
Statutes, Tenant shall (a) notify each and every contractor who performs such
work in connection with such improvements of this provision, (b) provide a copy
of this provision to each of such contractors, (c) require and cause each of
such contractors to notify and provide a copy of this provision to each person
or party with whom they may deal in connection with the construction of such
improvements and require each such person or party to do likewise with persons
or parties with whom they may deal, to the end that all contractors, persons, or
parties, who provide supplies, furnish labor, or otherwise act to bring about
improvements and betterments to the Property will be placed on actual notice of
this provision.
B. Tenant shall, at the termination of this Lease, surrender the
Premises to Landlord in as good condition and repair as reasonable and proper
use thereof will permit, loss by ordinary wear and tear, fire or other casualty
excepted.
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14. ABANDONMENT
During the term, if Tenant shall abandon, vacate or surrender (whether
at the end of the stated term or otherwise) the Premises, or be dispossessed by
process of law, or otherwise, any personal property belonging to Tenant and left
on the Premises shall be deemed abandoned, at the option of the Landlord.
15. ASSIGNMENT AND SUBLETTING
A. Tenant shall not assign this Lease, or any interest therein and
shall not sublet the Premises or any part thereof, or any right or privilege
appurtenant thereto, or suffer any other person to occupy or use the Premises,
or any portion thereof, without the written consent of Landlord first had and
obtained, which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, Landlord's consent shall not be required for (a)
assignments or subleases to affiliates or subsidiaries of Tenant, so long as:
(i) the use of the Premises does not change; (ii) Landlord is given prior notice
thereof; and (iii) Tenant is not relieved of any of its liabilities or
responsibilities or any liabilities hereunder and, in the case of any
assignment, an assignment and assumption document executed by the Tenant and the
assignee, reasonably acceptable to Landlord, is delivered to Landlord, whereby
the Tenant reaffirms such responsibilities and liabilities and the assignee
assumes all of such responsibilities and liabilities jointly and severally with
Tenant or Co) assignments or subleases to any purchaser of all or substantially
all of the assets of Tenant or any successor to tenant by merger, so long as all
of the conditions in clauses (a)(i) - (iii) of this sentence are satisfied and
the purchaser or successor, after the purchase or merger, respectively, has a
net worth in accordance with consistently applied generally accepted accounting
principles equal to or greater than Tenant's net worth as shown in its financial
statements delivered to Landlord dated as of June 30, 1999, and proof thereof is
furnished to Landlord with the prior notice required by clause (a)(iii) above.
Tenant agrees all advertising by Tenant or on Tenant's behalf in any general
circulation newspaper with respect to the leasing or subletting of the Premises
or any part thereof or assignment of this Lease, must offer the space for lease
at a rental not less than that for which comparable space in the Building is
then being offered by Landlord for rent or not advertise the rental rate for
such space.
B. Except for assignments and subleases to affiliates or subsidiaries
as provided in the immediately preceding paragraph, Tenant shall, by notice in
writing, advise Landlord of its intention from on and after a stated date (which
shall not be less than sixty (60) days after the date of Tenant's notice) to
assign or to sublet any such part of all of the Premises for the balance or any
part of the Term, and, in the event of any assignment of this Lease or the
subletting of all of the Premises, Landlord shall have the right, to be
exercised by giving written notice to Tenant thirty (30) days after receipt of
Tenant's notice, to recapture the Premises and such recapture notice shall, if
given, cancel and terminate this Lease as of the date stated in Tenant's notice.
Tenant's said notice shall state the name and address of the proposed subtenant
or assignee, the proposed subtenant's or assignee's intended use of the
Premises, and shall include the potential subtenant's or assignee's most current
certified financial statement, and a true and complete copy of the proposed
assignment or sublease or form of assignment shall be delivered to Landlord with
said notice. If Tenant's notice shall cover all of the space hereby demised and
if Landlord shall give the aforesaid recapture notice with respect thereto, the
Term of this Lease shall expire
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and end on the date stated in Tenant's notice as fully and completely as if
that date had been herein definitely fixed for the expiration of the Term. If
Landlord, upon receiving Tenant's said notice with respect to any such space,
shall not exercise its right to cancel as aforesaid, Landlord will not
unreasonably withhold its consent to Tenant's assigning or subletting the
space covered by its notice, provided; (i) at the time thereof Tenant is not
in default under this Lease, (ii) Landlord, in its sole discretion reasonably
exercised, determines that the reputation, business, proposed use of the
Premises and financial responsibility of the proposed sublessee or occupant,
as the case may be, of the Premises are satisfactory to Landlord, (iii) any
assignee or subtenant shall expressly assume all the obligations of this
Lease on Tenant's part to be performed; (iv) such consent if given shall not
release Tenant of any of its obligations (including, without limitation, its
obligation to pay rent) under this Lease, (v) Tenant agrees specifically to
pay over to Landlord, as additional rent, fifty percent (50%) of ail sums
received by Tenant under the terms and conditions to such assignment or
sublease, which are in excess of Tenant's actual and reasonable subletting
costs and the amounts otherwise required to be paid pursuant to the Lease;
(vi) a consent to one assignment, subletting occupation or use shall be
limited to such particular assignment, sublease or occupation and shall not
be deemed to constitute Landlord's consent to an assignment or sublease to or
occupation by another person. Any such assignment or subletting without such
consent shall be void and shall, at the option of Landlord, constitute a
default under this Lease. Tenant will pay all of Landlord's costs associated
with any such assignment or subletting including but not limited to
reasonable legal fees; and (vii) the person or entity to whom Tenant wishes
to assign or sublet is not (nor, immediately prior to such assignment or
sublease, was) a tenant or occupant in the Buildings; or any other building
owned or operated by Landlord or any affiliate thereof, in the same complex
as the Building.
16. SIGNS
Tenant shall not place or affix any exterior or interior signs visible
from the outside of the Premises.
17. DAMAGE TO PROPERTY - INJURY TO PERSONS
A. Tenant, as a material part of the consideration to be rendered to
Landlord under this Lease, to the extent permitted by law, hereby waives all
claims, except claims caused by or resulting from the non-performance of the
Landlord, or the willful or negligent act or omission of Landlord, its agents,
servants or employees which Tenant or Tenant's successor or assigns may have
against Landlord, its agents, servants, or employees, for loss, theft or damage
to the property and for injuries to persons in, upon or about the Premises or
the Building from any cause whatsoever. Tenant will hold Landlord, its agents,
servants, and employees exempt and harmless from and on account of any damage or
injury to any person, or to the goods, wares, and merchandise of any person,
arising from the uses of the Premises by Tenant or arising from the failure of
Tenant to keep the Premises in good condition as herein provided if
non-performance by the Landlord or the negligence of the Landlord, its agents,
servants or employees does not contribute thereto. Neither Landlord nor its
agents, servants, or employees shall be liable to Tenant for any damage by or
from any act or negligence of any co-tenant or other occupant of the same
Building, or by any owner or occupant of adjoining or contiguous property;
provided, however, that the provisions of this paragraph shall not apply to
negligent or willful acts or omissions of Landlord or the misconduct of any such
individuals or entities. Tenant agrees to
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pay for all damage to the Building or the Premises, as well as all damage to
Tenants or occupants thereof caused by Tenant's misuse or neglect of the
Premises, its apparatus or appurtenances or caused by an licensee,
contractor, agent to employees of Tenant.
B. Particularly, but not in limitation of the foregoing paragraph, ail
property belonging to Tenant or any occupant of the Premises that is in the
Building or the Premises shall be there at the risk of Tenant or other person
only, and Landlord or its agent, servants, or employees (except in case of
non-performance by the Landlord or the negligent or willful acts or omissions of
Landlord or its agents, servants, or employees) shall not be liable for damage
to or theft of or misappropriation of such property; nor for any damage to
property entrusted to Landlord, its agents, servants, or employees, if any; nor
for the loss of or damage to any property by theft or otherwise, by any means
whatsoever, nor for any injury or damage to per. sons or property resulting from
fire, explosion, failing plaster, steam, gas, electricity, snow, water or rain
which may leak from any part of the Building or from the pipes, appliances or
plumbing works therein or from the roof, street or subsurface or from any other
place or resulting from dampness or any other cause whatsoever; nor for
interference with the light or other incorporeal hereditaments, nor for any
latent defect in the Premises or in the Building. Tenant shall give prompt
notice to Landlord in case of fire or accidents in the Premises or in the
Building or of defects therein or in the fixtures or equipment.
C. In case any action or proceeding be brought against Landlord by
reason of any obligation on Tenant's part to be performed under the term of this
Lease, or arising from any act or negligence of the Tenant, or of its agents or
employees, Tenant, upon notice from Landlord shall defend the same at Tenant's
expense by counsel reasonably satisfactory to Landlord.
D. Tenant shall maintain in full force and effect during the term of
this Lease (including any period prior to the beginning of the term during which
Tenant has taken possession and including also any period of extension of the
Term in which Tenant obtains possession), in responsible companies licensed to
do business in the Jurisdiction in which the Property is located and approved by
Landlord (i) fire and extended coverage insurance (including an endorsement for
vandalism and malicious mischief) covering all Tenant's property in, on or about
the Premises, with full waiver of subrogation rights against Landlord in an
amount equal to the full replacement cost of such Property, and (ii) public
liability insurance insuring Tenant against all claims, demands or action for
injury to or death of any one person in an amount of not less than TWO MILLION
($2,000,000.00) DOLLARS and for injury to or death of more than one person in
any one accident in an amount not less than THREE MILLION ($3,000,000.00)
DOLLARS and for damage to property in an amount of not less than ONE HUNDRED
THOUSAND ($100,000.00) DOLLARS or such other amounts as Landlord may reasonably
require from time to time and (iii) rental insurance equal to one year's rent
insurance. All liability policies shall cover the entire demised premises.
Landlord shall maintain in full force and effect during the term of this Lease
fire and extended coverage insurance for the full replacement cost of the
Building (including, windstorm insurance to the extent available to Landlord at
commercially reasonable rates and on a commercially reasonable basis, as
determined by Landlord in its reasonable discretion) and public liability
insurance covering common areas of the Building, in at least the amount required
to be maintained by Tenant, the premiums for which shall be included in the
Operating Costs.
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E. All such policies shall name Landlord, any mortgagees of
Landlord, and all other parties designated by Landlord as additional parties
insured. All insurance policies shall indicate that at least thirty (30) days
prior written notice shall be delivered to all additional parties insured by
the insurer prior to modification, termination, or cancellation of such
insurance and Tenant shall provide Certificates of Insurance, not less than
ten (10) days prior to the Commencement Date, evidencing the aforesaid
coverage to all insured parties. Failure of Tenant to provide the insurance
coverage set forth in subparagraphs (ii) and (iii) in the immediately
preceding paragraph shall entitle Landlord to either (a) treat said failure
as a default and/or Co) obtain such insurance and charge Tenant the premiums
therefor plus interest thereon as additional rent. Tenant shall not violate
or permit a violation of any of the conditions or terms of any such insurance
policies and shall perform and satisfy all reasonable requirements of the
insurance company issuing such policies. With respect to any insurance policy
procured to comply with any financial assurance requirement imposed by any
state or federal law or regulation, or to any other casualty, property, or
environmental impairment insurance purchased by Tenant, such policy or
policies shall name Landlord and any mortgagees of Landlord as additional
parties insured.
18. DAMAGE OR DESTRUCTION
In the event the Premises or the Building are damaged by fire or
other insured casualty and the insurance proceeds have been made available
therefor by the holder or holders of any mortgages or deeds of trust coveting
the Building, the damage shall be repaired by and at the expense of Landlord
to the extent of such insurance proceeds available therefor, provided such
repairs can, in Landlord's reasonable opinion, be made within two hundred
seventy (270) days after the occurrence of such damage without the payment of
overtime or other premiums. Until such repairs are completed, the rent shall
continue to be paid by Tenant's rental insurance and shall otherwise be
abated to the extent the Premises are rendered untenantable. If repairs
cannot, in Landlord's reasonable opinion be made within two hundred seventy
(270) days, Landlord shall notify Tenant within thirty (30) days following
the occurrence of such damage of its determination, in which event, or in the
event such repairs are commenced but are not substantially completed within
two hundred seventy (270) days of the date of such occurrence, either party
may, by written notice to the other, cancel this Lease as of the date of the
occurrence of such damage. Except as provided in this Section, there shall be
no abatement of rent and no liability of Landlord by reason of any injury to
or interference with Tenant's business or property arising from any such fire
or other casualty or from the making or not making of any repairs,
alterations or improvements in or to any portion of the Building or the
Premises or in or to fixtures, appurtenances and equipment therein. Tenant
understands that Landlord will not carry insurance of any kind on Tenant's
furniture or furnishings or on any fixtures or equipment removable by Tenant
under the provisions of this Lease and that Landlord shall not be obliged to
repair any damage thereto or replace the same. Landlord shall not be required
to repair any injury or damage caused by fire or other cause, or to make any
repairs or replacements to or of improvements installed in the Premises by or
for Tenant.
19. ENTRY BY LANDLORD
Landlord and its agents shall have the right to enter the Premises at
all reasonable times (upon reasonable notice except in cases of emergency) for
the purpose of examining or
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inspecting the same, to supply janitorial services and any other service to
be provided by Landlord to Tenant hereunder or any other tenants, to show the
same to prospective purchasers of the Property or tenants for the Building,
and make such alterations, repairs, improvements, or additions, whether
structural or otherwise, to the Premises or to the Building as Landlord may
deem necessary or desirable. Landlord may enter by means of a master key
without liability to Tenant except for any failure to exercise due care for
Tenant's property and without affecting this Lease. Landlord shall use
reasonable efforts on any such entry not to unreasonably interrupt or
interfere with Tenant's use and occupancy of the Premises.
20. INSOLVENCY OR BANKRUPTCY
A. In the event that Tenant shall become a debtor under Chapter 7,
11 or 13 of the Bankruptcy Code ("Debtor") and the trustee ("Trustee") or
Tenant shall elect to assume this Lease for the purpose of assigning the same
or otherwise, such election and assignment may only be made if all of the
terms and conditions of Sections 20.B and 20.D hereof are satisfied. The
Tenant acknowledges that it is essential to the ability of Landlord to
continue servicing the mortgage on the Building that a decision on whether to
assume or reject this Lease be made promptly. Under these circumstances,
Tenant agrees that should Tenant, as debtor-in-possession
("Debtor-in-Possession") or any Trustee appointed for Tenant, fail to elect
to assume this Lease within sixty (60) days after the filing of the petition
under the Bankruptcy Code ("Tenant's Petition"), this Lease shall be deemed
to have been rejected. Tenant further knowingly and voluntarily waives any
right to seek additional time to affirm or reject the Lease and acknowledges
that there is no cause to seek such extension. If Tenant, as
Debtor-in-Possession, or the Trustee abandons the Premises, the same shall be
deemed a rejection of the Lease. Landlord shall be entitled to at least
thirty (30) days prior written notice from Tenant, as Debtor-in-Possession,
or its Trustee of any intention to abandon the Premises. Landlord shall
thereupon be immediately entitled to possession of the Premises without
further obligation to Tenant or the Trustee, and this Lease shall be
cancelled, but Landlord's right to be compensated for damages in such
liquidation proceeding shall survive.
B. No election by the Trustee or Debtor-in-Possession to assume this
Lease, whether under Chapter 7, 11 or 13, shall be effective unless each of
the following conditions, which Landlord and Tenant acknowledge are
commercially reasonable in the context of a bankruptcy proceeding of Tenant,
have been satisfied, and Landlord has so acknowledged in writing:
(i) The Trustee or the Debtor-in-Possession has cured, or has
provided Landlord adequate assurance (as defined below) that:
(a) Within ten (10) days from the date of such assumption
the Trustee will cure all monetary defaults under this Lease; and
(b) Within thirty (30) days from the date of such
assumption the Trustee will cure all non-monetary defaults under this Lease.
(ii) The Trustee or the Debtor-in-Possession has compensated,
or has provided to Landlord adequate assurance that within ten (10) days from
the date of assumption Landlord will be compensated, for any pecuniary loss
incurred by Landlord arising from the default of
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Tenant, the Trustee, or the Debtor-in-Possession as recited in Landlord's
written statement of pecuniary loss sent to the Trustee or Debtor-in-
Possession.
(iii) The Trustee or the Debtor-in-Possession has provided
Landlord with adequate assurance of the future performance (as defined below)
of each of Tenant's the Trustee's or Debtor-in-Possession's obligations under
this Lease, provided, however, that:
(a) The Trustee or Debtor-in-Possession shall also deposit
with Landlord, as security for the timely payment of rent, an amount equal to
three (3) months Base Rent (as adjusted pursuant to Section 20.B.(3)(c)
below) and other monetary charges accruing under this Lease; and
(b) If not otherwise required by the terms of this Lease,
the Trustee or Debtor-in- Possession shall also pay in advance one-twelfth
(1/12') of Tenant's annual obligations under this Lease for Operating Costs,
Taxes, insurance and similar charges.
(c) From and alter the date of the assumption of this
Lease, the Trustee or Debtor-in-Possession shall pay as minimum rent an
amount equal to the sum of the minimum rent otherwise payable hereunder,
within the five (5) year period prior to the date of Tenant's Petition, which
amount shall be payable in advance in equal monthly installments.
(d) The obligations imposed upon the Trustee or
Debtor-in-Possession shall continue with respect to Tenant or any assignee of
this Lease after the completion of bankruptcy proceedings.
(iv) The assumption of the Lease will not breach any provision
in any other lease, mortgage, financing agreement or other agreement by which
Landlord is bound relating to the Property.
(v) The Tenant as Debtor-in-Possession or its Trustee shall
provide the Landlord at least forty-five (45) days' prior written notice of
any proceeding concerning the assumption of this Lease.
(vi) For purposes of this Section 20.B, Landlord and Tenant
acknowledges that, in the context of a bankruptcy proceeding of Tenant, at a
minimum "adequate assurance" shall mean:
(a) The Trustee or the Debtor-in-Possession has and will
continue to have sufficient unencumbered assets after the payment of all
secured obligations and administrative expenses to assure Landlord that the
Trustee or Debtor-in-Possession will have sufficient funds to fulfill the
obligations of Tenant under this Lease.
(b) The Bankruptcy Court shall have entered an order
segregating sufficient cash payable to Landlord, and/or the Trustee or
Debtor-in-Possession shall have granted a valid and perfected first lien and
security interest and/or mortgage in property of Tenant, the Trustee or
Debtor-in-Possession, acceptable as to value and kind to Landlord, to secure
to Landlord the obligation of the Trustee or Debtor-in-Possession, to cure
the monetary and/or non-monetary defaults under this Lease within the time
periods set forth above.
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C. In the event that this Lease is assumed by a Trustee appointed
for Tenant or by Tenant as Debtor-in-Possession, under the provisions of
Section 20.B hereof, and thereafter Tenant is liquidated or files a
subsequent Tenant's Petition for reorganization or adjustment of debts under
Chapter 11 or 13 of the Bankruptcy Code, then, and in either of such events,
Landlord may, at its option, terminate this Lease and all rights of Tenant
hereunder, by giving Tenant written notice of its election to so terminate,
within thirty (30) days after the occurrence of either of such events.
D. If the Trustee or Debtor-in-Possession has assumed this Lease
pursuant to the terms and provisions of 20.A and 20.B hereof, for the purpose
of assigning (or elects to assign) Tenant's interest under this Lease or the
estate created thereby, to any other person, such interest or estate may be
so assigned only if Landlord shall acknowledge in writing that the intended
assignee has provided adequate assurance as defined in this Section 20.D of
future performance of all of the terms, covenants and conditions of this
Lease to be performed by Tenant.
For purposes of this Section 20.D, Landlord and Tenant
acknowledge that, in the context of a bankruptcy proceeding of Tenant, at a
minimum "adequate assurance of future performance" shall mean that each of
the following conditions have been satisfied, and Landlord has so
acknowledged in writing:
(a) The assignee has submitted a current financial statement
audited by a certified public accountant which shows a net worth and working
capital in amounts determined to be sufficient by Landlord to assure the
future performance by such assignee of Tenant's obligations under this Lease;
(b) The assignee, if requested by Landlord, shall have
obtained guarantees in form and substance satisfactory to Landlord from one
or more persons who satisfy Landlord's standards of creditworthiness; and
(c) The Landlord has obtained all consents or waivers from any
third party required under any lease, mortgage, financing arrangement or
other agreement by which Landlord is bound to permit Landlord to consent to
such assignment.
E. When, pursuant to the Bankruptcy Code, the Trustee or
Debtor-in-Possession shall be obligated to pay reasonable use and occupancy
charges for the use of the Premises or any portion thereof, such charges
shall not be less than the minimum rent as defined in this Lease and other
monetary obligations of Tenant for the payment of Operating Costs, Taxes,
insurance and similar charges.
F. Neither Tenant's interest in this Lease, nor any lesser interest
of Tenant herein, nor any estate of Tenant hereby created, shall pass to any
trustee, receiver, assignee for the benefit of creditors, or any other person
or entity, or otherwise by operation of law, unless Landlord shall consent to
such transfer in writing. No acceptance by Landlord of rent or any other
payments from any such trustee, receiver, assignee, person or other entity
shall be deemed to have waived, nor shall it waive the need to obtain
Landlord's right to terminate this Lease for any transfer of Tenant's
interest under this Lease without such consent.
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G. In the event the estate of Tenant created hereby shall be taken
in execution or by the process of law, or if Tenant or any guarantor of
Tenant's obligations shall be adjudicated insolvent pursuant to the
provisions of any present or future insolvency law under state law, or if any
proceedings are filed by or against such guarantor under the Bankruptcy Code,
or any similar provisions of any future federal bankruptcy law, or if a
custodian receiver or Trustee of the property of Tenant or such guarantor
shall he appointed under state law by reason of Tenant's or such guarantor's
insolvency or inability to pay its debts as they become due or otherwise, or
if any assignment shall be made of Tenant's or such guarantor's property for
the benefit of creditors under state law; then and in any such event Landlord
may, at its option, terminate this Lease and all rights of Tenant hereunder
by giving Tenant written notice of the election to so terminate within thirty
(30) days after the occurrence of such event.
21. DEFAULT
A. If any of the following events of default shall occur, to wit;
(i) Tenant defaults for more than five (5) days after notice
of default after the due date therefor in the payment of rent (whether Base
Rent or additional rent) or any other sum required to be paid hereunder, or
any part thereof, or
(ii) Tenant defaults in the prompt and full performance of any
other (i.e. other than payment of rent or any other sum) covenant, agreement
or condition of this Lease and such other default shall continue for a period
of twenty (20) days after written notice thereof from Landlord to Tenant
(unless such other default involves a h~Tardous condition, in which event it
shall be cured forthwith); provided, however, that in the event such default
cannot be cured within a period of twenty (20) days and Tenant is diligently
attempting to cure such default, the time period to cure same shall be
reasonably extended but in no event for a period of more than ninety (90)
days, or
(iii) The leasehold interest of Tenant be levied upon under
execution or be attached by process of law, or if Tenant abandons the Premises,
or
(iv) Bankruptcy or insolvency of Tenant,
then in any such event, Landlord, besides any other rights or remedies that
it may have, shall have the immediate right of re-entry and may remove all
persons and property from the Premises; such Property may be removed and
stored in any other place in the Building in which the Premises are situated,
or in any other place, for the account of and at the expense and at the risk
of Tenant.
B. Tenant hereby waives all claims for damages which may be caused by
the re-entry of Landlord and taking possession of the Premises or removing or
storing the furniture and property as herein provided, and will save Landlord
harmless fi'om any loss, costs, or damages occasioned Landlord thereby, and no
such re-entry shall be considered or construed to be a forcible entry.
C. Should Landlord elect to re-enter, as herein provided, or should it
take possession pursuant to legal proceedings or pursuant to any notice provided
for by law; it may either
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terminate this Lease or it may from time to time, without terminating this
Lease, re-let the Premises or any part thereof for such terms and at such
rental or rentals and upon such other terms and conditions as Landlord in its
sole discretion may deem advisable, with the right to make alterations and
repairs to the Premises; provided, however, that unless and until Landlord
notifies Tenant of Landlord's election to terminate this Lease, no such
termination shall occur, notwithstanding the vacation of the Premises or the
purported or attempted abandonment or surrender of the leasehold by Tenant or
the changing of any locks to the Premises by Landlord.
D. Landlord may elect to apply any and all rentals and other monies
received by it from re-letting the Premises (i) to the payment of any
indebtedness, other than rent, due hereunder from Tenant to Landlord; (ii) to
the payment of any cost of such re-letting including but not limited to any
broker's commissions or fees in connection therewith; (iii) to the payment of
the cost of any alterations and repairs to the Premises; (iv) to the payment
of rent due and unpaid hereunder; and the residue, if any, shall be held by
Landlord and applied in payment of future rent as the same may become due and
payable hereunder. Should such rentals received from such re-letting after
application by Landlord to the payments described in foregoing clauses (i)
through (iv) during any month be less than that agreed to be paid during that
month by Tenant hereunder, then Tenant shall pay such deficiency to Landlord.
Such deficiency shall be calculated and paid monthly on demand by Landlord.
E. In lieu of electing to receive and apply rentals as provided in
the immediately preceding paragraph, Landlord may elect to receive fi.om
Tenant as and for Landlord's liquidated damages for Tenant's default, an
amount equal to the present value of the entire amount of Base Rent provided
for in this Lease for the remainder of the Term, which amount shall be
forthwith due and payable by Tenant upon its being advised of such election
by Landlord.
F. No such re-entry or taking possession of the Premises by Landlord
shall be construed as an election on its part to terminate this Lease unless
a written notice of same is given to Tenant or unless the termination thereof
be decreed by a court of competent jurisdiction. Notwithstanding any such
re-letting without termination, Landlord may at any time thereafter elect to
terminate this Lease for such previous breach.
G. Nothing herein contained shall limit or prejudice the right of
Landlord to provide for and obtain as damages by reason of any such
termination of this Lease or of possession an amount equal to the maximum
allowed by any statute or role of law in effect at the time when such
termination takes place, whether or not such amount be greater, equal to or
less than the amounts of damages which Landlord may elect to receive as set
forth above. Notwithstanding anything to the contrary herein contained or any
other rights exercised by Landlord hereunder, upon the occurrence of an event
of a monetary or material default by Tenant under the terms of this Lease,
rent which otherwise would be due or would have been due except for any
abatement provided for in this Lease shall be immediately due and payable.
H. Notwithstanding anything to the contrary herein contained, if
Landlord shall fail to perform any covenant contained in this Lease upon
Landlord's part to be performed, and if as a consequence, Tenant shall
recover a money judgment against Landlord, such judgment shall be satisfied
solely out of the proceeds of the sale of Landlord's interest in the Property
as may be
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undertaken by Tenant in execution upon such judgment (which sale shall in all
events be subject to any mortgages then encumbering the Property). In no
event shall Tenant be entitled to collect or recoup the amount of such
judgment (i) by setting off its rental obligation hereunder against the
amount of such judgment, (ii) by executing on any bank accounts or assets of
Landlord other than the Property, or (iii) by seeking or obtaining any
deficiency judgment against Landlord or any of Landlord's constituent
partners.
22. RULES AND REGULATIONS
The roles and regulations attached hereto and marked Appendix "C",
as well as such reasonable rules and regulations as may be hereafter adopted
by Landlord for the safety, care and cleanliness of the Premises and the
preservation of good order thereon, are hereby expressly made a part hereof,
and Tenant agrees to obey all such roles and regulations. The violation of
any such rules and regulations by Tenant shall be deemed a default under this
Lease by Tenant, affording Landlord all those remedies set out in the Lease.
Landlord shall not be responsible to Tenant for the non-performance by any
other tenant or occupant of the Building or any of said rules and
regulations. Landlord agrees all rules and regulations shall be uniformly
enforced.
23. NON REAL ESTATE TAXES
During the term hereof, Tenant shall pay prior to delinquency all
taxes assessed against and levied upon fixtures, furnishings, equipment and
all other personal property of Tenant contained in the Premises, and Tenant
shall cause said fixtures, furnishing, equipment and other personal property
to be assessed and billed separately from the real property of Landlord. In
the event any or all of the Tenant's fixtures, furnishings, equipment and
other personal property shall be assessed and taxed with the Landlord's real
property, the Tenant shall pay to Landlord its share of such taxes within ten
(10) days after delivery to Tenant by Landlord of a statement in writing
setting forth the amount of such taxes applicable to the Tenant's property.
24. PERSONAL PROPERTY
Tenant hereby conveys to the Landlord all the personal property
situated on the Premises as security for the payment of ail rentals due or to
become due hereunder. Said property shall not be removed therefrom without
the consent of the Landlord, until all rent due or to become due hereunder
shall have first been paid and discharged. It is intended by the parties
hereto that this Lease constitutes a security agreement creating a security
interest in and to such property, and Landlord, upon default of Tenant in the
payment of rent, shall have all the rights of a secured party as provided in
the Uniform Commercial Code, as from time to time in effect. Tenant further
agrees to execute any financing statements required to perfect Landlord's
interest in such property.
25. EMINENT DOMAIN
If the Building, or a substantial part thereof or a substantial part
of the Premises, shall be lawfully taken or condemned or conveyed in lieu
thereof, (or conveyed under threat of such taking or condemnation), for any
public or quasi-public use or purpose, the term of this Lease shall end upon
and not before the date of the taking of possession by the condemning
authority and without apportionment of the award. Tenant hereby assigns to
Landlord Tenant's interest, if
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any, in such award and specifically agrees that any such award shall be the
entire property of Landlord in which Tenant shall not be entitled to share.
Tenant further waives any right to challenge the right of the condemning
authority to proceed with such taking. Current rent shall be apportioned as
of the date of such termination. If any part of the Building other than the
Premises or not constituting a substantial part of the Premises, shall be so
taken or condemned (or conveyed under threat of such taking or condemnation),
or if the grade of any street adjacent to the Building is changed by any
competent authority and such taking or change of grade makes it necessary or
desirable to substantially remodel or restore the Building, Landlord shall
have the right to cancel this Lease upon not less than ninety (90) days
notice prior to the date of cancellation designated in the notice. No money
or other consideration shall be payable by Landlord to Tenant for the right
of cancellation, and Tenant shall have no right to share in any condemnation
award or in any judgment for damages or in any proceeds of any sale made
under any threat of condemnation or taking. Tenant shall have the right to
separately pursue its own award for relocation expenses in the event of such
condemnation proceedings.
26. SUBORDINATION
A. Landlord has heretofore and may hereafter from time to time
execute and deliver mortgages or trust deeds in the nature of a mortgage,
both referred to herein as "Mortgages" against the Land and Building, or any
interest therein. If requested by the mortgagee or trustee under any
Mortgage, Tenant hereby irrevocably authorizes Landlord to subordinate
Tenant's interest in this Lease to said Mortgages, and to any and ail
advances made thereunder and to the interest thereon, and to all renewals,
replacements, modifications and extensions thereof, and to thereby make
Tenant's interest in this lease inferior thereto; provided that so long as
Tenant is not in default hereunder, its tenancy shall not be disturbed.
Tenant shall execute any and all documents required by the holder of any of
the Mortgages consistent with this Section 26, including, without limitation,
a Subordination, Non-Disturbance and Attornment Agreement in substantially
the form attached hereto as APPENDIX "E".
B. It is further agreed that (i) if any Mortgage shall be foreclosed
(a) the liability of the mortgagee or trustee thereunder or purchaser at such
foreclosure sale or the liability of a subsequent owner designated as
Landlord under this Lease shall exist only so long as such trustee,
mortgagee, purchaser or owner is the owner of the Building and such liability
shall not continue or survive after further transfer of ownership; and Co)
upon request of the mortgagee or trustee, Tenant will attorn as Tenant under
this Lease, to the purchaser at any foreclosure sale under any Mortgage, and
Tenant will execute such instruments as may be necessary or appropriate to
evidence such attornment; and (ii) this Lease may not be modified or amended
so as to reduce the rent or shorten the term provided hereunder, or so as to
adversely affect in any other respect to any material extent the rights of
the Landlord, nor shall this Lease be canceled or surrendered without the
prior written consent, in each instance of the mortgagee or trustee under any
Mortgage. It is understood that Tenant's tenancy shall not be disturbed so
long as Tenant is not in default under this Lease.
C. No mortgagee and no person acquiring title to the premises by
reason of foreclosure of any Mortgage or by conveyance in lieu of foreclosure
shall have any obligation or liability to Tenant on account of any security
deposit unless such mortgagee or tifie holder shall receive such security
deposit in cash.
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27. WAIVER
The waiver of Landlord of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach of the same or any other term,
covenant, or condition herein contained. The acceptance of rent hereunder
shall not be consumed to be a waiver of any breach by Tenant of any term,
covenant or condition of this Lease. It is understood and agreed that the
remedies herein given to Landlord shall be cumulative, and the exercise of
any one remedy by Landlord shall not be to the exclusion of any other remedy.
It is also agreed that after the service of notice or the commencement of a
suit or judgment for possession of the Premises, Landlord may collect and
receive any monies due, and the payment of said monies shall not waive or
affect said notice, suit or judgment.
28. INABILITY TO PERFORM
This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant
to be performed shall not be affected, impaired or excused, nor shall
Landlord at any time be deemed to be in default hereunder because Landlord is
unable to fulfill any of its obligations under this Lease or to supply or is
delayed in supplying any service expressly or by implication to be supplied
or is unable to make, or is delayed in making any Tenant improvement, repair,
additions, alterations, or decorations or is unable to supply or is delayed
in supplying any equipment or fixtures if Landlord is prevented or delayed
from so doing by reason of strike or labor troubles or any outside cause
whatsoever beyond the reasonable control of Landlord, including but not
limited to riots and civil disturbances or energy shortages or governmental
preemption in connection with a national emergency or by reason of any rule,
order, or regulation of any department or subdivision thereof of any
government agency or by reason of the conditions of supply and demand which
have been or are affected by war or other emergency.
29. SUBROGATION
The parties hereto agree to use good faith efforts to have any and
all fire, extended coverage or any and all material damage insurance which
may be carded endorsed with a subrogation clause substantially as follows:
"This insurance shall not be invalidated should the insured waive in writing
prior to a loss any or ail right of recovery against any party for loss
occurring to the property described herein"; and each party hereto waives all
claims for recovery from the other party for any loss or damage (whether or
not such loss or damage is caused by negligence of the other party and
notwithstanding any provision or provisions contained in this Lease to the
contrary) to any of its property insured under valid and collectible
insurance policies to the extent of any recovery collectible under such
insurance, subject to the limitation that this waiver shall apply only when
it is permitted by the applicable policy of insurance.
30. SALE BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building
containing the Premises, the same shall operate to release Landlord from any
future liability upon any of the covenants or conditions, expressed or
implied, herein contained in favor of Tenant, and in such event Tenant
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agrees to look solely to the responsibility of the successor in interest of
Landlord in and to this Lease. If any security deposit has been made by
Tenant hereunder, Landlord shall transfer such security deposit to such
successor in interest of Landlord and thereupon Landlord shall be released
from any further obligations hereunder. This Lease shall not be affected by
any such sale, and the Tenant agrees to attorn to the purchaser or assignee.
31. RIGHTS OF LANDLORD TO PERFORM
All covenants and agreements to be performed by Tenant under any of
the terms of this Lease shall be performed by Tenant at Tenant's sole cost
and expense and without any abatement of rent. If Tenant shall fail to pay
any stun of money, other than rent, required to be paid it hereunder, or
shall fall to perform any other act on its part to be performed hereunder,
and such failure shall continue for ten (10) days after notice thereof by
Landlord, Landlord may, but shall not be obligated so to do, and without
waiving or release Tenant from any obligations of Tenant, make any such
payment or perform any such other act on Tenant's part to be made or
performed as in this Lease provided. All sums so paid by Landlord and all
necessary incidental costs together with interest thereon at the rate
heretofore set forth with respect to late payments of rent, computed from the
date of such payment by Landlord shall be payable to Landlord on demand and
the Landlord shall have (in addition to any other right or remedy of
Landlord) the same rights and remedies in the event of the non-payment
thereof by Tenant as in the case of default by Tenant in the payment of rent.
32. ATTORNEYS' FEES
In the event of any litigation between Tenant and Landlord to
enforce any provision of this Lease, or any right of either party hereto, the
unsuccessful party of such litigation, shall pay to the prevailing party all
costs and expenses, including reasonable attorneys' fees, incurred therein.
Moreover, if either party, without fault is made a party to any litigation
instituted by or against the other party, the other party shall indemnify
such party without fault against and save it harmless from all costs and
expenses, including reasonable attorneys' fees incurred by it in connection
therewith.
33. ESTOPPEL CERTIFICATE
Each party shall, at any time and from time to time upon not less
than ten (10) days' prior written notice from the other, execute, acknowledge
and deliver to the requesting party a statement in writing certifying that
this Lease is unmodified and in full force and effect (or if modified,
stating the nature of the modification and certifying that this Lease, as so
modified, is in full force and effect) and the dates to which the rental and
other charges are paid and acknowledging that there are not, to such
certifying party's knowledge, any uncured defaults on the part of the other
party hereunder or specifying such defaults if any are claimed, as well as
any other reasonable information requested by Landlord. In the case of a
statement made by Tenant, it is expressly understood and agreed that any such
statement may be relied upon by any prospective purchaser or encumbrancer of
all or any portion of the real property of which the Premises are a part.
Tenant's failure to deliver such statement within such time shall be
conclusive upon Tenant that this Lease is in full force and effect, without
modification except as
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may be represented by Landlord, that there are no uncured defaults in
Landlord's performance and that not more than two (2) months' rental has been
paid in advance.
34. PREPARATION
Landlord agrees to cause the Premises to be completed in accordance
with the plans, specification and agreements approved by both parties on the
terms, conditions, and provision as provided in the plans attached hereto in
APPENDIX "D" which is attached hereto and made a part of this Lease. Upon
completion and delivery thereof, Seller makes no promise to alter, remodel,
decorate, clean, or improve the Premises or the Building and to
representation or warranty expressed or implied, the condition of the
Premises or the Building having been made. It is further understood that to
the extent that any repairs, replacements or corrections are required to be
made to the Premises and/or Building of any kind whatsoever, to cause same to
comply with any applicable law, rule or regulation, whether federal, state or
local, that the cost thereof shall be fully the responsibility of Tenant.
35. NOTICE
Any notice from Landlord to Tenant or from Tenant to Landlord may be
served personally, by mail, by overnight delivery, by affixing a copy on any
door leading into the Premises or by facsimile transmission. If served by
mail, notice shall be deemed served on the second day after mailing by
registered or certified mail, addressed to Tenant at the Premises or to
Landlord at the place from time to time established for the payment of rent
and a copy thereof shall until further notice, be served personally or by
registered or certified mail to Landlord at the address shown for service of
notice in the Lease Schedule. In the event of a release or threatened release
of pollutants or contaminants to the environment resulting from Tenant's
activities at the site or in the event any claim, demand, action or notice is
made against the Tenant regarding Tenant's failure or alleged failure to
comply with any local, state and federal environmental rules, regulations,
statutes and laws, the Tenant shall immediately notify the Landlord in
writing and shall give to Landlord copies of any written claims, demands or
actions, or notices so made.
36. DEPOSIT
Tenant will deposit with Landlord the amount set forth as the
Security Deposit in the Lease Schedule as security for the full and faithful
performance of every provision of this Lease to be performed by Tenant. If
Tenant defaults with respect to any provision of this Lease, including but
not limited to the provisions relating to the payment of rent, Landlord may
use, apply or retain all or any part of this Security Deposit for the payment
of any rent and any other sum in default, or for the payment of any other
amount which Landlord may spend or become obligated to spend by reason of
Tenant's default or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of said
deposit is to be used or applied, Tenant shall within ten (10) days after
written demand therefor deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount and Tenant's failure to
do so shall be a material breach of this Lease. Landlord shall not be
required to keep this Security Deposit separate from its general funds and
Tenant shall not be entitled to interest on such deposit. If Tenant shall
fully and faithfully perform every provision of this Lease to be performed by
it, the Security Deposit or any balance thereof shall be returned
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to Tenant (or at Landlord's option to the last assignee of Tenant's interest
hereunder) at the expiration of the lease term and upon Tenant's vacation of
the Premises.
37. RIGHTS RESERVED
Landlord reserves the following rights, exercisable without notice
and without liability to Tenant for damage or injury to property, person or
business and without effecting an eviction, constructive or actual or
disturbance of Tenant's use or possession or giving rise to any claim for
set-off or abatement of rent:
A. To change the Building's name or street address;
B. To install, affix and maintain any and all signs on the interior
or exterior of the Building or on the Property;
C. To designate and approve, prior to installation, all types of
window shades, blinds, drapes, awnings, window ventilators and other similar
equipment, and to control all interior or exterior lighting of the Building;
D. To designate, restrict and control all sources from which Tenant
may obtain sign painting and lettering, food and beverages or other services
on the Premises, and in general to designate, limit, restrict and control any
service in or to the Building and its tenants, provided such services as are
designated by Landlord are reasonably competitive as to the rates charged
thereby, and further provided that such designation, restrictions, or
controls do not prohibit Tenant's operations in accordance with the terms of
this Lease. No vending or dispensing machines of any kind shall be placed in
or about the Premises without the prior written consent of Landlord, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing, it
is understood that Tenant shall have the right to operate beverage machines,
microwave ovens, and refrigerators for the convenience of its employees and
invitees;
E. To retain at all times, and to use in appropriate instances, keys
and/or keycards, to all doors within and into the Premises. No locks or bolts
shall be altered, changed or added without the prior written consent of
Landlord;
F. To decorate or to make repairs, alterations, additions or
improvements, whether structural or otherwise, in and about the Building, or
any part thereof, and for such purpose to enter upon the Premises, and during
the continuance of said work to temporarily close doors, entryways, and
public spaces in the Building and to interrupt or temporarily suspend
Building services and facilities, provided that Tenant is not prevented from
access to the Premises;
G. To prescribe the location and style of the suite number and
identification sign or lettering for the Premises occupied by Tenant;
H. To enter the Premises at reasonable hours for reasonable purposes
upon reasonable notice except in cases of emergency, including inspection and
supplying janitorial or any other service to be provided to Tenant hereunder;
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I. To require all persons entering or leaving the Building during
such hours as Landlord may from time to time reasonably determine to identify
themselves to watchmen by designation or otherwise, and to establish their
right to enter or leave in accordance with the provisions of the Lease.
Landlord shall not be liable except for the willful or negligent act or
omission of Landlord in damages for any error with respect to admission to or
eviction or exclusion from the Building of any person. In case of fire,
invasion, insurrection, mob, riot, civil disorder, public excitement or other
commotion, or threat thereof, Landlord reserves the right to limit or prevent
access to the Building during the continuance of the same or otherwise take
such action or preventive measures deemed necessary by Landlord for the
safety of the Tenants or other occupants of the Building or the protection of
the Building and the property in the Building. Tenant agrees to cooperate in
any reasonable safety program developed by Landlord;
J. To control and prevent access to common areas and other
non-general public areas including any loading docks, service elevators, or
roof;
K. To have and retain a paramount title to the Premises flee and
clear of any act of Tenant;
L. To grant to anyone the exclusive right to conduct any business or
render any services in the Building, which do not interfere with Tenant's use
of the Premises;
M. To approve the weight, size and location of safes and other heavy
equipment and articles in and about the Premises and the Building, and to
require all such items and furniture to be moved into and out of the Building
and the Premises only at such times and in such manner as Landlord shall
direct in writing. Movements of Tenant's property into or out of the Building
and within the Building are entirely at the risk and responsibility of Tenant
and Landlord reserves the right to require permits before allowing any such
property to be moved into or out of the building.
38. OPTION TO EXTEND TERM
A. OPTION. Provided (i) Tenant is then occupying at least seventy
percent (70%) of the rentable area of the Premises, and (ii) Tenant's
financial condition, as reasonably determined by Landlord, has not materially
and adversely changed from that existing on the Commencement Date such that
Landlord reasonably determines that Tenant cannot satisfy its duties,
obligations and liabilities under this Lease for the Option Term (as
hereinafter defined), Tenant is given the option to extend the Term hereof
(the "Extension Option"), on all the provisions contained in this Lease as
the same may be amended from time to time (together with such changes as
Landlord may reasonably require in order to conform the terms and provisions
of this Lease to then prevailing industry standards, provided that in no
event shall the duties, obligations or liabilities of Tenant be materially
increased thereby), for one (1) additional five (5) year period (the "Option
Term") following expiration of the initial Term stated in Article 2 of this
Lease (the "Initial Term"), by giving written notice of exercise of the
option (the "Option Notice') to Landlord at least nine (9) months before the
expiration of the Initial Term; provided that in no event shall the Annual
Base Rent for the Option Term be determined prior to the commencement of the
seventh (7th) calendar month preceding the expiration of the Initial Term.
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Notwithstanding the foregoing, if Tenant is in default on the date
of giving the Option Notice, Tenant shall have no right to extend the Term
and this Lease shall expire at the end of the Initial Term; or if Tenant is
in default on the date the Option Term is to commence, the Option Term shall
not commence and this Lease shall expire at the end of the Initial Term.
The Annual Base Rent for the Option Term shall, during the first
year of the Option Term, be in an amount equal to the fair market rental
("Fair Market Rental" as hereinafter defined) of the Premises at the
commencement of the Option Term, but in no event less than 3% greater than
the Base Rent for the last year of the original lease term (the "Adjustment
Date"), and shall escalate by 3% per annum every twelve months during the
balance of the Option Term.
B. FAIR MARKET RENTAL
(i) "Fair Market Rental" shall mean the rate being charged for
comparable space in similar office buildings in the City of Fort Lauderdale,
Florida, with similar amenities, taking into consideration: size, location,
floor level, leasehold improvements or allowances provided (there being no
obligation of Landlord to furnish or pay for any leasehold improvements or
allowances during or in connection with the Option Term), term of the lease,
extent of services to be provided, the time that the particular rate under
consideration became or is to become effective, and any other relevant terms
or conditions. Fair Market Rental as of the Adjustment Date shall be
determined by Landlord with written notice (the "Rent Notice") given to
Tenant on or before the later to occur of (1) the first day of the seventh
(7th) calendar month preceding the expiration of the Initial Term, as the
case may be; and (2) thirty (30) days after receipt of the Option Notices,
subject to Tenant's right to arbitration as hereafter provided. Within
fifteen (15) business days after receipt of the Rent Notice, Tenant shall
either (1) accept Landlord's determination of Fair Market Rental, (2) rescind
its exercise of the Extension Option, or (3) demand arbitration. Failure on
the part of Tenant to either demand arbitration or to rescind its exercise of
the Extension Option within fifteen (15) business days after receipt of the
Rent Notice from Landlord shall bind Tenant to the Fair Market Rental as
determined by Landlord. Should Tenant elect to rescind its exercise of the
Extension Option, the Term of this Lease shall expire on the Expiration Date
of the original Lease Term. Failure on the part of Tenant to demand
arbitration fifteen (15) business days after receipt of the Rent Notice from
Landlord shall bind Tenant to the Fair Market Rental as determined by
Landlord. Should Tenant elect to arbitrate and should the arbitration not
have been concluded prior to the Adjustment Date, Tenant shall pay the Annual
Base Rent to Landlord after the Adjustment Date, adjusted to reflect the Fair
Market Rental as Landlord has so determined. If the amount of the Fair Market
Rental as determined by arbitration is greater than or less than Landlord's
determination, then any adjustment required to adjust the amount previously
paid shall be made by payment by the appropriate party within ten (10) days
after such determination of Fair Market Rental.
(ii) If Tenant disputes the amount claimed by Landlord as Fair
Market Rental, Tenant may require that Landlord submit the dispute to
arbitration. The arbitration shall be conducted and determined in the city
where the Building is located in accordance with the then prevailing rules of
the American Arbitration Association or its successor for arbitration of
commercial disputes, except that the procedures mandated by such rules shall
be modified as follows:
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(a) Tenant shall make demand for arbitration within fifteen
(15) business days after service of the Rent Notice, specifying therein the
name and address of the person to act as the arbitrator on Tenant's behalf.
The arbitration shall be a commercial real estate broker with at least ten
(10) years full-time commercial brokerage experience who is familiar with the
Fair Market Rental of first-class commercial office space in area of Fort
Lauderdale, Florida. Failure on the part of Tenant to make the timely and
proper demand for such arbitration shall constitute a waiver of the right
thereto. Within ten (10) business days after the service of the demand for
arbitration, Landlord, at its option, may give notice to Tenant specifying
the name and address of the person designated by Landlord to act as
arbitrator on its behalf, which arbitrator shall be similarly qualified.
(b) If two arbitrators are chosen pursuant to paragraph
(B)(ii)(1) above, the arbitrators so chosen shall meet within ten (10) days
after the second arbitrator is appointed and shall appoint a third
arbitrator, who shall be a competent and impartial person with qualifications
similar to those required of the first two arbitrators pursuant to paragraph
(B)(ii)(1) above. If they are unable to agree upon such appointment within
five (5) business days after expiration of such ten (10) days period, the
third arbitrator shall be selected by the parties themselves. If the parties
do not so agree, then either party, on behalf of both, may request
appointment of such a qualified person by the then president of the Board of
Realtors for the county in which the Building is located. The single
arbitrator or three arbitrators, as the case may be, shall decide the
dispute, if it has not been previously resolved, by following the procedures
set forth in paragraph (B)(ii)(3) below.
(c) The Fair Market Rental shall be fixed by the single
arbitrator or three arbitrators, as the case may be, in accordance with the
following procedures. If there is only a single arbitrator, then his
determination of the Fair Market Rental shall be final and binding upon the
parties. If there are three (3) arbitrators, then each of the two (2)
arbitrators selected by the parties shall state, in writing, his
determination of the Fair Market Rental supported by the reasons therefor and
shall make counterpart copies for each of the other arbitrators. The
arbitrators shall arrange for a simultaneous exchange of such proposed
resolutions. The role of the third arbitrator shall be to select which of the
two proposed resolutions most closely approximates his determination of Fair
Market Rental. The third arbitrator shall have no right to propose a middle
ground or any modification of either of the two proposed resolutions. The
resolution he chooses as that most closely approximating his determination of
the Fair Market Rental shall constitute the decisions of the arbitrators and
shall be final and binding upon the parties.
(d) In the event of a failure, refusal or inability of any
arbitrator to act, his successor shall be appointed by him, but in the case of
the third arbitrator, his successor shall be appointed in the same manner as
that set forth herein with respect to the appointment of the original third
arbitrator. The arbitrators shall attempt to decide the issue within ten (10)
business days after the appointment of the third arbitrator. Any decision in
which the arbitrator appointed by Landlord and the arbitrator appointed by
Tenant concur shall be binding and conclusive upon the parties, except that such
arbitrators shall not attempt by themselves to mutually ascertain the Fair
Market Rental, and any such determination, in a manner other than that provided
for in paragraph B(ii)(3) hereof, shall not be binding on the parties. Each
party shall pay the fees and expenses of its respective arbitrator and both
shall share the fees and expenses of the single and,
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if applicable, third arbitrator. Attorneys' fees and expenses of counsel and
of witnesses for the respective parties shall be paid by the respective party
engaging such counsel or calling such witnesses.
(e) Any arbitrator shall have the right to consult experts
and competent authorities for factual information or evidence pertaining to a
determination of Fair Market Rental, but any such consultation shall be made
in the presence of both parties with full right on their part to
cross-examine. The arbitrator(s) shall render the decision and award in
writing with counterpart copies to each party. The arbitrator(s) shall have
no power to modify the provisions of this Lease.
39. REAL ESTATE BROKER
Tenant represents that Tenant has dealt directly with and only with
the brokers set forth in the Lease Schedule as brokers in connection with
this Lease and agrees to indemnify and hold Landlord harmless from all claims
or demands of any other broker or brokers for any commission alleged to be
due such broker or brokers in connection with its participating in the
negotiation with Tenant of this Lease.
40. MISCELLANEOUS PROVISIONS
A. Time is of the essence of this Lease and each and all of its
provisions.
B. Submission of this instrument for examination or signature by
Tenant does not constitute a reservation or offer or option for lease, and it
is not effective as a lease or otherwise so as to incur the least
inconvenience to Tenant. Tenant acknowledges and agrees with Landlord that,
except as may be specifically set forth elsewhere in this Lease, neither
Landlord, nor any employee of Landlord, nor other party claiming to act on
Landlord's behalf, has made any representations, warranties, estimations, or
promises of any kind or nature whatsoever relating to the physical condition
of the Building in which the Premises are located, or the land under the
Building, including by way of example only, the illness of the Premises for
Tenant's intended use or the actual dimensions of the Premises or Building.
C. The invalidity or unenforceability of any provision hereof shall
not affect or impair any other provisions.
D. This Lease shall be governed by and construed pursuant to the
laws of the Jurisdiction in which the property is located.
E. Should any mortgage require a modification of this Lease, which
modifications will not bring about any increased cost or expense to Tenant or
in any other way substantially change the rights and obligations of Tenant
hereunder, then and in such event, Tenant agrees not to unreasonably withhold
or delay its consent to such modification.
F. Tenant agrees to provide to Landlord, upon request, a current
financial statement of Tenant certified by an authorized representative of
Tenant to be tree and correct, and further agrees to provide any other
financial information reasonably requested by Landlord.
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G. All rights and remedies of Landlord under this Lease, or that may
be provided by law, may be exercised by Landlord in its own name
individually, or in its name by its Management Agent, and all legal
proceedings for the enforcement of any such rights or remedies, including
distress for rent, forcible detainer, and any other legal or equitable
proceedings, may be commenced and prosecuted to final judgment and execution
by Landlord in its own name individually or in its name or by its agent.
Tenant conclusively agrees that Landlord has full power and authority to
execute this Lease and to make and perform the agreements herein contained
and Tenant expressly stipulates that any rights or remedies available to
Landlord either by the provision of this Lease or otherwise may be enforced
by Landlord in its own name individually or in its name by agent or principal.
H. All of the covenants and conditions of this Lease shall survive
the termination of the Lease.
I. The marginal headings and titles to the paragraphs of this Lease
are not a part of this Lease and shall have no effect upon the construction
or interpretation of any part hereof.
J. Subject to complying with all of the provisions with respect to
assignments and subleases, if Tenant is a corporation and if at any time
during the Lease Term the person or persons who owns a majority of its voting
shares at the time of the execution of this Lease cease to own a majority of
such shares (except as a result of transfers by girl, bequest or
inheritance), whether by merger, voluntary or involuntary transfer, or
otherwise, Tenant shall so notify Landlord and Landlord may terminate this
Lease by notice to Tenant given within ninety (90) days thereafter. This
Section shall not apply to assignments, subleases or mergers which do not
require Landlord's consent pursuant to Section 15 of this Lease or whenever
Tenant (and, in case of any merger, the resulting successor Tenant) is a
corporation, the outstanding voting stock of which is listed on a recognized
security exchange or if at least ninety (90%) percent of its voting stock is
owned by another corporation, the voting stock of which is so listed.
K. Any and all Exhibits or Appendices attached hereto are expressly
made a part of this Lease.
L. Upon termination of the Lease or upon Tenant's abandonment of the
leasehold, the Tenant shall, at its sole expense, remove any equipment which
may cause contamination of the property, and shall clean up any existing
contamination in compliance with all applicable local, state and federal
environmental rules, regulations, statutes and laws or in accordance with
orders of any governmental regulatory authority.
M. This is a commercial lease and has been entered into by both
parties in reliance upon the economic and legal bargains contained herein,
and both parties agree and represent each to the other that they have had the
opportunity to obtain counsel of their own choice to represent them in the
negotiation and execution of this Lease, whether or not either or both have
elected to avail themselves of such opportunity. This Lease shall be
interpreted and construed in a fair and impartial manner without regard to
such factors as the party which prepared the instrument, the relative
bargaining powers of the parties or the domicile of any party.
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N. WAIVER OF RIGHT TO TRIAL BY JURY: Landlord and Tenant hereby
waive any right to a trial by jury in any action or proceeding based upon, or
related to, the subject matter of this Lease. This waiver is knowingly,
intentionally, and voluntarily made by each of parties hereto and each party
acknowledges to the other that neither the other party nor any person acting
on its respective behalf has made any representations to induce this waiver
of trial by jury or in any way to modify or nullify its effect. The parties
acknowledge that they have read and understand the meaning and ramifications
of this waiver provision and have elected same of their own free will.
O. Landlord hereby covenants that so long as Tenant is not in
default under the terms and provisions of this Lease, Tenant shall be
entitled to quiet enjoyment of the Premises.
P. This Lease does not grant any rights to light or air over or
about the real property of Landlord. Except to the extent specifically
otherwise herein provided, Landlord specifically excepts and reserves to
itself the use of any roofs, the exterior portions of the Building, all
rights to and the land and improvements below the improved floor level of the
Building, to the improvements and air rights above the Building and to the
improvements and ak rights located outside the demising walls of the Building
and to such areas within the Building required for installation of utility
lines and other installations required to serve any occupants of the Building
and to maintain and repair same, and no rights with respect thereto are
conferred upon Tenant, unless otherwise specifically provided herein.
41. TENANT-CORPORATION OR PARTNERSHIP
In ease Tenant is a corporation, Tenant represents and warrants that
this Lease has been duly authorized, executed and delivered by and on behalf
of the Tenant and constitutes the valid and binding agreement of the Tenant
in accordance with the terms hereof. In case Tenant is a partnership, Tenant
represents and warrants that all of the persons who are general or managing
partners in said partnership have executed this Lease on behalf of Tenant, or
that this Lease has been executed and delivered pursuant to and in conformity
with a valid and effective authorization therefor by all of the general or
managing partners of such partnership, and is and constitutes the valid and
binding agreement of the partnership and each and every partner therein in
accordance with its terms. Also, it is agreed that each and every present and
future partner in Tenant shall be and remain at all times jointly and
severally liable hereunder and that the death, resignation or withdrawal of
any partner shall not release the liability of such partner under the terms
of this Lease unless and until the Landlord shall have consented in writing
to such release. In case Tenant is a limited liability company, Tenant
represents and warrants that this Lease has been duly authorized, executed,
and delivered by and on behalf of the Tenant and constitutes a valid and
binding agreement of the Tenant in accordance with the terms hereof.
42. SUCCESSORS AND ASSIGNS
The covenants and conditions herein contained shall apply to and
bind the respective heirs, successors, Executors, administrators, and assigns
of the parties hereto. The terms "Landlord" and "Tenant" shall include the
successors and assigns of either such party, whether immediate or remote.
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IN WITNESS WHEREOF, the Landlord and Tenant have executed this Lease
the day and year first above written.
<TABLE>
<CAPTION>
LANDLORD:
<S> <C>
Florcor I Limited Partnership,
an Illinois limited partnership
By: Florcor, Inc., an Illinois corporation,
its general partner
/s/ Rolla Heinen
- ----------------------------------------------------- By:----------------------------------------------
Witness Its: VICE PRESIDENT
----------------------------------------------
Print Name: ROLLA HEINEN
------------------------------------------
Witness /s/ CAROLE J. WEINBERG
------------------------------------------
CAROLE J. WEINBERG
Print Name:------------------------------------------
TENANT:
IMPROVENET, INC., A CALIFORNIA CORPORATION
/S/ Ronald Cooper
Witness By:-----------------------------------------------
Name: RONALD COOPER
---------------------------------------------
Print Name: RICHARD A. ROOF Title: PRESIDENT AND CEO
------------------------------------------ --------------------------------------------
/s/ Richard A. Roof
- -----------------------------------------------------
Witness
Print Name:------------------------------------------
</TABLE>
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APPENDIX A
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APPENDIX B
FACILITY ALTERATION PROCEDURE
To follow is the approved procedure which is acceptable in the event
that you, as Tenant, should desire to alter the Premises which you occupy. All
the steps below must be completed before any alterations are preferred:
1. A letter requesting approval and describing the proposed
alteration to the Premises must be sent to Landlord. This letter must be
signed by the original signatory of the lease document or another authorized
representative of Tenant and it must be received by Landlord prior to the
commencement of any work.
2. Copies of all sketches or drawings of the proposed alteration(s)
must be submitted to Alter Asset Management, Inc. ("AAM") for approval by the
landlord. Landlord's approval of the plans, specifications and working
drawings for Tenant's alteration shall create no responsibility or liability
on the part of Landlord for their completeness, design sufficiency, or
compliance with laws, and/or roles and regulations of governmental agencies
or authorities.
3. It is the sole responsibility of the Tenant to contact local
authorities, secure any necessary permits and to comply with any and all
applicable codes and ordinances. Evidence of this shall be by copy of any
building permit(s) or a letter from local authorities indicating that same is
waived or not necessary.
4. Insurance: All contractors and all subcontractor of any tier
shall deliver to AAM prior to commencement of any work, a Certificate of
Insurance and the certificate must name, as Additional Insureds with respect
to commercial general liability insurance coverage, the current mortgage
holder with respect to the Property and such other parties having insurable
interests therein as Landlord shall specify.
5. The Tenant hereby holds the Landlord, it's agents, beneficiaries,
and AAM, each of them individually and severally harmless from any and all
liability resulting from work being performed.
6. No reasonable request for a facility alteration will be denied
providing the structure itself is not altered or endangered, the buildings
systems are not affected, the roof is not penetrated, and the procedure as
outlined herein is fully and completely followed carefully. However, the
decision to approve or deny any alteration lies solely at the discretion of
Landlord. If a roof penetration is required by Tenant, Tenant must use the
Landlord's roof contractor to complete the work at Tenant's sole cost.
7. Upon receipt of complete sets of those items numbered one (1)
through five (5) above, Tenant will be provided with a written response from
AAM as to whether Tenant may proceed with the alteration requested.
8. Proceeding with any alteration to your Premises without complete
compliance with all of the foregoing is in direct violation of your Lease,
and could result in litigation.
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9. AAM must be notified in writing upon completion of any approved
alteration.
10. A copy of a Contractor's Sworn Statement must be submitted to
AAM prior to the start of any work. Upon completion of the work, final
waivers of lien from each subcontractor in accordance with the Contractor's
Sworn Statement, including any change orders executed during the course of
the work, must be submitted to AAM. Landlord reserves the right to require
Tenant to post a deposit in an amount determined by Landlord prior to the
start of any work hereunder.
11. It shall be at the sole option of the Landlord to require that
any alteration become a part of the Premises, or be restored to its original
condition at such time that Tenant has surrendered Premises. If required,
said restoration shall be at the sole expense of the Tenant.
12. Landlord reserves the right to charge Tenant a fee for services
to review plans and specifications, to review work as it progresses, to
evaluate that work in place is consistent with plans, and to prepare a final
inspection and punchlist. The amount of the fee shall be equal to the greater
of two percent (2%) of the cost of the work and $104.00 per work hour, or
such other reasonable rate as may be established from time to time by
Landlord. Such fee shall be paid prior to commencement of the work.
13. It is Tenant's responsibility to furnish to Landlord a
Certificate of Occupancy and/or evidence of passing a final inspection by the
building department of the municipality where the Premises are located.
14. To the extent that the Lease provides for reimbursement to
Tenant for any portion of the cost of any work or improvements made by
Tenant, Landlord shall make such payments to Tenant in accordance with the
terms of the Lease upon Tenant's full compliance with the provisions of this
Facility Alteration Procedure.
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APPENDIX C
RULES AND REGULATIONS ATTACHED TO
AND MADE PART OF THIS LEASE
1. Tenant shall not place anything or allow anything to be placed
near the glass of any window, door, partition or wail which may in Landlord's
judgment appear unsightly from outside the premises or the Building. Landlord
shall furnish and install building standard window blinds at all exterior
windows.
2. The sidewalks, passages, exits, loading docks and entrances
shall not be obstructed by Tenant or used by Tenant for any purpose other
than for ingress to and egress from the Premises. The passages, exits,
entrances and roof are not for the use of the general public and the Landlord
shall in all cases retain the right to control and prevent access thereto by
all persons whose presence in the judgment of Landlord, reasonably exercised,
shall be prejudicial to the safety, character, reputation and interests of
the Building. Neither Tenant nor any employees or invitees of any Tenant
shall go upon the roof of the building.
3. The toilet rooms, urinals, wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed
and no foreign substance of any kind whatsoever shall be thrown therein and
to the extent caused by Tenant or its employees or invitees, the expense of
any breakage, stoppage or damage resulting from the violation of this role
shall be borne by Tenant.
4. Tenant shall not cause any unnecessary janitorial labor or
services by reason of Tenant's carelessness or indifference in the
preservation of good order and cleanliness.
5. No cooking other than microwave warming shall be done or
permitted by Tenant on the Premises, nor shall the Premises be used for
lodging.
6. Tenant shall not bring upon, use or keep in the Premises or the
Building any kerosene gasoline or inflammable or combustible fluid or
material, or use any method of heating or air conditioning other than that
supplied by Landlord.
7. Landlord shall have sole power to direct electricians as to
where and how telephone and other wires are to be introduced. No boring or
cutting for wires will be allowed without the consent of Landlord. The
location of telephone, call boxes and other office equipment affixed to the
Premises shall be subject to the approval of Landlord.
8. Upon the termination of the tenancy, Tenant shall deliver to the
Landlord all keys or electronic key cards and passes for offices, rooms,
parking lot and toilet rooms which shall have been furnished Tenant. In the
event of loss of any keys or electronic key cards so furnished, Tenant shall
pay the Landlord therefor. Tenant shall not make or cause to be made any such
keys or electronic key cards and shall order all such keys or electronic key
cards solely from Landlord and shall pay Landlord for any additional such
keys or electronic key cards over and above the keys furnished by Landlord at
occupancy.
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9. Tenant shall not install linoleum, tile, carpet or other floor
coverings so that the same shall be affixed to the floor of the Premises in
any manner except as approved by the Landlord.
10. Tenant shall cause all doors to the Premises to be closed and
securely locked before leaving the Building at the end of the day.
11. Without the prior written consent of Landlord not to be
unreasonably withheld or delayed, Tenant shall not use the name of the
Building or any picture of the Building in connection with or in promoting or
advertising the business of Tenant except Tenant may use the address of the
Building as the address of its business.
12. Tenant shall refrain from attempting to adjust any heat or air
conditioning controls other than room or system thermostats installed within
the Premises for Tenant's use.
13. Tenant assumes full responsibility for protecting the Premises
from theft, robbert and pilferage, which includes keeping doors locked and
other means of entry to Premises closed and secured.
14. Peddlers, solicitors and beggars shall be reported to the office
of the Building or as Landlord otherwise requests.
15. Tenant shall not advertise the business, profession or
activities of Tenant conducted in the Building in any manner which violates
the letter or spirit of any code of ethics adopted by any recognized
association or organization pertaining to such business, profession or
activities.
16. Tenant shall allow no animals or pets other than guide dogs for
disabled persons to be brought or to remain in the Building or any part
thereof.
17. Tenant acknowledges that Building security problems may occur
which may require the employment of extreme security measures in the
day-to-day operation of the Building. Accordingly:
(a) Landlord may at any time, or from time to time, or for
regularly scheduled time periods, as deemed advisable by Landlord and/or its
agents, in their sole discretion, require that persons entering or leaving
the Building identify themselves to watchmen or other employees designated by
Landlord by registration, identification or otherwise.
(b) Landlord may at any time, or from time to time or for
regularly scheduled time periods, as deemed advisable by Landlord and/or its
agents, in their sole discretion, employ such other security measures as but
not limited to the search of all persons, parcels, packages, etc., entering
and leaving the Building, the evacuation of the Building and the den/al of
access of any person to the Building.
(c) Tenant hereby assents to the exercise of the above
discretion of Landlord and its agents, whether done acting under reasonable
belief of cause or for drills, regardless of whether or not such action shall
in fact be warranted and regardless of
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whether any such action is applied uniformly or as aimed at specific persons
whose conduct is deemed suspicious.
(d) The exercise of such security measures and the resulting
interruption of service and cessation or loss of Tenant's business, if any,
shall never be deemed an eviction or disturbance of Tenant's use and
possession of the Premises, or any part thereof, or render Landlord liable to
Tenant for damages or relieve Tenant from Tenant's obligations under this
Lease.
(e) Tenant agrees that it and its employees will cooperate
fully with Building employees in the implementation of any and all security
procedures.
18. In the event carpeting is furnished by Landlord, Tenant will be
fully responsible for and upon Landlord's request will pay for any damage to
carpeting caused by lack of protective mats under desk chair or equipment or
any other abnormal puncture and wearing of carpet.
19. Tenant shall comply with all applicable laws, ordinances,
governmental orders or regulations and applicable orders or directions from
any public office or body having Jurisdiction, with respect to the Premises
and the use or occupancy thereof. Tenant shall not make or permit any use of
the Premises which directly or indirectly is forbidden by law, ordinances,
governmental regulations or order or direction of applicable public
authority, or which may be dangerous to person or property.
20. Tenant shall not use or permit to be brought into the Premises
or the Building any flammable oils or fluids, or any explosive or other
articles deemed hazardous to persons or property, or do or permit to be done
any act or thing which will invalidate or which if brought in would be in
conflict with any insurance policy covering the Building or its operation, or
the Premises, or any part of either, and will not do or permit to be done
anything in or upon the Premises, or bring or keep anything therein, which
shall not comply with all roles, orders, regulations or requirements of any
organization, bureau, department or body having Jurisdiction with respect
thereto (and Tenant shall at all times comply with all such rules, orders,
regulations or requirements), or which shall increase the rate of insurance
on the Building, its appurtenances, contents or operation. The foregoing
prohibitions shall include but not be limited to the discharge of any toxic
wastes, or other hazardous materials in violation of any law, ordinance,
statute, role or insurance regulation.
21. If Tenant desires signal, communication, alarm or other utility
or similar service connections installed or changed, Tenant shall not install
or change the same without the approval of Landlord and then only under
direction of Landlord and at Tenant's expense. Tenant shall not install in
the Premises any equipment which requires a substantial amount of electrical
current without the advance written consent of the Landlord and Tenant shall
ascertain from the Landlord the maximum amount of load or demand for or use
of electrical current which can safely be permitted in the Premises, taking
into account the capacity of the electric wiring in the Building and the
Premises and the needs of other Tenants of the Building, and shall not in any
event connect a greater load than such safe capacity.
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22. Service requirements of Tenant will be attended to only upon
application to Management Agent of the Building. Employees of Landlord shall
not perform any work or do anything outside of their regular duties unless
under special instruction from Landlord.
23. Landlord reserves the right to exclude or expel from the
Building any person who, in the judgment of Landlord is intoxicated or under
the influence of liquor or drags or who shall in any manner do any act in
violation of any of the rules and regulations of the building.
24. No vending machines of any description shall be installed,
maintained or operated in the Premises without the written consent of
Landlord.
25. Tenant shall not (i) install or operate any internal combustion
engine, boiler, machinery, refrigerating, heating or air-conditioning
apparatus in or about the Premises, (ii) carry on any mechanical business in
or about the Premises without the written permission of Landlord, (iii)
exhibit, sell or offer for sale, use, rent or exchange in the Premises or
Building any article, thing or service except those ordinarily embraced
within the permitted use of the Premises specified in this Lease, (iv) use
the Premises for housing, lodging or sleeping purposes, (v) permit
preparation or warming of food in the Premises or permit food to be brought
into the Premises for consumption therein (warming of coffee and individual
lunches of employees and invitees excepted) except by express permission of
Landlord, (vi) place any radio, television antennae, or microwave dish on the
roof or on or in any part of the inside or outside of the Building other than
the inside of the Premises, (vii) operate or permit to be operated any
musical or sound producing instrument or device inside or outside the
Premises which may be heard outside the Premises, (viii) use any illumination
or power for the operation of any equipment or device other than electricity,
(ix) operate any electrical device from which may emanate electrical waves
which may interfere with or impair radio or television broadcasting or
reception from or in the Building or elsewhere, (x) bring or permit to be in
the Building any bicycle or other vehicle, or dog (except in the company of a
disabled person) or other animal or bird, (xi) make or permit any
objectionable noise or odor to emanate from the Premises, (xii) disturb,
solicit or canvas any occupant of the Building, (xiii) do anything in or
about the Premises tending to create or maintain a nuisance or do any act
tending to injure the reputation of the Building, or (xiv) throw or permit to
be thrown or dropped any article from any window or other opening in the
Building.
26. Tenant shall be responsible for the installation of the
hurricane shutters which shall have been supplied by Landlord pursuant to
applicable law, at such time or times when such installation may be required
by law or desired by Tenant. Landlord shall not be responsible for any loss
or damage to the Premises, due to Tenant's failure to install such shutters
when advised or required. Tenant shall be responsible for loss or damage to
the shutter equipment and for any loss or damage to the building which may be
occasioned by Tenant's failure to install such shutters when needed to avoid
or mitigate such loss or damage.
27. From time to time Landlord reserves the right to amend and
modify these rules and regulations.
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OFFICE LEASE
WORKLETTER
Workletter B -Single Story Building
(Landlord contracts with Shell & Core General Contractor-open book)
This is the Workletter referred to in the foregoing lease (the "Lease") by
and between FLORCOR I LIMITED PARTNERSHIP ("Landlord"), and IMPROVENET, INC.
("Tenant") wherein Tenant agrees to lease certain space from Landlord in the
Building located at 1700 N.W. 49th Street, Fort Lauderdale, Florida. The
words "Premises," "Building," "Term," and other capitalized or defined terms
as used herein shall have the respective meanings assigned to them in the
Lease, except as otherwise provided or defined herein.
Landlord and Tenant agree as follows:
1. SHELL AND CORE WORK. Landlord has constructed or will construct
the shell and core of the Building as generally described in the Tenant
Information Manual set forth in Attachment B, and will at its sole cost and
expense complete any minor remaining work (collectively, the "Shell and Core
Work").
2. TENANT WORK. Landlord shall perform all work, other than the
Shell and Core Work, required to prepare the Premises for occupancy by Tenant
(the "Tenant Work"). The Tenant Work shall be performed pursuant to the
Tenant Information Manual, Plans and Specifications prepared by Tenant and
approved by Landlord as hereinafter provided.
3. TENANT'S PLANS AND SPECIFICATIONS. Tenant will cause Tenant's
Architect and the Consulting Engineers (as such terms are hereinafter
defined), who have been retained by Tenant at Tenant's expense, which
expense, as a soft cost component of the cost of the Tenant Work, will be
allocated against the Landlord's Contribution provided by Landlord as set
forth in Paragraph 4 hereof, to prepare architectural and engineering plans
and specifications for the Tenant Work (the "Plans and Specifications") and
submit the same, as approved by Tenant, to Landlord for Landlord's approval,
which shall not be unreasonably withheld or delayed. The Plans and
Specifications are required to include: (a) reflected ceiling plans; Co)
dimensioned partition and door location plans; (c) finish plans; (d)
furniture partition layout plans; (e) telephone and electrical plans noting
any special lighting and power load requirements; (f) environmental design
criteria and all security and communications information; (g) detail plans;
(h) mechanical, plumbing and fire protection plans; and (i) structural and
engineering drawings and calculations, and to be suitable in all respects for
bidding and construction.
As used herein, the term "Tenant's Architect" shall mean George F.
White & Associates and the term "Consulting Engineers" shall mean Youngross &
Associates as Mechanical/Electrical/Plumbing (MEP) engineer. If Tenant shall
designate and Landlord shall approve an architect and/or MEP
engineer(s)/contractor(s) other than the base building architect and/or base
building MEP engineer(s)/contractor(s), Tenant .understands and agrees that
the cost of Landlord's review of the plans and specifications prepared by
such other architect MEP or engineer(s)/contractor(s) will be borne by
Tenant. If the Tenant Work could in Landlord's reasonable opinion affect
Building systems or the Building structure, Landlord may engage other
1
<PAGE>
engineers to review the plans and specifications, and the reasonable
out-of-pocket cost of such additional engineers shall also be borne by Tenant.
Landlord shall advise Tenant within ten (10) business days after
receipt of the Plans and Specifications in the form required by the first
grammatical paragraph of this Paragraph 3 of its approval or disapproval
thereof, and, if Landlord does not approve any of the Plans and
Specifications, of the changes required in the same so that they will meet
Landlord's approval. If Landlord disapproves any of the Plans and
Specifications, Tenant shall deliver, or cause Tenant's Architect and/or the
Consulting Engineers to deliver to Landlord, revised Plans and Specifications
which respond to Landlord's requests for changes and are suitable for bidding
and construction. If the revised Plans and Specifications do not respond to
Landlord's requests for changes, Tenant shall make further changes as
requested by Landlord until the Plans and Specifications have been approved
by Landlord and are suitable for bidding and construction. Landlord shall
approve or disapprove in whole or in part all revised Plans and
Specifications received from Tenant within five (5) business days following
receipt thereof from Tenant. The revised Plans and Specifications, once they
have been approved or deemed approved by Landlord, are hereinafter referred
to as the "Final Plans."
Tenant agrees that Landlord shall not have unreasonably disapproved
the Plans and Specifications if the Tenant Work: (i) would not be consistent
with the similar nature or the architectural character of the Building; (ii)
includes floor to ceiling demountable partitions and all infrastructure
associated with such installation; (iii) includes indirect lighting attached
to movable, furniture partitions; (iv) includes significant areas of raised
computer flooring and underfloor, cabling, electrical distribution and
ductwork; (v) does not include the entire Premises; (vi) in Landlord's
reasonable judgment will adversely affect the structure of the Building, the
heating, air-conditioning and ventilating system or electrical, mechanical,
plumbing or other lines or systems in the Building or the Building circuitry;
(vii) in Landlord's reasonable judgment will materially increase Landlord's
costs of operating and maintaining the Building (it being understood that
Tenant shall pay all increases in the costs of operating or maintaining the
Building which results from the Tenant Work, whether or not material), and
that Landlord may require removal of any such Tenant Work (if Landlord shall
have designated such work as being subject to removal pursuant to the Lease)
after the expiration or other termination of the Term; (viii) would modify
the appearance of the Building; (ix) would adversely affect the safety of the
Building or the life-safety systems in the Building; or (x) would, in
Landlord's reasonable judgment, violate the terms of any applicable zoning or
building laws or ordinances or other governmental orders or requirements;
provided, however, that the foregoing are merely examples of reasons for
which Landlord may request changes and modifications to the terms of the
lease, Plans and Specifications or withhold its approval thereof and shall
not be deemed exclusive of any permitted reasons for reasonably withholding
consent, whether similar or dissimilar to the foregoing examples.
The Tenant Work including, but not limited to, floor to ceiling
demountable partitions and all infrastructure associated with such
installation, indirect lighting attached to movable, furniture partitions,
areas of raised computer flooring and underfloor; cabling, electrical
distribution and ductwork, in or upon the Premises, whether placed there by
Tenant or Landlord, shall, unless Landlord otherwise approves, become the
property of Landlord and shall remain upon the Premises without compensation,
allowance or credit to Tenant. If upon the request of
2
<PAGE>
Landlord, Tenant is allowed to remove said Tenant Work, Tenant shall pay the
expense of such removal to Landlord upon demand. In addition, Tenant may
request in writing at the time it submits its plans and specifications to
Landlord, that Landlord notify Tenant whether on or before it approves such
plans as to whether or not it will require removal.
4. LANDLORD'S CONTRIBUTION. Landlord shall contribute the sum of up
to $25.00 per square foot of rentable area of the Premises ("Landlord's
Contribution"), toward the cost of the Tenant Work. Landlord desires that the
total of the hard costs component of the cost of the Tenant Work shall be
disbursed first and then the balance of the Landlord's Contribution applied
to first the soft costs component of the cost of the Tenant Work, next to
moving expenses.
Notwithstanding the foregoing, Tenant shall contribute an amount
equal to the cost of the Tenant Work in excess of the Landlord's Contribution
toward the cost of the Tenant Work ("Tenant's Contribution"). Tenant's
Contribution shall be paid to Landlord, or at Landlord's option to a title
insurance company or other escrowee selected by Landlord prior to the
commencement of the Tenant Work. As draws are made toward the cost of the
Tenant Work, the Landlord's Contribution and Tenant's Contribution shall be
disbursed pro rata.
Tenant shall advise Landlord of the cost of that portion of the
Tenant Work that Tenant will contract directly. Landlord shall make payments
of Landlord's Contribution on account of the cost of Tenant Work upon
compliance with the requirements of this Workletter, but not more often than
monthly. At such time as Landlord's Contribution (or such reduced amount
thereof as may be applicable based upon the provisions of the first whole
grammatical paragraph of this Paragraph 4) is exhausted, Tenant shall pay the
remaining costs of the Tenant Work.
The cost of the Tenant Work shall, if required by Landlord's Lender,
be paid pursuant to the terms of an escrow agreement reasonably satisfactory
to Landlord, and satisfactory to Landlord's Lender and the Title Insurance
Company insuring the Building for the purpose of insuring over any and all
mechanic's lien claims, or rights thereto, in connection with the Tenant
Work. Landlord, Tenant and the Title Insurance Company and, if required,
Tenant's Contractor(s) shall be parties to such escrow, the cost of which
escrow shall be divided evenly between Landlord and Tenant. Tenant shall
provide such contractors' affidavits, sworn statements, partial and final
waivers of lien, architect's certificates and any other documentation or
Tenant or contractor undertakings which may be reasonably requested by such
Title Insurance Company for the purpose of insuring over such mechanics' lien
claims or rights thereto.
As a condition to the payment by Landlord of any portion of
Landlord's Contribution toward the cost of the Tenant Work, Landlord shall
receive approval of its lender, a certification from the General Contractor
for the Tenant Work and Tenant's Architect that the portion of the Tenant
Work for which payment is being sought has in fact been completed in
accordance with the Final Plans and Specifications and Tenant shall join
therein as accepting such work, but such j6inder shall only bind and stop
Tenant from making any claim with respect to the work covered against
Landlord and is not intended and may not be construed as binding Tenant with
respect to any claim by or against any other party as a third party
beneficiary or otherwise. The escrow agreement, if required, shall provide
that no portion of Landlord's Contribution shall be paid unless and until the
title insurer, pursuant to the terms of the escrow, shall insure over any and
all mechanics' lien claims, or rights to assert same, as a result of the
construction of the Tenant
3
<PAGE>
Work in the Premises pursuant to customary pending disbursement endorsements
and interim mechanics' lien certifications.
For purposes of the Workletter, the soft costs of the Tenant Work
shall include, and Landlord's Contribution may be utilized to pay for: (a)
fees and expenses of Tenant's Architect and the Consulting Engineers; Co)the
cost of permits; and (c) Tenant's portion of the cost of the construction
escrow established pursuant to this Workletter.
In addition, Landlord's Contribution shall be applied as part of the
hard costs component of the Tenant Work to reimburse Landlord for the cost of
materials and labor for building standard venetian blinds at a cost of $0.35
per rentable square foot, which are Tenant's obligation. It is understood and
agreed that neither Landlord nor its designated agent shall have any
responsibility for the accuracy or completeness of the Plans and
Specifications or any design error therein or failure to comply with any laws
or codes or any costs attributable to any lack of adequacy of or any design
error in the Plans and Specifications.
5. CONSTRUCTION OF TENANT WORK. As used herein, the term "General
Contractor" shall mean MiDale construction, Inc.. In addition to the approved
subcontractors set forth in the Tenant Improvement Manual, Tenant may also
submit to Landlord a list of subcontractors which Tenant proposes for certain
other portions of the Tenant Work and Landlord shall have the right to
approve such subcontractors, which approval shall not be unreasonably
withheld or delayed. Without exception, the Landlord requires the Shell and
Core roofing Subcontractors to complete the Tenant Work. Landlord shall
notify Tenant within five (5) business days following submission of the name
or a proposed subcontractor of the approval or disapproval of such
subcontractor. All subcontractors for the Tenant Work shall be licensed
subcontractors of good reputation, have a demonstrated capability to perform
quality workmanship, have financial capacity to complete the work, be
experienced in performing work of the type contemplated in similar class
office buildings, be familiar with single story office building construction
of tenant improvements to the extent relevant, be capable of working in
harmony with other contractors in the Building, have good labor and minority
relations, utilize union labor where required by Landlord and be bondable
(even though bonds may not be required). Landlord shall not unreasonably
withhold its approval of subcontractors who meet the foregoing standards;
provided, however, that failure to meet the foregoing standards are merely
examples of reasons for which Landlord might reasonably withholding approval,
whether similar or dissimilar to the foregoing examples.
Following approval of the Final Plans, General Contractor shall
obtain three (3) bids from subcontractors to perform the Tenant Work, except
for those trades with a value of less than $5,000. Tenant acknowledges and
agrees that any review of the financial records for the Tenant Work must be
performed within thirty (30) days after the final payment of the hard cost
component of the Cost of the Tenant Work is made, after which the costs
reported shall be final and binding. Landlord agrees upon completion of
obtaining such bids to submit to Tenant for approval a proposed project
budget. Tenant shall approve the proposed project budget within 5 business
days of submission of same to Tenant by Landlord.
Tenant shall deliver to Landlord, copies of all contracts proposed
to be executed by Tenant for certain portions of the Tenant Work, which shall
require the contractor to comply
4
<PAGE>
with the requirements of this Paragraph 5 and the Tenant hnprovement Manual,
and to execute the escrow required pursuant to Paragraph 4 hereof. The
General Contractor shall obtain, all required building and other permits and
otherwise comply with all laws and governmental rules and regulations with
respect to or in any manner applicable to the Tenant Work and other
construction in the Premises at all times prior to, during and following said
work, the cost of which shall be a cost of the Tenant Work payable from the
Landlord's Contribution to the extent thereof.
Subject to all of the terms and conditions of this Workletter,
General Contractor shall commence the Tenant Work promptly upon tender of
possession of the Premises to Tenant and approval of the Final Plans by
Landlord and diligently proceed with the Tenant Work. Possession of the
Premises shall be deemed to have been tendered to Tenant upon Landlord's
execution and delivery of the Lease and this Workletter to Tenant pursuant to
the date set forth in Paragraph 1 hereof for the completion of the shell and
core work.
Notwithstanding Tenant's right to separately contract for certain
portions of the Tenant Work, Tenant shall coordinate, and cause its
contractors to coordinate with Landlord and its designated agents in relation
to the scheduling of construction, the use of Building loading docks, the
delivery of materials and labor for the Premises and the elimination of
rubbish and construction debris. Tenant shall cause Tenant's Architect to
furnish to Landlord from time to time such other information as Landlord
shall reasonably request in connection with the construction of the Tenant
Work. Landlord and Tenant shall in good faith coordinate their work in
accordance with good construction practices. Tenant acknowledges that Shell
and Core Work and work for other tenants of the Building may take place
concurrently with the construction and completion of the Tenant Work. Tenant
shall require all contractors and subcontractors performing work on behalf of
Tenant to provide protection against damage to the Building and work of other
tenants to an extent that is satisfactory to Landlord in the reasonable
exercise of its discretion. In any event, however, if such damage shall
occur, and shall have been caused by Tenant or its contractors or any of
their respective subcontractors, agents, employees or invitees, Tenant shall
promptly restore and repair, or cause its contractor to promptly restore and
repair, or cause its contractor to promptly restore and repair, such damage,
or Landlord or its contractor may, at Landlord's option, restore and repair
any such damage or permit any other tenant or its contractor to restore work
for such tenant which has been damaged, in each case at Tenant's sole cost.
6. CHANGES IN THE TENANT WORK. Tenant shall deliver to Landlord for
approval, which shall not be unreasonably withheld, all changes in the Final
Plans as are made by Tenant, Tenant's Architect or the Consulting Engineers
from time to time and shall advise Landlord of any changes in the cost of the
Tenant Work or any amendments which increase the cost of the Tenant Work in
any respect. Tenant shall pay any amount required to cover the additional
cost of the Tenant Work resulting from such changes which exceeds the
available portion of Landlord's Contribution as provided in Paragraph 4 of
this Workletter. The reasonableness of disapproval of any such change shall
be judged according to the criteria set forth in Paragraph 3 hereof for the
Tenant Work initially provided for the Plans and Specifications, and Landlord
shall review and approve or disapprove any changes as soon as possible so as
to avoid any delay in construction of the Tenant Work but in any event within
the time periods with respect to its
5
<PAGE>
approval or disapproval of any revision of the initial Plans and
Specifications as provided in Paragraph 3 hereof.
7. ACCESS BY TENANT. Landlord shall permit Tenant and Tenant's
agents, supplier, contractors and workmen to take possession of and enter the
Premises, pursuant to the date set forth in Paragraph 1 hereof, upon
execution and delivery of the Lease by both Landlord and Tenant and
compliance with the requirements of this Workletter by Tenant, including,
without limitation, the insurance requirements. The permission herein granted
for the entry of Tenant and Tenant's contractors into the Building is
conditioned upon Tenant and Tenant's agents, contractors, workmen, suppliers
and invitees working in harmony with and not interfering with Landlord's
contractors or their subcontractors or with contractors performing work in
the Building for other tenants, not interfering with any occupants of the
Building, complying with reasonable rules and regulations instituted by
Landlord for the protection and completion of the Shell and Core Work and of
such work for other tenants, and complying with the provisions of Paragraph 5
hereof. Landlord will use reasonable efforts to cause contractors performing
work for other tenants in the Building not to unreasonably interfere with
Tenant's contractors, but shall in no event have any liability with respect
to any interference. If at any time such entry shall cause disharmony or
unreasonable interference with any of Landlord's employees, agents,
contractors, their subcontractors or others or if such disharmony or
interference shall, in Landlord's reasonable judgment, be imminently
threatened, Landlord shall have the right to withdraw such permission upon
not less than forty-eight (48) hours written notice; provided, however, that
such permission shall remain in effect if Tenant has cured the same (or such
interference or disharmony has ceased and Tenant has agreed and provided
assurances to Landlord as it shall have reasonably requested, that such
problem will not occur again) prior to the time of termination set forth in
such notice. Tenant agrees that any such entry into and occupation of the
Premises shall be deemed to be under all of the terms, covenants, conditions
and provisions of the Lease, except as to covenant to pay Base Rent and
Additional Rent, and further agrees that in connection therewith Landlord
shall not be liable in any way for any injury, loss or damage which may occur
to any property placed in the Premises, the same being strictly .at Tenant's
sole risk. Tenant shall allow Landlord access to the Premises, for inspection
purposes, at all reasonable times. Tenant shall cause its contractors, for
which it has contracted separately, prior to the commencement of any
construction work in the Building, to indemnify, defend and hold Landlord,
its designated agents, any of its beneficiaries, the partners thereof, its
management agent, mortgagees, and all of their respective partners,
shareholders, directors, officers, agents and employees harmless from all
damages, claims, liability, and costs (including, without limitation,
reasonable attorney's fees) and expenses arising out of or connected with the
activities of such contractor or any of its subcontractors or any of their
respective agents or employees, suppliers or workmen in or about the Premises
or the Building. Tenant shall (except to the extent of any indemnity
recovered pursuant to the preceding sentence) indemnify, defend and hold
Landlord, its designated agents, or any of its beneficiaries, the partners
thereof, its management agent, mortgagees, and all of their respective
partners, shareholders, directors, officers, agents and employees harmless
from all damages, claims, liability, and costs (including, without
limitation, reasonable attorney' fees) and expenses arising out of or
connected with the activities of Tenant or its agents, contractors, suppliers
or workmen in or about the Premises or the Building. In addition, prior to
the initial entry to the Building or the Premises by Tenant and by each
contractor or subcontractor for Tenant, Tenant shall furnish Landlord with
certificates of insurance covering Landlord, its designated agents, or any of
its beneficiaries and the partners
6
<PAGE>
thereof, its management agent, mortgagees and such additional parties as
Landlord may reasonably designate as additional insured parties, with such
coverage's and in such amounts as Landlord may reasonably require in order to
insure Landlord, its designated agents, or any of its beneficiaries and the
partners thereof, its management agent, mortgagees and such additional
parties, and all of their respective agents and employees, against liability
for injury or death or damage to property of Landlord or its tenants or
others, by reason of such entry or any activity or work carried on, in, on or
about the Land, the Building or the Premises by or on behalf of Tenant.
8. SERVICES. The cost of the Tenant Work shall include (and Landlord
is hereby authorized to pay the same from the Landlord's Contribution to the
extent thereof), all materials or utilities which are supplied by Landlord or
its contractors in connection with the construction of the Tenant Work and at
Tenant's request; provided, however, that Landlord shall make available to
Tenant during the construction period electric power, use of loading dock and
dumpster space, all as described in the Tenant Information Manual. Charges
for any services will be determined on the basis of usage, whether metered or
estimated, and will not include any mark-up to Landlord or its agents as
described in the Tenant Information Manual.
9. INSURANCE. The provisions of the Lease shall apply to the
Builder's Risk coverage respecting the Tenant Work during the period of its
construction, prior to the commencement of the Term. Tenant shall furnish
Landlord from time to time such information as is necessary in order to
effectuate such coverage. Landlord may apply Landlord's Contribution, to the'
extent thereof, to the portion of the insurance premium allocable to the
Tenant Work, or, if Landlord's Contribution has been exhausted, may bill
Tenant for the amount thereof, in which case Tenant shall pay the amount
thereof to Landlord within thirty (30) days after Landlord's submission of an
invoice for the same.
10. MISCELLANEOUS. After completion of the Tenant Work any work or
alterations to the Premises desired by Tenant other than the Tenant Work
shall be subject to the provisions of the Lease.
Time is of the essence under this Workletter.
Any person signing this Workletter on behalf of Landlord or Tenant
warrants and represents he has authority to do so.
This Workletter shall not be deemed applicable to any additional
space added to the Premises at any time or from time to time, whether by any
options under the Lease or otherwise, or to any portion of the Premises or in
the event of a renewal or extension of the original Term of the Lease,
whether by any options under the Lease or otherwise, unless expressly so
provided in the Lease or any amendment or supplement thereto. Landlord has no
agreement with Tenant and has no obligation to do any work with respect to
the Premises, except as expressly set forth in this Workletter.
With respect to any amounts owed by Tenant hereunder and not paid
when due (which shall bear interest as provided in the Lease in the case of
delinquent rents) or Tenant's failure to perform its obligations hereunder,
Landlord shall have all of the rights and remedies granted to
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Landlord under the Lease for nonpayment of any amounts owed by Tenant
thereunder or failure by Tenant to perform its obligations thereunder, and
such nonpayment or other failure hereunder shall constitute a default by
Tenant under the Lease. Any amount owed hereunder to Tenant by Landlord and
not paid when due shall bear interest as provided in the Lease.
Landlord is responsible for removal of all construction debris and
general clean-up. After Tenant has moved into the Premises, Landlord will
clean the same in accordance with the Lease.
Attached hereto as Attachment A is the Floor Plan -Demising Plan for
the Premises as attached to the Lease.
The parties hereto hereby designate a representative who shall have
the power and authority to make any and all decisions on behalf of the
respective parties and designate another representative(s) on their behalf.
Unless a party is otherwise advised in writing by the other, their respective
representatives shall be as follows:
<TABLE>
<S> <C>
Landlord: Florcor I Limited Partnership
c/o The Alter Group, Ltd.
Five Concourse Parkway, Suite 840
Atlanta, Georgia 30328
Attn: Russell R. Posey II
Tenant: ImproveNet, Inc.
1286 Oddstad Drive
Redwood City, California 94063
Attn: Robert Stevens
</TABLE>
This instrument is executed by all the covenants and conditions to
be performed hereunder by, as aforesaid, and not individually, and no
personal liability shall be asserted or be enforceable against, the
beneficiaries thereof nor any of their respective partners, shareholders,
directors, officers, agents or employees by reason of any of the covenants,
statements, representations or warranties contained in this instrument. All
of the further exculpatory provisions of the Lease are incorporated here in
as if fully set forth herein and are fully applicable to this Workletter as
if fully set forth.
8
<PAGE>
CHESTNUT BAY LLC,
a California limited liability company
Landlord
and
IMPROVENET, INC.
a Delaware corporation
Tenant
- --------------------------------------------------------------------------------
OFFICE / R&D LEASE
- --------------------------------------------------------------------------------
Dated
June 10, 1999
<PAGE>
OFFICE / R&D LEASE
Table of Contents
Summary of Terms
Recitals
Section 1. Lease of Premises
Section 2. Term of Lease
Section 3. Early Occupancy
Section 4. Possession; Delay in Delivery of Possession
Section 5. Rent
Section 6. Use
Section 7. Utilities
Section 8. Taxes
Section 9. Condition of Premises
Section 10. Repairs and Maintenance
Section 11. Alterations
Section 12. Entry
Section 13. Surrender of Premises; Holding Over
Section 14. Indemnity
Section 15. Insurance
Section 16. Trade Fixtures
Section 17. Communications Cables
Section 18. Signs
Section 19. Damage and Destruction
Section 20. Condemnation
Section 21. Assignment and Subletting
Section 22. Default
Section 23. Remedies
Section 24. Late Charge
Section 25. Default Interest
Section 26. Waiver
Section 27. Estoppel Certificates
Section 28. Attorney Fees
Section 29. Security for Tenant's Obligations
Section 30. Authority
Section 31. Notices
Section 32. Heirs and Successors
Section 33. Partial Invalidity
Section 34. Entire Agreement
Section 35. Time of Essence
Section 36. Amounts Deemed Rent
Section 37. Amendments
Section 38. Subordination, Nondisturbance and Attornment
Section 39. Merger
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<PAGE>
Section 40. Right of Relocation (Intentionally Deleted)
Section 41. Options to Extend Term
Section 42. Determination of Monthly Rent for Extension Term
Section 43. Tenant Improvements
Section 44. Environmental Provisions
Section 45. Publicity
Section 46. Easements
Section 47. Covenants and Conditions
Section 48. Recordation
Section 49. Transfer by Landlord
Section 50. Security Measures
Section 51. Broker
Section 52. Offer
Section 53. Governing Law
Section 54. Parking
Schedule of Exhibits
Exhibit A. Legal Description of Property
Exhibit B. Description of Premises
Exhibit C. Work Letter Agreement
Exhibit D. Commencement Date Memorandum
Exhibit I. Environmental Documents
Exhibit S Subordination, Attornment and Non-Disturbance Agreement
ii
<PAGE>
SUMMARY OF TERMS
Date: June 10, 1999
Landlord: Chestnut Bay LLC, a California limited liability company
Tenant: ImproveNet, Inc., a Delaware corporation
Guarantor: N/A
Premises: a portion of the second (2nd) floor of 720 Bay Road, Redwood City,
California known as Suite 200 and shown as the shaded area in attached
Exhibit B.
Rentable Area of Premises: approximately 16,190 rentable square feet (subject to
calculation by Landlord's architect as set forth herein)
Common Area: All areas of the Property located exterior of the Building
including the Parking Lot and all landscaped areas and sidewalks as
well as all common stairways, hallways, lobby areas, elevators and
bathrooms shown in the un-shaded portion of Exhibit B but specifically
excluding the premises of other tenants of the Building.
Section 2. Estimated Delivery Date ("Estimated Delivery Date"): July 18, 1999
Section 2. Lease Term: Seven (7) years from the Commencement Date.
Section 5. Monthly Rent:
<TABLE>
<CAPTION>
Lease Months Monthly Base Rent
<S> <C>
1-12 $42,094
13-24 $43,357
25-36 $44,658
37-48 $45,997
49-60 $47,377
60-72 $48,798
72-84 $50,262
</TABLE>
Section 5. Advance Rent: $42,094
Section 5. Tenant's Share: 26.55%
Section 29. Letter of Credit Security: $400,000
Section 29. Security Deposit: $50,262
iii
<PAGE>
Section 31. Tenant's Address for Notices:
- --------------------------------------------- ---------------------------------
Prior to the Commencement Date: After the Commencement Date:
ImproveNet, Inc. ImproveNet, Inc.
1286 Oddstad, Dr. 720 Bay Road, Suite 200
Redwood, City, CA 94063 Redwood City, California
With copy to: With copy to:
Hanna & VanAtta Hanna & VanAtta
525 University Ave., Suite 705 525 University Ave., Suite 705
Palo Alto, CA 94301 Palo Alto, CA 94301
Attn: John Paul Hanna Attn: John Paul Hanna
- --------------------------------------------- ---------------------------------
Section 31. Guarantor's Address for Notices: N/A
Section 31. Landlord's Address for Notices:
- --------------------------------------------- ---------------------------------
With copy to:
Chestnut Bay LLC
c/o The Nicholson Company Mackenzie & Albritton
75 Cristich Lane One Post Street, Suite 500
Campbell, California San Francisco, CA 94104
Attn: Mike Newbro Attn: Paul Albritton, Esq.
- --------------------------------------------- ---------------------------------
Section 51. Broker: CB Richard Ellis, Inc., exclusively representing Landlord
("Landlord Broker") and Cornish & Carey exclusively representing Tenant ("Tenant
Broker").
Section 54. Parking Spaces: 53 non-exclusive spaces
The foregoing Summary of Terms is made primarily for the benefit of Landlord and
is not a part of this Lease. In the event of any conflict between any
information shown on this Summary and the Lease, the latter shall control.
iv
<PAGE>
OFFICE/RESEARCH & DEVELOPMENT LEASE
THIS OFFICE/R&D LEASE (Lease) is entered into as of June 10, 1999 by
and between CHESTNUT BAY LLC, a California limited liability company (Landlord)
IMPROVENET, INC., a Delaware corporation (Tenant).
RECITALS
A. Landlord is owner of that certain building consisting of approximately 60,985
rentable square feet and improvements (collectively, the "Building") located at
720 Bay Road, Redwood City, California, in the County of San Mateo (the
Property") as more particularly described in Exhibit A attached hereto and
incorporated herein.
B. Tenant desires to lease from Landlord and Landlord desires to lease to Tenant
that certain portion of the Building as more particularly shown cross hatched on
Exhibit B attached hereto and incorporated herein (the Premises), which Premises
constitute approximately Sixteen One Hundred Ninety (16,190) rentable square
feet of the Building.
C. Landlord desires to lease to Tenant and Tenant desires to lease from Landlord
the Premises on the terms and conditions contained in this Lease.
NOW THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties agree as follows:
Section 1. Lease of Premises; Common Areas
(a) Premises: Landlord leases to Tenant and Tenant leases from Landlord the
Premises on the terms and conditions contained in this Lease. The Premises will
be improved with the Base Building Improvements to be constructed by Landlord.
The Base Building Improvements are described in the Work Letter, attached as
Exhibit C.
(b) Common Areas. In addition to the Premises, Landlord grants to Tenant a
non-exclusive license for use of the Common Areas with Landlord and other
tenants of the Building and their invitees, contractors, agents and employees.
Landlord reserves the right to modify the size, location and/or configuration of
all or any portion the Common Areas provided such modification does not
materially and adversely interfere Tenant's use of the Premises as permitted
under this Lease. The use of the Common Areas shall at all times be subject to
all reasonable, uniform and non-discriminatory applicable laws and the rules and
regulations adopted by Landlord from time to time and to any covenants,
conditions, restrictions, or easements placed of record in the San Mateo County
Recorder's Office.
Section 2. Term.
(a) Commencement Date. The Term of this Lease will commence ("Commencement
Date") on the earliest of the following dates:
(i) the date on which Tenant takes possession of all or a portion of the
Premises for Tenant's intended use under this Lease;
(ii) the date on which the Tenant Improvements (defined in Exhibit C) are
Substantially Complete (defined in Exhibit C); or
(iii) September 1, 1999 (except as may be extended pursuant to Section 5.02 of
Exhibit C).
The Term of the Lease will continue from the Commencement Date for the period of
time specified as the Term (seven (7) years) or until this Lease is terminated
as otherwise provided for in the Lease.
(b) Commencement Date Memorandum. Following the Commencement Date, Tenant shall
execute and deliver to Landlord a memorandum of the Commencement Date in the
form of attached Exhibit D
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("Commencement Date Memorandum"). The Commencement Date Memorandum must
acknowledge: (i) the Commencement Date; and (ii) Tenant's acceptance of the
Premises.
Section 4. Possession; Delay in Delivery of Possession.
(a) Subject to Landlord's enforcement of Landlord's Contractor's warranties as
set forth in Section 4.04 of Exhibit C and the completion of Punch List Items as
set forth therein, as of the Delivery Date (defined in Exhibit C), Tenant
accepts possession of the Premises in its existing as is condition, including,
but not limited to, all patent and latent defects and subject to all applicable
laws, ordinances, and regulations governing and regulating the use of the
Property and/or the Premises and any recorded covenants, conditions,
restrictions, easements, licenses, or right of ways.
(b) If Landlord, for any reason whatsoever, cannot deliver possession of the
Premises to Tenant on or before the Estimated Delivery Date as it may be
extended by any Unavoidable Delays and Tenant Delays (defined in Exhibit C),
this Lease shall not be void or voidable and no obligation of Tenant shall be
affected thereby, and neither Landlord nor Landlord's agents shall be liable to
Tenant for any loss or damage resulting therefrom; provided however, that the
September 1, 1999 latest Commencement Date shall be extended one day for each
day after the Estimated Delivery Date that the actual Delivery Date occurs.
Section 5. Rent.
(a) Tenant agrees to pay monthly rent ("Monthly Rent") during the Lease Term in
the amounts set forth in the Summary of Terms. Monthly Rent shall be payable
without deduction, offset, abatement, prior notice or demand, except as may
otherwise provided herein.
(b) The Monthly Rent shall be payable in advance on the first day of each month
at Landlord's address as provided herein or at such other address that Landlord
may from time to time designate by written notice to Tenant. In the event that
the Term commences on a date other than the first day of a calendar month, then
on the date of commencement of the Term, Tenant shall pay to Landlord as Monthly
Rent for the period from such date of commencement to the first day of the next
succeeding calendar month that proportion of the first month's Monthly Rent due
hereunder which the number of days between such date of commencement and the
first day of the next succeeding calendar month bears to thirty (30). In the
event that the Term for any reason ends on a date other than the last day of a
calendar month, then on the first day of the last partial calendar month of such
term, Tenant shall pay to Landlord as Monthly Rent for the period from said
first day of said last partial calendar month to and including the last day of
the Term that proportion of that Monthly Rent then due hereunder which the
number of days between said first day of said last partial calendar month and
the last day of the term hereof bears to thirty (30).
(c) Upon execution of this Lease, Tenant shall pay Forty-Two Thousand Ninety
Four Dollars ($42,094), which amount shall be applied toward the first payment
of Monthly Rent due hereunder.
(d) In the event of a Chronic Delinquency (as hereinafter defined), at
Landlord's option, Landlord shall have the right, in addition to all other
remedies under this Lease and at law, to require that Monthly Rent be paid by
Tenant quarterly, in advance. This provision shall not limit in any way nor be
construed as a waiver of any rights and remedies of Landlord provided herein or
by law in the event of delinquency. Chronic Delinquency shall mean failure by
Tenant to pay Monthly Rent, or any other payments required to be paid by Tenant
under this Lease, when due in any of three (3) months (consecutive or
non-consecutive) during any twelve (12) month period.
(e) In addition to Monthly Rent, Tenant shall pay to Landlord as additional
rent, which shall be solely calculated and determined by Landlord, the
following:
(i) Tenant's Share (as hereinafter defined) of the Taxes relating to the
Property as set forth in Section 8 hereof;
(ii) Tenant's Share of the insurance premiums relating to the Property, as set
forth in Section 15 hereof;
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(iii) Tenant's Share of all maintenance, repair and replacement expenses
relating to the Property as set forth in Section 10 hereof and any deductibles
or uninsured restoration costs incurred under Section 19 hereof (provided if any
such cost is based in part on properly unrelated to the Premises (including
adjacent real properly owned by Landlord) then only that part of such cost that
is fairly allocable to the Premises shall be included in Operating Expenses);
(iv) Tenant's Share of any other operating expenses incurred by Landlord in the
operation of the Property including Landlord's management fee;
(v) All charges, costs, expenses, and other amounts which Tenant is required to
pay hereunder, together with all interest, late charges, penalties, costs and
expenses, including, without limitation, reasonable attorneys fees, legal and
accounting expenses, collection costs, and court costs, that may accrue thereto
or be incurred in the event of Tenant's default, refusal, or failure to pay such
amounts, and all damages, costs, and expenses, including, but not limited to,
reasonable attorneys fees, which Landlord may incur by reason of any default by
Tenant or failure on Tenant's part to comply with the terms of this Lease.
Amounts due from Tenant pursuant to Subsections 5(e)(i), 5(e)(ii), 5(e)(iii),
5(e)(iv) and 5(e)(v) above are collectively referred to herein as the Operating
Expenses. As used in this Lease, the term Tenant's Share shall mean such portion
of the total cost equal to the number of rentable square feet contained in the
Premises at the time of such computation divided by the total rentable square
footage of the Building. Tenant's Share as of the Commencement Date is set forth
in the Summary of Terms.
(f) The Operating Expenses shall be paid as follows. Prior to the commencement
of each year of the Term or as soon thereafter as practicable, Landlord shall
give Tenant notice of its estimate of the Operating Expenses for the ensuing
year of the Term. On or before the first day of each month during the ensuing
year of the Term, Tenant shall pay to Landlord 1/12 of such estimated amount,
provided that if such a notice is not given prior to the commencement of the
ensuing year of the Term, Tenant shall continue to pay on the basis of the prior
year's estimate until the month after such notice is given. If at any time or
times it appears to Landlord that the actual Operating Expenses for the current
year of the Term will vary from its estimate by more than five percent (5%),
Landlord may, by notice to Tenant, revise its estimate for such year, and
subsequent monthly payments by Tenant for such year shall be based on such
revised estimate. Landlord's estimate of Operating Expenses for the first
partial year of the Lease Term is Five Thousand Three Hundred Forty-three
Dollars ($5,343) per month. The first months estimated Operating Expenses shall
be paid upon execution of this Lease.
(g) Within ninety (90) days after the close of each calendar year of the Term or
as soon after such 90-day period as practicable, Landlord shall deliver to
Tenant (i) a statement of the Operating Expenses for such calendar year showing
in reasonable detail the actual Operating Expenses incurred by Landlord,
certified by Landlord, which certified statement shall be final and binding upon
Landlord and Tenant, subject only to Tenant's Section 5(h) review, and (ii) a
statement of the payments made by Tenant under Section 5(f) above for such year.
If on the basis of such statements Tenant owes an amount that is less than the
estimated Operating Expenses for such year previously made by Tenant, Landlord
at its election shall either promptly refund the amount of the overpayment to
Tenant or credit such excess against Tenant's subsequent obligations to
Estimated Operating Expenses. If on the basis of such statements Tenant owes an
amount that is more than the estimated Operating Expenses for such year
previously made by Tenant, Tenant shall pay the deficiency to Landlord within
thirty (30) days after delivery of such statements.
(h) If Tenant disputes the amount of Additional Rent stated in the statement,
Tenant may designate, within thirty (30) days after receipt of that statement,
an independent certified public accountant to inspect Landlord's records. Tenant
is not entitled to request that inspection, however, if Tenant is then in
default under this Lease. The accountant must be a member of a nationally
recognized accounting firm and must not charge a fee based on the amount of
Additional Rent that the accountant is able to save Tenant by the inspection.
Tenant must give reasonable notice to Landlord of the request for inspection,
and the inspection must be conducted in Landlord's offices at a reasonable time
or times. If, after that inspection, Tenant still disputes the Additional Rent,
a certification of the proper amount shall be made, at Tenant's expense, by
Landlord's independent certified public accountant. That certification shall be
final and conclusive. If Tenant discovers an excess of five percent (5%) or
greater in the Operating Expenses charged to Tenant, then in addition to such
discrepancy amount Landlord shall pay the cost of Landlord's accountant's
certification and Tenant's accountant's review within thirty (30) days of such
certification.
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(i) At Landlord's election, Tenant shall pay to Landlord, within ten (10) days
after receipt of invoice(s) therefore, any present Operating Expense incurred by
Landlord. If Tenant shall fail to pay any additional rent in accordance with the
terms hereof, Landlord shall have all the rights and remedies with respect
thereto as Landlord has for nonpayment of Monthly Rent.
Section 6. Use.
(a) Tenant will occupy and use the Premises for sales, marketing and related
general office use and for no other use. Tenant agrees not to use the Premises
or Common Areas for any immoral or unlawful purpose. Tenant agrees that the
Premises shall not in any case at any time be used for a day care facility, a
school, a hospital, a medical center, a residence, the wholesale manufacture,
processing, or distribution of food, food products, or food ingredients or a
playground.
(b) Tenant shall not commit any acts on the Premises, nor use the Premises in
any manner that will increase the existing rotes for or cause the cancellation
of any fire, liability, or other insurance policy insuring or hereinafter
insuring the Premises or the improvements on the Premises. Tenant shall, at
Tenant's sole cost and expense, comply with all requirements of Landlord's
insurance carriers that are necessary for the continued maintenance at
reasonable rates of fire and liability insurance policies on the Premises and
the improvements on the Premises. However, if such compliance would result in
capital repairs or improvements to the Property, Landlord shall have the right
to effect such compliance and Tenant shall pay to Landlord the cost of such
improvement.
(c) Tenant shall not allow the Premises to be used for any unlawful purpose, nor
shall Tenant cause, maintain or permit any nuisance, either private or public,
in, on or about the Premises. No sale by auction which invites or permits
purchasers to enter the Premises or Property shall be permitted to be conducted
from the Premises. Tenant shall not place any loads upon the floors, walls or
ceiling which might endanger or damage the structure; shall not place or spill,
nor suffer to be released or spilled, any harmful substances or Hazardous
Materials (defined herein) in the drainage system of the Building, nor on the
Premises, the Building, or the Property; and shall not overload any electrical,
mechanical, plumbing, sprinkler, or other systems. No waste materials or refuse
shall be permitted to remain on any part of the Premises or outside of the
Building in which the Premises are a part, except in trash container(s) placed
inside exterior enclosures approved by Landlord for that purpose, or inside of
the Building proper where designated by Landlord. No materials, supplies,
equipment, finished products or semi-finished products, raw materials or
articles of any nature shall be stored or permitted to remain on the roof (other
than air conditioning units) nor outside the Premises. Tenant shall not place
anything or allow anything to be placed near any window or door which may appear
unsightly from outside the Premises. No loudspeaker or other device, system or
apparatus which can be heard outside the Premises shall be used in or at the
Premises. Tenant shall not commit or suffer to be committed any waste in or upon
the Premises. Tenant covenants and agrees Tenant shall not be entitled to any
reduction of rent hereunder nor shall Landlord have any liability to Tenant
because of diminution of light, air or view by any structure which may be
hereafter erected (whether or not by Landlord), by the use of the Building by
other occupants, or by the use of neighboring buildings or areas by others.
Tenant shall comply with any covenant, condition or restriction affecting the
Premises, which covenant, condition or restriction is of record as of the date
of this Lease or, as to covenants, conditions or restrictions not of record as
of the date of this Lease, only such covenants, conditions or restrictions which
do not materially and adversely affect the Tenant's occupancy or use of the
Premises. The provisions of this Section are for the benefit of Landlord only
and shall not be construed to be for the benefit of any other person, or
occupant of the Premises.
(d) Except as otherwise provided in Section 6(e) and following Tenant's
acceptance of delivery of the Premises under Exhibit C, Tenant shall,
thereafter, at Tenant's sole cost, promptly comply with all laws, statutes,
ordinances, roles, regulations, orders, recorded covenants and restrictions, and
requirements of all municipal, state, and federal authorities now or later in
force, including, but not limited to, all provisions of the Americans with
Disabilities Act (the ADA), all seismic and other earthquake protection measures
being required by any governmental entity with regard to the Premises, any
requirements of Title 24 of the California Code of Regulations, the requirements
of any board of fire underwriters or other similar body now or in the future
constituted, and the direction or occupancy certificate issued by public
officers (collectively, the Legal Requirements), insofar as they relate to the
condition, use, or occupancy of the
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Premises, the construction of any Alterations (as hereinafter defined). If
Tenant's compliance with Legal Requirements results in capital repairs or
improvements to the Property, Landlord shall effect such compliance and Tenant
shall pay to Landlord the cost of such improvement. The judgment of any court of
competent jurisdiction or the admission of Tenant in any action or proceeding
against Tenant that Tenant has violated any Legal Requirement in the condition,
use, or occupancy of the Premises, will be conclusive of that fact as between
Landlord and Tenant.
(e) Except in such circumstances where Tenant's compliance with Legal
Requirements arises in connection with Tenant's special use of the Premises, the
correction or remediation of a violation arising out of or in connection with
the construction of Tenant Improvements and Alterations done by or on behalf of
Tenant or which violation arises out of or results from the actions of Tenant or
any of Tenant's contractors, employees, licensees, invitees, or agents, Landlord
shall be responsible for compliance with Legal Requirements to the extent that
such compliance requires physical modifications to the foundation, roof, or
structural walls or Common Area of the Building.
Section 7. Utilities. Tenant shall pay promptly (as the same becomes due)
directly to the entity or authority providing and/or billing the same (or
reimburse the entity paying for the same, as the case may be), all charges for
water, gas, electricity, telephone, telex and other electronic communication
service, sewer service, waste and refuse collection, and any other utilities,
materials, or services furnished directly or indirectly to, for the benefit of,
and/or used by Tenant on or about the Premises during the Term, including,
without limitation, any charges imposed after the Term commences. In the event
such charges also apply jointly to other tenant(s) of Landlord where there is a
common meter or common usage with other tenant(s), such charges shall be
allocated to the Premises by square footage as reasonably calculated and
determined solely by Landlord. In no event shall Landlord be liable for
billings, payment, advancement of money for payment, or reimbursement to others
for or with respect to any of the above services, materials, or charges, and
Tenant shall not be entitled to any abatement or reduction of Rent nor any
rights of constructive eviction or termination by reason of any interruption or
failure of utilities, material, or services to the Premises during the Term,
except and to the extent that such interruption or failure of utilities,
material, or services to the Premises exceeds seven consecutive days and results
from the active gross negligence or willful misconduct of Landlord or any of
Landlord's constituent members, partners, agents, or employees.
Section 8. Taxes.
(a) Tenant shall, as additional rent, reimburse Landlord for Tenant's Share of
all Taxes (as hereinafter defined) and increases in Taxes which result from
reassessment of the Property due to changes in ownership thereof during the Term
or which result from the reassessment of the Property due to the improvement
thereof subsequent to the Delivery Date, and all installments of assessments
that are due or become due from and after the Delivery Date and on or prior to
the expiration or sooner termination of this Lease. As used herein the term
Taxes shall mean and include (i) all taxes, assessments, levies, and other
charges of any kind or nature whatsoever, general and special, foreseen and
unforeseen (including, without limitation, all installments of principal and
interest required to pay any general or special assessments of public
improvements, and any increases resulting from reassessments caused by any
change in ownership of the Premises or otherwise) now or hereafter imposed by
any governmental or quasi-governmental authority or special district having the
direct or indirect power to tax or levy assessments, which are levied or
assessed against, or with respect to the value, occupancy, or use of: all or any
portion of the Property (as now constructed or as may at any time hereafter be
constructed, altered, or otherwise changed) or Landlord's interest therein; any
improvements located within the Premises (regardless of ownership); the
fixtures, equipment and other property of Landlord, real or personal, that are
an integral part of and located in the Premises; and landscaping areas,
walkways, Parking Lot (defined herein), parking areas, public utilities, or
energy within the Premises; (ii) all charges, levies, or fees imposed by reason
of environmental regulation or other governmental control of the Premises,
provided however that Taxes shall not include any charges, levies, or fees
imposed by reason of the Existing Environmental Conditions (defined herein);
(iii) any and all permit, inspection, and license fees and other public charges
of whatever nature that are assessed against the Property or arise because of
the occupancy, use, or possession of the Property (including, but not limited to
transit charges, traffic impact fees, housing fund assessments, open space
charges, childcare fees, school fees, or any taxes on, or which shall be
measured by, any rents or rental income, taxes on personal property, whether of
Landlord (if used for the maintenance or operation of the Building) or Tenant);
and (iv) all costs and fees (including reasonable attorney fees) incurred by
Landlord or Tenant in reasonably contesting any
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Tax and in negotiation with public authorities as to any Tax. If at any time
during the Term, the taxation or assessment of the Premises prevailing as of the
Commencement Date shall be altered so that in lieu of or in addition to any Tax
described above there shall be levied, assessed, or imposed (whether by reason
of a change in the method of taxation or assessment, creation of a new tax or
charge, or any other cause) an alternate or additional tax or charge; (v) on the
value, use, or occupancy of the Premises or Landlord's interest therein; (w) on
or measured by the gross receipts, income, or rentals from the Premises; (x) on
Landlord's business of leasing the Premises; (y) based on vehicular ownership,
parking, employment, production, or the like; or (z) computed in any manner with
respect to the operation of the Premises, then any such tax or charge, however,
designated, shall be included within the meaning of the term Taxes for purposes
of this Lease. If any Tax is based in part on property or rents unrelated to the
Premises (including adjacent real property owned by Landlord) then only that
part of such Tax that is fairly allocable to the Premises shall be included
within the meaning of the term Taxes. Notwithstanding the foregoing, the term
Taxes shall not include and Tenant shall not be responsible for any taxes in the
nature of estate, inheritance, transfer, gift, or franchise taxes of Landlord or
the federal or state net income tax imposed on Landlord's income from all
sources.
(b) Tenant shall pay directly to the public authorities charged with the
collection on or before the last day on which payment may be made without
penalty or interest, as additional rent, all taxes, permit, inspection, and
license fees, and other public charges of whatever nature that are assessed
against personal property or trade fixtures owned by Tenant or others and/or
placed by Tenant in or about the Premises, and any interest or penalties
applicable thereto (if any) for non-payment or late payments, arising subsequent
to the Commencement Date, and all installments of assessments that are due or
become due from and after the Commencement Date and on or prior to the
expiration or sooner termination of this Lease.
(c) All Taxes levied on the Premises for the tax year in which the Commencement
Date falls shall be appropriately prorated between Landlord and Tenant, so that
Tenant's Share will reflect the portion of that tax year after the Commencement
Date. Taxes levied on the Premises for the tax year in which the Termination
Date occurs shall be similarly prorated between Landlord and Tenant to reflect
the period of Tenant's possession of the Premises during that tax year.
(d) If Tenant has not paid any Tax required by this Lease to be paid by Tenant
before its delinquency, or if a Tax is contested by Tenant and that Tax has not
been paid within thirty (30) days after a final determination of the validity,
legality, or amount of the Tax, then Landlord may, but shall not be required to,
pay and discharge the Tax. If a Tax is paid by Landlord, the amount of that
payment shall be due and payable to Landlord by Tenant with the next succeeding
rental installment, and shall bear interest at the lesser of ten percent (10%)
per annum or the highest rate allowed by law from the date of the payment by
Landlord until repayment by Tenant.
(e) If any assessments for local improvements become a lien after the Delivery
Date, Tenant shall pay only the installments of the assessments that become due
and payable during the Term.
Section 9. Condition of Premises.
(a) Subject to Landlord's Contractor's warranties set forth in Section 4.04 of
Exhibit C regarding the Base Building Improvements and the completion of Punch
List Items as set forth therein, Tenant accepts the Premises, the Building and
Improvements included in the Premises in their condition as of the Commencement
Date and, except as otherwise may be set forth herein, without representation or
warranty by Landlord as to the condition of such Premises or as to the use of
occupancy which may be made thereof.
(b) Landlord represents, warrants and covenants that as of the date hereof it
has good and marketable title to the Premises in fee simple and that the same is
subject to no leases, tenancies, encumbrances, liens, defects in title or
restrictions on the transfer of all or a part thereof that would materially and
adversely affect Tenant's use or possession of the Premises. Landlord further
covenants that there are no restrictive covenants which will prevent the Tenant
from conducting the principally permitted business for the Premises under this
Lease.
Section 10. Repairs and Maintenance.
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(a) Tenant shall, at Tenant's sole expense, keep and maintain the Premises,
including, without limitation, interior walls, heating, ventilation and air
conditioning systems, operating systems, fire sprinklers, alarms, all windows
(interior and exterior), window frames, plate glass and glazing, plumbing
systems (such as water and drain lines, sinks, toilets, faucets, drains,
showers, and water fountains; but excluding any subsurface plumbing repairs
resulting from defects in Building construction), electrical systems (such as
panels, conduits, outlets, and lighting fixtures, including lamps, bulbs, tubes,
and ballasts), heating and air conditioning systems (such as compressors, fans,
air handlers, ducts, mixing boxes, thermostats, time clocks, supply and return
grills), interior surfaces of the Premises, store fronts, down mechanisms,
latches, locks, skylights (if any), fire extinguishing systems and equipment,
and all other interior improvements of any nature whatsoever, that are part of
the Premises. Tenant will keep such items in good, clean and first-class
condition and repair, including, without limitation, through a janitorial
service contract approved by Landlord, and by replacing such items as needed,
and deliver to Landlord physical possession of the Premises at the termination
of this Lease or any sooner expiration thereof, in good condition and repair,
reasonable wear and tear excepted. All repairs and replacements required of
Tenant shall be promptly made with new materials of like kind and quality. If
the work affects the structural elements of the Premises or if the estimated
cost of any item of repair or replacement is in excess of One Thousand Dollars
($1,000), Tenant shall first obtain Landlord's written approval of the scope of
the work, the plans for the work, the materials to be used, and the contractor
hired to perform the work. At Landlord's election, such maintenance
responsibilities and charges shall be performed by Landlord and Tenant shall
reimburse Landlord as additional rent the cost of such maintenance
responsibilities and charges. If any of the above maintenance responsibilities
jointly apply to Tenant and other tenant(s) of Landlord where there is common
usage with other tenant(s) such additional rent shall be allocated to the
Premises by square footage or other equitable basis as calculated and determined
by Landlord. Landlord elects as of the Commencement Date to perform the
foregoing maintenance obligations under this Section 10(a) at Tenant's cost and
shall provide Tenant with a minimum of sixty (60) days advance notice prior to
rescinding such election and returning the implementation of such responsibility
to Tenant. Notwithstanding such election as of the Commencement Date by
Landlord, Landlord shall not be liable to Tenant for the failure to provide any
such maintenance obligation, nor shall such failure provide Tenant with any
remedy under this Lease, until such time as Landlord has received written notice
from Tenant detailing such failure and reasonable opportunity perform such
obligation, or transfer such obligation to Tenant as permitted under this
Section, following receipt of such notice.
(b) At Landlord's election, Tenant shall maintain a service contract for the
maintenance of all heating, air conditioning, and ventilation equipment
servicing the Premises with a licensed repair and maintenance contractor
approved by Landlord. The contract should provide for periodic inspections and
servicing of the heating, air conditioning, and ventilation equipment at least
once every ninety (90) days during the term of the Lease.
(c) If at any time during the Term, including renewals or extensions thereof,
Tenant fails to maintain the Premises, make any repairs or replacements as
required by this Section, or maintain service contracts required by this
Section, Landlord shall have the right to, but shall not be required to, enter
the Premises and perform the maintenance or make the repairs or replacements or
enter into appropriate service contracts, as the case may be. Any sums expended
by Landlord in so doing, together with interest at the lesser of ten percent
(10%) per annum or the highest rate allowed by law, shall be deemed additional
rent and shall be immediately due from Tenant on demand of Landlord.
(d) Tenant waives the provisions of Civil Code 1941 and 1942 and any other law
that would require Landlord to maintain the Premises in a tenantable condition
or would provide Tenant with the right to make repairs and deduct the cost of
those repairs from the rent.
(e) Subject to reimbursement pursuant to Section 5(e), Landlord shall maintain
the Common Areas, Building foundation, the exterior wall structure, and the roof
of the Premises, load-bearing portions of interior walls of the Building,
(excluding wall coverings, painting, glass, and doors) and subsurface plumbing
repairs (but with respect to subsurface plumbing repairs, only to the extent
caused by construction defects). Except as set forth in Exhibit C, Landlord will
not be required to make any, and Tenant shall be responsible for the cost of,
any repair resulting from: any Alteration or modification to the Building or to
mechanical equipment within the Building performed by, for, or because of Tenant
or to special equipment or systems installed by, for, or because of Tenant; the
installation, use, or operation of Tenant's property, fixtures, and equipment;
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the moving of Tenant's property in or out of the Building or in and about the
Premises; Tenant's use or occupancy of the Premises in violation of Section 6 of
this Lease or in the manner not contemplated by the parties at the time of the
execution of this Lease; the acts or omissions of Tenant and Tenant's employees,
agents, invitees, subtenants, licensees, or contractors; fire and other
casualty, except as provided by Section 19 of this Lease; or condemnation,
except as provided in Section 20 of this Lease. Landlord shall have no
obligation to make repairs under this Section until a reasonable time after
receipt of written notice from Tenant of the need for repairs. Tenant waives any
right to repair at the expense of Landlord under any applicable governmental
laws, ordinances, statutes, orders, or regulations now or later in effect.
(f) Subject to reimbursement pursuant to Section 5(e), Landlord shall keep and
maintain the Common Areas exterior of the Building and all grounds and
landscaping in good condition, and repair (collectively, Exterior Maintenance).
To the extent not included in Operating Expenses, upon Landlord's election,
within ten (10) days after receipt of an invoice from Landlord, Tenant shall, as
additional rent, reimburse Landlord for all extraordinary costs incurred by
Landlord in such Exterior Maintenance which repair or maintenance arises out of
or results from the actions of Tenant or any of Tenant's contractors, employees,
licensees, invitees, or agents.
Section 11. Alterations.
(a) Tenant shall not make or allow any alterations, additions, or improvements
to the Premises or any part of the Premises (collectively, Alterations), without
Landlord's prior consent, which shall not be unreasonably withheld. Consent,
however, may be conditioned on the receipt by, and approval of, Landlord of a
set of plans and specifications for the alterations no later than thirty (30)
days prior to the scheduled construction of the alterations as well as the use
by Tenant of a contractor or contractors approved by Landlord. Landlord may
withhold approval of any contractor which does not meet the qualifications
requirements of any Landlord lender; including the requirement that such
contractor employ union labor in accordance with the Labor Covenant (contained
in Exhibit S). The installation of furnishings, fixtures, equipment, or
decorative improvements, none of which shall affect operating systems or the
structure of the Premises shall not constitute Alterations. All Alterations and
any furnishings, fixtures, equipment, or decorative improvements remaining on
the Premises after the termination or earlier expiration of this Lease shall
immediately become Landlord's property and, at the termination or earlier
expiration of this Lease, shall remain on the Premises without compensation to
Tenant. Provided Landlord identifies such Alterations for possible removal at
the time of Landlord's initial approval for installation, and further provided
Landlord subsequently elects by notice to Tenant to have Tenant remove same at
the end of the Term, then Tenant shall cause such removal and/or restoration to
be done at Tenant's sole cost and expense and Tenant shall restore the portions
of the Premises subject to such removal to the condition of as of the
Commencement Date of this Lease. If Landlord requires Tenant to remove any
Alterations and any furnishings, fixtures, equipment, or decorative improvements
and Tenant fails to cause such removal and/or restoration on or prior to the
termination or other earlier expiration of this Lease, such failure shall be
deemed a holdover under Section 13(b) of this Lease, and in addition to any
other damages owing Landlord under this Section, Tenant shall owe Holdover Rent
(as hereinafter defined) for each and every day of such failure. All
improvements, additions, alterations, and repairs and the removal and
restoration thereof, if required under this Lease, shall be performed in
accordance with all applicable laws and at Tenant's sole expense. Tenant will
indemnify and defend Landlord for all liens, claims, or damages caused by
remodeling, improvements, additions, alterations, and repairs and the removal
and restoration thereof, if required under this Lease. The foregoing
notwithstanding, nothing in this Section 11 shall require Tenant to remove the
initial Tenant Improvements installed by Tenant in accordance with the Approved
Tenant Improvement Drawings as set forth in Exhibit C.
(b) Before any contract or subcontract is let or other agreement executed for
the performance of any service, or the furnishing of any materials, and before
any work of any kind or nature is commenced on the construction of Alterations,
Tenant shall procure and deliver to Landlord a completion bond and a payment
bond, both in form and substance satisfactory to Landlord, issued by reputable
surety corporations or bonding corporations qualified to do business in
California, guaranteeing or otherwise assuring Landlord that the construction of
the Alterations will proceed to completion with due diligence, that the
reconstruction, when completed, will be fully paid for, and that the Premises
will remain free of all mechanics', laborers' or materialmen's liens or claimed
liens on account of any services or materials furnished or labor or work
performed in connection with the construction of the Alterations.
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(c) At least ten (10) days before any construction commences or materials are
delivered for any alterations that Tenant is making to the Premises, whether or
not Landlord's consent is required, Tenant shall give written notice to Landlord
as to when the construction is to commence or the materials are to be delivered.
Landlord shall then have the right to post and maintain on the Premises any
notices that are required to protect Landlord and Landlord's interest in the
Premises from any liens for work and labor performed or materials furnished in
making the alterations. It shall be Tenant's duty to keep the Premises free and
clear of all liens, claims, and demands for work performed, materials furnished,
or operations conducted on the Premises by or on behalf of Tenant. In the event
that Tenant fails to provide Landlord with the notice required by this Section
11(c), Landlord shall have the right to cause the cessation of such construction
and shall have the further right to file notices of cessation and/or completion,
so as to allow the Premises to be protected from mechanics' liens.
(d) Tenant will not at any time permit any mechanics', laborers', or
materialmen's liens to stand against the Premises for any labor or material
furnished to Tenant or claimed to have been furnished to Tenant or Tenant's
agents, contractors, or subtenant's, in connection with work of any character
performed or claimed to have been performed on the Premises by or at the
direction or sufferance of Tenant. Tenant shall have the right to contest the
validity or amount of any lien or claimed lien, upon giving to Landlord a bond
assuring that the lien or claimed lien will be paid, when and to the extent that
the lien is finally determined to be valid and owing. On final determination of
the lien or claim of lien, Tenant will immediately pay any final judgment
rendered, with all property costs and charges and shall have the lien released
or judgment satisfied at Tenant's sole expense. If, within ten (10) days of the
filing of any such lien, Tenant fails to pay or provide to Landlord a bond
assuring that the lien or claimed lien will be paid, Landlord shall have the
right, upon five (5) days' written notice to Tenant, to pay or bond over such
lien, and take such actions as are necessary to have the lien released and
prevent a judgment against the Premises or Property, and the amount paid by
Landlord shall be immediately due and payable to Landlord, and shall bear
interest at the lesser of ten percent (10%) per annum or the highest rate
allowed by law from the date of payment by Landlord until repayment by Tenant.
Section 12. Entry.
(a) Landlord and its agents may enter the Premises at any reasonable time upon
reasonable notice to Tenant, or immediately in the case of an emergency, for the
purpose of (i) inspecting the Premises; (ii) posting notices of
nonresponsibility; (iii) supplying any service to be provided by Landlord to
Tenant; (iv) showing the Leased Premises to prospective purchasers, mortgagees,
or during the last six months of the term to prospective tenant's; (v) making
necessary alterations, additions, or repairs as required by this Lease or to
otherwise perform Landlord's duties under this Lease; (vi) determining whether
Tenant is complying with the terms of this Lease; (vii) performing Tenant's
obligations when Tenant has failed to do so after written notice from Landlord,
if required by the terms of this Lease; (viii) placing on the Leased Premises
ordinary for sale signs or for lease signs; (ix) doing of other lawful acts that
may be necessary to protect Landlord's interest in the Premises under this
Lease; and (x) responding to an emergency.
(b) Landlord shall have the right to use any means Landlord deems necessary and
proper to enter the Premises in an emergency. Any entry into the Premises
obtained by Landlord in accordance with this Section shall not be a forcible or
unlawful entry into, or a detainer of, the Premises, or an eviction, actual or
constructive, of Tenant from the Premises, nor shall such entry give rise to a
claim for rent abatement.
Section 13. Surrender of Premises; Holding Over.
(a) Tenant agrees on the last day of the Term, or on the sooner termination of
this Lease, to surrender the Premises, together with all alterations, additions,
and improvements which may have been made in, to, or on the Premises (except
moveable trade fixtures installed at the expense of Tenant and subject to
Landlord's election under Section 11(a), if any), promptly and peaceably to
Landlord in good condition and repair (normal wear and tear excepted),
including, without limitation: all interior walls freshly painted or cleaned so
that they appear freshly painted; all tile floors cleaned and waxed; all carpets
cleaned and shampooed; all broken, marred, stained or non-conforming acoustical
ceiling tiles replaced; all windows washed inside; the
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air conditioning and heating systems serviced by a reputable and licensed
service firm, left in good operating condition and repair as so certified to by
such firm; the plumbing, electrical, and lighting systems left in good order and
repair, including replacement of any burned out, discolored, or broken light
bulbs, ballasts, or lenses. If Tenant fails to surrender the Premises at the end
of the Term or other sooner termination of this Lease, then Tenant shall
indemnify Landlord against loss or liability resulting from the delay by Tenant
in so surrendering the Premises, including, without limitation, any claims made
by any succeeding tenant founded on such delay. No act of conduct of Landlord,
whether consisting of the acceptance of the keys to the Premises, or otherwise,
shall be deemed to be or constitute an acceptance of the surrender of the
Premises by Tenant prior to the expiration of the Term hereof, and acceptance by
Landlord of surrender by Tenant shall only flow from and must be evidenced by a
written acknowledgment of acceptance of surrender signed by Landlord. The
voluntary or other surrender of this Lease or the Premises by Tenant or a mutual
cancellation of this Lease shall not work as a merger and, at the option of
Landlord, shall either terminate all existing subleases or operate as an
assignment or attornment to Landlord of such subleases as Landlord may elect to
retain. After the expiration or earlier termination of this Lease, Tenant shall
execute, acknowledge, and deliver to Landlord, within ten (10) days after
written demand from Landlord to Tenant, any quitclaim deed or other document
required by any reputable title company, licensed to operation in the State of
California, to remove the cloud or encumbrance created by this Lease from the
real property containing the Premises.
(b) At the end of the Term, or any extension, should Tenant hold over for any
reason, it is agreed that in the absence of a written agreement to the contrary,
that tenancy shall be at sufferance only and not a renewal of this Lease, nor an
extension for any further term. Tenant shall pay, for each month or portion
thereof of such holdover, Monthly Rent in an amount equal to one hundred fifty
percent (150%) of the Monthly Rent payable for the month immediately prior to
the end of the Term or any extension thereof thereafter (Holdover Rent) and such
tenancy shall be subject to every other term, covenant, and condition in this
Lease that is consistent with and not contrary to a tenancy at sufferance.
Section 14. Indemnity.
(a) Except to the extent caused by Landlord's gross negligence or willful
misconduct, Tenant agrees to indemnify, defend, and hold Landlord, and
Landlord's employees, agents, constituent parties, members, shareholders,
directors, lenders, affiliates and contractors harmless from all liability,
penalties, losses, damages, costs, expenses, causes of action, claims, or
judgments, including, but not limited to, attorney fees and costs, arising by
reason of any death, bodily injury, personal injury, or property damage
resulting from: (i) any cause occurring in or about or resulting from an
occurrence in or about the Premises during the Term, (ii) act, work, or things
done or permitted to be done or otherwise suffered, or any omission to act; in
or about the Premises or Common Areas by Tenant or by any of Tenant's agents,
subtenants, officers, directors, employees, contractors, licensees, or invitees,
(iii) the negligence or willful misconduct of Tenant or Tenant's agents,
subtenants, employees, invitees, licensees, contractors, and subcontractors,
wherever it occurs, or (iv) an Event of Default by Tenant. The provisions of
this Section 14(a) shall survive the expiration or sooner termination of this
Lease.
(b) Except as otherwise provided in this Lease, Landlord shall not be liable to
Tenant, nor shall Tenant be entitled to terminate this Lease or to any abatement
of rent for any damage to Tenant's property or any injury to Tenant or any of
Tenant's employees, agents, or invitees, or loss to Tenant's business arising
out of any cause, other than Landlord's active gross negligence or willful
misconduct, including, but not limited to, (i) the failure, interruption, or
installation of any heating, air conditioning, or ventilation equipment; (ii)
the failure, interruption, or installation of any fire sprinklers or alarms;
(iii) the loss or interruption of any utility service; (iv) the failure to
furnish or delay in furnishing any utilities or services; (v) the limitation,
curtailment, rationing, or restriction on the use of water or electricity, gas
or any other form of utility; (vi) vandalism, malicious mischief, or forcible
entry by unauthorized persons or the criminal act of any person; or (vii)
seepage, flooding, or other penetration of water into any portion of the
Premises. The provisions of this Section 14(b) shall survive the expiration or
sooner termination of this Lease.
Section 15. Insurance.
(a) Landlord agrees at all times during the Term and during any extension
thereof, to purchase and keep in force policy(ies) of insurance covering: (i)
loss or damage to the Premises by reason of fire (extended
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coverage), flood, systems breakdown and those perils included within the
classification of all risks insurance (with sprinkler damage and other
appropriate endorsements), which insurance shall be in the amount of the full
replacement value of the Premises as determined by insurance company appraisers
or Landlord's insurance agent; (ii) Landlord's liability insurance; and (iii)
rental income insurance in the amount of one hundred (100%) percent of up to
twelve (12) months' Monthly Rent (plus sums paid during such period as
additional rent), and (iv) such other coverages as Landlord deems in Landlord's
reasonable discretion to be customary and necessary for the Building and Common
Areas, including earthquake coverage or as may be required by Landlord's lender
having a first lien on the Premises. Such coverage shall exclude routine
maintenance and repairs and incidental damage or destruction caused by accidents
or vandalism for which Tenant is responsible under this Lease. Tenant agrees to
pay Landlord as additional rent in accordance with Section 5(e) of this Lease
Tenant's proportionate share of the cost of such insurance coverage which shall
be allocated during the Term to the Premises by building square footage or other
equitable basis as calculated and reasonably determined by Landlord. If such
insurance cost is increased due to Tenant's particular use of the Premises, then
Tenant agrees to pay to Landlord the full cost of such increase. Tenant shall
have no interest in nor any right to the proceeds of any insurance procured by
Landlord for or with respect to the Premises, except for amounts specifically
designated by the carrier as compensation for (i) tenant Alterations installed
and paid for by Tenant; (ii) Tenant's furniture, fixtures, and equipment; or
(iii) Tenant's moving or relocation costs.
(b) At all times during the Lease Term and during any holdover period, Tenant,
at its sole expense, shall procure and maintain the following types of
insurance:
(i) General Liability and Workers' Compensation Insurance. Tenant shall, at
Tenant's expense, obtain and keep in force during the Term of this Lease a
policy of workers' compensation insurance and a policy of commercial general
liability insurance with Broad Form Liability, and cross-liability endorsements,
insuring Landlord and Tenant against any liability arising out of the use or
occupancy of the Premises and all areas appurtenant thereto, including parking
areas. Such insurance shall be in an amount satisfactory to Landlord of not less
than $3,000,000 per occurrence and $3,000,000 annually in the aggregate for all
claims. Such policy shall insure performance by Tenant of the indemnity
provisions of Section 14 hereof.
(ii) Insurance for Tenant's Personal Property, Fixtures and Equipment. Tenant
shall, at Tenant's expense, obtain and keep in force during the Term of this
Lease an all risk insurance policy with a sprinkler damage endorsement for
Tenant's personal property, inventory, alterations, fixtures, equipment, plate
glass, and any Tenant non-standard leasehold improvements located on the
Premises, in an amount not less than one hundred percent (100%) of their actual
replacement value, providing coverage for risk of direct physical loss or
damage, including sprinkler leakage, vandalism, and malicious mischief. The
proceeds of such insurance, so long as this Lease remains in effect, shall be
used to repair or replace the personal property, inventory, Alterations,
fixtures, equipment, and leasehold improvements so insured. Provided such
proceeds are applied as set forth in this Section 15(b)(ii), any insurance
proceeds received by Tenant under such policy shall be the sole property of
Tenant, and Landlord shall have no rights thereto.
(c) Each policy of insurance required to be carried by Tenant shall be issued by
a responsible insurance company authorized to do business in California with an
A.M. Best rating of at least A-, or a higher rating if required by a lender
having the first lien on the Premises, and shall be issued in the names of
Landlord, Tenant, and any beneficiary under any deed of trust covering the
Premises, if required by the deed of trust, as their respective interests may
appear. Tenant shall deliver a certificate for each insurance policy to Landlord
with all relevant endorsements. Each policy of insurance shall be primary and
noncontributory with any policies carried by Landlord, to the extent obtainable,
shall provide that any loss shall be payable notwithstanding any act or
negligence of Landlord or any of Landlord's agents, employees, or contractors
that might otherwise result in forfeiture of insurance, shall contain a cross
liability endorsement, and shall contain a severability clause. Each insurance
policy shall provide that a thirty (30) day notice of cancellation and of any
material modification of coverage shall be given to all named insureds. The
insurance coverage required under this Section may be carried by Tenant under a
blanket policy insuring other locations of Tenant's business, provided that the
Premises covered by this Lease are specifically identified as included under
that policy. Tenant agrees that upon the failure to insure as provided in this
Lease, or to pay the premiums in the insurance, Landlord may contract for the
insurance and pay the premiums, and all sums expended by Landlord for the
insurance shall be considered additional rent under this Lease and shall be
immediately repayable by Tenant. Each policy of insurance required to be carried
by Landlord shall be
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issued by a responsible insurance company authorized to do business in
California with an A.M. Best rating of at least A-, or a alternate rating
required by a lender having the first lien on the Premises.
(d) At all times during the Term and any extensions or renewals, Tenant agrees
to keep and maintain, or cause Tenant's agents, subtenants, contractors, or
subcontractors to keep and maintain, workmen's compensation insurance and other
forms of insurance as may from time to time be required by law or may otherwise
be necessary to protect Landlord and the Premises from claims of any person who
may at any time work on the Premises, whether as a servant, agent, or employee
of Tenant or otherwise. This insurance shall be maintained at the expense of
Tenant or Tenant's agents, subtenants, contractors, or subcontractors and not at
the expense of Landlord.
(e) Landlord agrees that it will tender and turn over to Tenant or to Tenant's
insurers the defense of any claims, demands, or suits instituted, made, or
brought against Landlord or against Landlord and Tenant jointly, within the
scope of this Section 15. However, Landlord shall have the right to approve the
selection of legal counsel, to the extent that selection is within Tenant's
control, which approval shall not be unreasonably withheld or delayed.
(f) The parties hereto release each other, and their respective agents and
employees, from any liability for injury to any person or damage to property
that is caused by or results from any risk insured against under any valid and
collectible insurance policy carried by either of the parties which contains a
waiver of subrogation by the insurer and is in force at the time of such injury
or damage. However, neither party shall be released from any such liability to
the extent any damages resulting from such injury or damage are not covered by
the recovery obtained by the damaged party from such insurance. This release
shall be in effect only so long as the applicable insurance policy contains a
clause to the effect that this release shall not affect the right of the insured
to recover under such policy. Each party shall use reasonable efforts to cause
each insurance policy obtained by it to provide that the insurer waives all
right of recovery by way of subrogation against the other party and its agents
and employees in connection with any injury or damage covered by such policy.
However, if any insurance policy cannot be obtained with such a waiver of
subrogation, or if such waiver of subrogation is only available at additional
cost and the party for whose benefit the waiver is to be obtained does not pay
such additional cost, then the party obtaining such insurance shall notify the
other party of that fact and thereupon shall be relieved of the obligation to
obtain such waiver of subrogation rights from the insurer with respect to the
particular insurance involved.
Section 16. Trade Fixtures.
(a) Tenant shall have the right, at any time and from time to time during the
Term and any renewals or extensions, at Tenant's sole cost and expense, to
install and affix on the Premises items for use in Tenant's trade or business,
which Tenant, in Tenant's sole discretion, deems advisable (collectively, Trade
Fixtures). Trade Fixtures installed in the Premises by Tenant shall always
remain the property of Tenant and may be removed at the expiration of the Term
or any extension, provided that any damage to the Premises caused by the removal
of the Trade Fixtures shall be repaired by Tenant, and further provided that
Landlord shall have the right to keep any Trade Fixtures or to require Tenant to
remove any Trade Fixtures that Tenant might otherwise elect to abandon. Tenant
shall not in any case remove as Trade Fixtures or otherwise, any equipment which
includes any integral portion of the Building mechanical, electrical or plumbing
systems.
(b) Any Trade Fixtures that are not removed from the Premises by Tenant within
thirty (30) days after the Termination Date shall be deemed abandoned by Tenant
and shall automatically become the property of Landlord as owner of the real
property to which they are affixed.
Section 17. Communications Cables.
Regardless of any provisions of this Lease to the contrary, Landlord and Tenant
agree as follows:
(a) Cabling and Equipment. Tenant will be responsible, at Tenant's sole cost,
for the installation, maintenance, and repair of all telecommunication cabling,
wiring, and risers running throughout the Premises, together with all of
Tenant's telephones, telecopiers, computers, telephone switching, telephone
panels, and related equipment. Tenant agrees to install, maintain, and repair
the telecommunication cabling, wiring, and risers running throughout the
Premises in a good and proper manner.
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(b) Right of Entry. In addition to Landlord's other rights of entry under this
Lease, Landlord may enter the Leased Premises after advance reasonable notice to
inspect the telecommunication cabling, wiring, and risers to assure that the
installation, maintenance, and repair are being performed in a good and proper
manner.
(c) Designated Provider. Tenant has informed Landlord that Tenant plans to
utilize its own personnel in the installation, maintenance, and repair of the
telecommunication cabling, wiring, and risers within the Premises. Tenant
represents, warrants, and covenants that such personnel are and at all times
shall be qualified to conduct such installation, maintenance, and repair of the
telecommunication cabling, wiring, and risers. In the event that Landlord in its
reasonable opinion determines that the installation, maintenance, and repair of
the telecommunication cabling, wiring, and risers by Tenant's personnel creates
a significant risk of adversely effecting the telecommunication cabling, wiring,
and risers running through the portion of the Building not occupied by Tenant,
Landlord may require and Tenant agrees to have the installation, maintenance,
and repair of the telecommunication cabling, wiring, and risers done by an
independent contractor approved by Landlord.
(d) Indemnity. Tenant agrees to indemnify, release, defend, and hold Landlord
harmless against any damages, claims, or other liability resulting from Tenant's
installation, repair, or maintenance of the telecommunication cabling, wiring,
and risers, including, but not limited to, the costs of repair.
(e) Release. Tenant releases Landlord from all losses, claims, injuries,
damages, or other liability, including, but not limited to, consequential
damages, whether to persons or property and no matter how caused, in any way
connected with the interruption of telecommunications services due to the
failure of any telecommunications cabling, wiring, or risers. Tenant expressly
waives the right to claim that any interruption constitutes grounds for a claim
of abatement of rent, of constructive eviction, or for termination of the Lease.
Section 18. Signs.
Tenant shall comply with any criteria as to signs in both applicable ordinances
and in any covenants, conditions, and restrictions recorded prior to the date of
this Lease. Subject thereto, Tenant may erect and maintain on the Premises and
the Building a sign advertising Tenant's logo, subject to Landlord's reasonable
approval, at Tenant's sole cost or expense, and utilizing no more than Tenant's
Share of the available Building signage under local ordinances. Furthermore,
Tenant shall not place any decoration, lettering, or advertising matter on the
glass of any exterior window of the Premises without the prior written approval
of Landlord, which approval shall not be unreasonably withheld. If Tenant
maintains any sign, awning, canopy, marquee, decoration, or advertising matter
in accordance with the terms of this Section, Tenant shall maintain it in good
appearance and repair at all times during this Lease. At the Termination Date,
any of the items mentioned in this Section that are not removed from the
Premises by Tenant may, without damage or liability, be removed and destroyed by
Landlord and Tenant shall be liable to Landlord for the cost of such removal and
destruction.
Section 19. Damage and Destruction.
(a) If, during the Term, the Premises or other improvements located thereon or
therein are damaged or destroyed, whether partially or entirely, from any
insured casualty, Landlord shall, within one hundred twenty (120) days after the
discovery of such damage or destruction, commence to restore the Premises to
substantially the same condition as prior to such casualty and, subject to the
availability of necessary governmental permits to complete such restoration,
prosecute same to diligent completion within two hundred seventy (270) days
after Landlord commences to restore the Premises. Landlord's obligation shall
not include repair or replacement of Tenant's equipment, furnishings, fixtures,
personal property or nonstandard tenant improvements. Damage to or destruction
of any portion of the building, fixtures, or other improvements on the Premises
by fire, the elements, or any other cause shall not terminate this Lease or
entitle Tenant to surrender the Premises or otherwise affect the respective
obligations of the parties, any present or future law to the contrary
notwithstanding. If the existing laws do not permit the Premises to be restored
to substantially the same condition as they were in immediately before such
casualty and Landlord is unable to get a variance to such laws to permit the
commencement of restoration of the Premises within
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the 120 day period, then either party may terminate this Lease by giving written
notice to the other party within thirty (30) days after the expiration of such
120 day period, in which event this Lease shall terminate as of the date of such
notice. Notwithstanding the foregoing, in the event that Landlord decides under
this Section 19(a) or under Section 19(b) within one hundred twenty (120) days
following the discovery of such damage or destruction, to demolish the Premises
rather than rebuild it, Landlord may notify Tenant in writing within such
120-day period of such election, in which event the Lease will terminate as of
the date of such notice to Tenant. In the event Landlord fails to complete
restoration of the Premises as provided in Sections 19(a) or 19(b) within the
270 day period specified, Tenant may terminate this Lease by giving written
notice to the Landlord within thirty (30) days after the expiration of such 270
day period, in which event this Lease shall terminate as of the date of such
notice.
(b) If the Premises are damaged or destroyed in whole or in part by any
uninsured or under insured casualty, Landlord may within one hundred twenty
(120) days following the date of discovery of damage: (i) commence to restore
the Premises to substantially the same condition as they were in immediately
before the destruction and, subject to the availability of necessary
governmental permits to complete such restoration, prosecute the same diligently
to completion within two hundred seventy (270) days after Landlord commences to
restore the Premise, in which event this Lease shall continue in full force and
effect; or (ii) within the 120 day period, Landlord may elect not to so restore
the Premises. In either event, Landlord shall give Tenant written notice of its
intention within one hundred twenty (120) days following such casualty.
(c) If any casualty occurs to the Premises during the last six (6) months of the
initial Term or within the last six (6) months of any extension thereof so that
Tenant's use or occupancy of the Premises is materially impaired, either party
shall have the right to terminate this Lease within thirty (30) days following
such casualty.
(d) In the event that a casualty not caused by Tenant or any of Tenant's
employees, agents, contractors, officers, directors, invitees, or licensees,
results in the material impairment of Tenant's use or occupancy of the Premises
and this Lease is not terminated in accordance with the terms of this Section
19, the Monthly Rent otherwise payable by Tenant shall be abated from the date
of such casualty until the Premises are substantially completed, based on the
extent to which Tenant's use or occupancy of the Premises is materially impaired
by such casualty. Except for the abatement of Monthly Rent, all other
obligations of Tenant under this Lease shall remain in full force and effect and
Tenant shall have no claim against Landlord for any loss suffered by Tenant due
to such Casualty or any restoration or repair work undertaken as herein
provided.
(e) The provisions of California Civil Code 1932(2) and 1933(4), and any similar
or successor statutes are hereby waived by Tenant and shall be inapplicable with
respect to any damage or destruction of the Premises, such sections providing
that a lease terminates on the destruction of the Premises unless Otherwise
agreed between the parties to the contrary. The foregoing notwithstanding, any
rights of Landlord's lender having a first lien on the Premises to any insurance
proceeds referenced above shall supercede the use of such proceeds and
Landlord's repair obligations as set forth in this Section 19.
Section 20. Condemnation.
(a) If, during the Term or any renewal or extension, the whole of the Premises
shall be taken pursuant to any condemnation proceeding, this Lease shall
terminate as of 12:01 a.m. of the date that actual physical possession of the
Premises is taken, and after that, both Landlord and Tenant shall be released
from all obligations under this Lease.
(b) If, during the Term or any renewal or extension, only a part of the Premises
is taken pursuant to any condemnation proceeding and the remaining portion is
not suitable or adequate for the purposes for which Tenant was using the
Premises prior to the taking, or if the Premises should become unsuitable or
inadequate for those purposes by reason of the taking of any other property
adjacent to or over the Premises pursuant to any condemnation proceeding, or if
by reason of any law or ordinance the use of the Premises for the purposes
specified in this Lease shall become unlawful, then and after the taking or
after the occurrence of other described events, Tenant shall have the option to
terminate, and the option can be exercised only after the taking or after the
occurrence of other described events by Tenant giving ten (10)
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days' written notice to Landlord, and Monthly Rent shall be paid only to the
time when Tenant surrenders possession of the Premises. Without limiting the
generality of the previous provision, it is agreed that in the event of a
partial taking of the Premises pursuant to any condemnation proceeding, if the
number of square feet of floor area in the portion remaining after the taking is
less than fifty percent (50%) of the number of square feet of floor area at the
commencement of the Term, Tenant shall, after the taking, have the option to
terminate this Lease on ten (10) days' written notice to Landlord, and Monthly
Rent shall be paid only to the time when Tenant surrenders possession of the
Premises.
(c) If only a part of the Premises is taken pursuant to any condemnation
proceeding under circumstances that Tenant does not have the option to terminate
this Lease as provided in this Section, or having the option to terminate,
Tenant elects not to terminate, then Landlord shall at Landlord's expense
promptly proceed to restore the remainder of the Premises to a self-contained
architectural unit, and the Monthly Rent payable shall be reduced effective the
date of the taking to an amount that shall be in the same proportion to Monthly
Rent payable prior to the taking, as the number of square feet of floor area
remaining after the taking bears to the number of square feet of floor area
immediately prior to the taking.
(d) If the whole or any part of the Premises are taken pursuant to any
condemnation proceeding, then Landlord shall be entitled to the entirety of any
condemnation award except that portion specifically allocable by the condemning
authority, if any, to (i) tenant Alterations installed and paid for by Tenant;
(ii) Tenant's furniture, fixtures, and equipment; or (iii) Tenant's moving or
relocation costs. The foregoing notwithstanding, any rights of Landlord's lender
having a first lien on the Premises to any condemnation award referenced above
shall supercede the use of such proceeds and any rights to that award, if any,
granted under this Section 20.
Section 21. Assignment and Subletting.
(a) Tenant shall not assign or hypothecate this Lease or any interest herein (by
operation of law or otherwise), shall not sublet the Premises or any part
thereof, or permit the use of the Premises by any party other than Tenant, shall
not mortgage or encumber the Lease (or otherwise use the Lease as a security
device) in any manner and shall not materially amend or modify an assignment,
sublease, or other Transfer that has been previously approved by Landlord (each
an Transfer) without the prior written consent of Landlord which shall not be
unreasonably withheld. If Tenant is a corporation, a partnership, or a limited
liability company, the transfer (as a consequence of a single transaction or any
number of separate transactions) of fifty percent (50%) or more of the
beneficial ownership interest of the voting stock of Tenant issued and
outstanding as of the date hereof (other than stock transfers to or within the
general public if, during the Lease Term, Tenant is or becomes a publicly traded
company on a nationally recognized exchange) or partnership interests in Tenant,
or ownership interests in Tenant, as the case may be, shall constitute a
Transfer hereunder for which such consent is required. Further, Tenant shall not
Transfer this Lease to any corporation which controls, is controlled by, or is
under common control with Tenant, or to any corporation resulting from merger or
consolidation with Tenant, or to any person or entity which acquires all the
assets as a going concern of the business of Tenant that is being conducted on
the Premises, without the prior written consent of Landlord which shall not be
unreasonably withheld. Any of the foregoing acts without such consent shall be
void, and, at the option of Landlord, shall terminate this Lease.
Notwithstanding anything to the contrary contained in this Section, provided the
use of the Premises does not change and Tenant fully complies with the remaining
provisions of this Section, including but not limited to subsection (f) below,
Tenant may Transfer this Lease without first obtaining Landlord's consent (a
Permitted Transfer) to a corporation, limited liability company, or other entity
which results from a merger, consolidation, reorganization, or asset sale with
Tenant in which the surviving entity (A) acquires substantially all of the
assets of Tenant as a going concern, (B) assumed, or is deemed by law to be
liable for, all of the liabilities of Tenant, and (C) has after such merger,
consolidation, reorganization, or asset sale a net worth not less than the
greater of Tenant's net worth as of the date of this Lease or Tenant's net worth
immediately preceding such merger, consolidation, or other reorganization.
(b) In the event that Tenant should desire to Transfer this Lease, Tenant shall
provide Landlord with written notice of such desire at least sixty (60) days in
advance of the effective date of such Transfer. Such notice shall include (i)
the name and legal composition of the proposed sublessee or assignee; (ii) the
nature of business to be conducted by the proposed sublessee or assignee in the
Premises; (iii) the terms and conditions of the proposed Transfer; (iv) a
current financial statement of the proposed sublessee or assignee,
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financial statements of proposed sublessee or assignee coveting the preceding
three (3) years, if they exist, and, if available, an audited financial
statement of the proposed sublessee or assignee for a period ending not more
than one (1) year prior to the proposed effective date of the Transfer, all of
which are to be prepared in accordance with generally accepted accounting
principles; (v) a statement of all consideration to be given on account of the
Transfer, (vi) any other reasonable information that Landlord requests
reasonably required to evaluate the ability of the transferee to comply with the
terms this Lease; and a processing fee of Five Hundred Dollars ($500). At any
time within thirty (30) days following receipt of Tenant's notice, Landlord may
by written notice to Tenant elect to (i) in Landlord's sole and absolute
discretion, if the requested Transfer is for fifty percent (50%) or more of the
rentable square footage of the Premises for the majority of the remainder of the
Lease Term, terminate this Lease as to the space affected as of the effective
date of the proposed Transfer; (ii) consent to the proposed subletting of the
Premises or assignment of this Lease; or (iii) disapprove of the proposed
Transfer. If Landlord does not elect to terminate this Lease, however, Landlord
shall not unreasonably withhold its consent to a proposed Transfer if Tenant is
not in default under this Lease at the time Tenant requests such consent.
Without limiting other situations in which it may be reasonable for Landlord to
withhold its consent to any proposed assignment or sublease, Landlord and Tenant
agree that it shall be reasonable for Landlord to withhold its consent in any
one or more of the following situations: (i) if, in Landlord's reasonable
judgment, the net worth of the proposed subtenant or assignee does not equal or
exceed the Tenant's net worth at the time this Lease is signed; (ii) in
Landlord's reasonable judgment, the business history and reputation in the
community of the proposed subtenant or assignee does not meet the standards
applied by Landlord; (iii) the proposed subtenant or assignee shall be a
prospective tenant (with whom Landlord has received or delivered a written
proposal within the last six months) or a then existing tenant of Landlord; (iv)
the use proposed by the proposed subtenant or assignee will violate any lease or
agreement to which Landlord is a party or introduce undesirable Hazardous;
Materials to the Property; (v) the proposed subtenant or assignee does not meet
the qualifications applied by Landlord's lender having a first lien on the
Premises; (vi) or the proposed subtenant or assignee is a governmental agency,
maintains the power of eminent domain or is exempt from the payment of ad
valorem or other taxes which would prohibit Landlord form collecting any amounts
otherwise payable under this Lease; (vi) the Guarantor (if any) refuses to
affirm the Guaranty for the tenancy of the proposed subtenant or assignee. In
any event, Landlord shall be entitled to exercise its right of termination in
lieu of consenting to a transfer, as set forth above.
(c) Landlord and Tenant agree that fifty percent (50%) of any rent or other
consideration received or to be received by or on behalf of or for the benefit
of Tenant as a result of any Transfer, in excess of the aggregate of (i) the
Monthly Rent which Tenant is obligated to pay Landlord under this Lease
(prorated to reflect obligations allocable to that portion of the Premises
subject to such sublease); (ii) any leasing commissions paid by Tenant in
connection with the entry by it into the Transfer amortized over the remaining
months of the Lease Term and (iii) Tenant's Cost (defined in Exhibit C) over the
Allowance for construction of the Improvements amortized over the remaining
months of the Term, shall be payable to Landlord as additional rent under this
Lease without affecting or reducing any other obligation of Tenant hereunder.
Landlord's share of such excess rent or other consideration shall be paid
monthly by the subtenant or assignee directly to Landlord at the same time as
such rent or other consideration is payable to Tenant.
(d) Regardless of Landlord's consent, no Transfer shall release Tenant of
Tenant's obligation or alter the primary liability of Tenant for rent and
performance of all other obligations to be performed by Tenant hereunder.
Acceptance of rent by Landlord from any other person shall not be deemed to be a
waiver by Landlord of any provision hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent or further Transfers.
In the event of default by any assignee or successor of Tenant in performing any
of the terms hereof, Landlord may proceed directly against Tenant without the
necessity of exhausting remedies against said assignee or successor. Landlord
may consent to subsequent Transfers of this Lease or amendments or modifications
to this Lease with assignees of Tenant, without notifying Tenant, or any
successor of Tenant, and without obtaining its or their consent thereto and such
action shall not relieve Tenant or any successor of Tenant of liability under
this Lease.
(e) Tenant shall pay to Landlord, as an additional rent, all out of pocket and
actual costs and reasonable attorney fees (not to exceed $2,500) incurred by
Landlord (or imposed on Landlord by its lender having a first lien on the
Premises) in connection with the evaluation, processing, or documentation of any
requested Transfer, whether or not Landlord's consent is granted. Landlord's
costs shall include the cost of any review or investigation performed by
Landlord or on behalf of Landlord of: (i) any Hazardous Materials used,
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stored, released, or disposed of by the proposed subtenant or assignee, or (ii)
violations of any Environmental Law by the Tenant or the proposed subtenant or
assignee.
(f) In order for any Transfer to be binding on Landlord, including any Permitted
Transfer, Tenant shall deliver to Landlord, promptly after execution thereof an
executed copy of such sublease or assignment whereby the sublessee or assignee
shall expressly assume the obligations of Tenant under this Lease and executed
original affirmation of the Guaranty (if any) whereby the Guarantor expressly
affirms the continuing guaranty of the obligations of the Tenant and subtenant
or assignee under the Lease. Any Transfer approved by Landlord shall not be
effective until Tenant has delivered to Landlord an executed counterpart of the
document evidencing the Transfer and affirmation of Guaranty (if any) in form
and substance reasonably satisfactory to Landlord.
(g) Any attempted Transfer without Landlord's consent shall constitute an Event
of Default. Landlord's consent to any one Transfer shall not constitute a waiver
of the provision of Section 21 as to any subsequent Transfer or a consent to any
subsequent Transfer. Tenant hereby waives any right to terminate this Lease from
the failure of Landlord to provide reasonable consent to any proposed subtenant
or assignee under any applicable governmental laws, ordinances, statutes,
orders, or regulations now or later in effect, waives any and all actual,
consequential or punitive damages resulting from any such failure and agrees
that Tenant's sole remedy in such event of such failure shall be the remedy of
specific performance.
Section 22. Default.
Any of the following events or occurrences shall constitute a material breach of
this Lease by Tenant and, after the expiration of any applicable grace period,
shall constitute an event of default (each an Event of Default):
(a) The failure by Tenant to pay any amount in full when it is due under the
Lease;
(b) The failure by Tenant to perform any obligation under this Lease, which by
its nature Tenant has no capacity to cure;
(c) The failure by Tenant to perform any other obligation under this Lease, if
the failure has continued for a period of ten (10) days after Landlord demands
in writing that Tenant cure the failure. If, however, by its nature the failure
cannot be cured within ten (10) days, Tenant may have a longer period as is
necessary to cure the failure, but this is conditioned on Tenant's promptly
commencing to cure within the ten (10) day period and thereafter completing the
cure within sixty (60) days after Landlord demands in writing that Tenant cure
the failure. Tenant shall indemnify and defend Landlord against any liability,
claim, damage, loss, or penalty that may be threatened or may in fact arise from
that failure during the period the failure is uncured;
(d) Any of the following: a general assignment by Tenant for the benefit of
Tenant's creditors; any voluntary filing, petition, or application by Tenant
under any law relating to insolvency or bankruptcy, whether for a declaration of
bankruptcy, a reorganization, an arrangement, or otherwise; the abandonment,
vacation, or surrender of the Premises by Tenant without Landlord's prior
written consent; or the dispossession of Tenant from the Premises (other than by
Landlord) by process of law or otherwise;
(e) Any of the following: the appointment of a trustee or receiver to take
possession of all or substantially all of Tenant's assets or the attachment,
execution or other judicial seizure of all or substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, unless the
appointment or attachment, execution, or seizure is discharged within thirty
(30) days; or the involuntary filing against Tenant, or any general partner of
Tenant if Tenant is a partnership, of a petition to have Tenant, or any partner
of Tenant if Tenant is a partnership, declared bankrupt or for reorganization or
arrangement of Tenant under any law relating to insolvency or bankruptcy, unless
the petition is dismissed within thirty (30) days; or
(f) The abandonment of the Premises by Tenant.
(g) Tenant's failure to timely provide a requested Estoppel Certificate pursuant
to Section 27 or Subordination, Attornment and Non-Disturbance agreement under
Section 38.
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(h) Any failure of Guarantor to timely perform the obligations of Guarantor
under the Guaranty, if any.
Section 23. Remedies.
Upon the occurrence of an Event of Default, Landlord, in addition to any other
rights or remedies available to Landlord at law or in equity, shall have the
right to:
(a) Terminate this Lease and all rights of Tenant under this Lease by giving
Tenant written notice that this Lease is terminated, in which case Landlord may
recover from Tenant the aggregate sum of:
(i) the worth at the time of award of any unpaid rent that had been earned at
the time of termination;
(ii) the worth at the time of award of the amount by which (A) the unpaid
rent that would have been earned after termination until the time of the
award exceeds (B) the amount of the rental loss, if any, as Tenant
affirmatively proves could have been reasonably avoided;
(iii) the worth at the time of award of the amount by which (A) the unpaid
rent for the balance of the term after the time of the award exceeds (B) the
amount of rental loss, if any, as Tenant affirmatively proves could be
reasonably avoided;
(iv) any other amount necessary to compensate Landlord for all the detriment
caused by Tenant's failure to perform Tenant's obligations or that, in the
ordinary course of things, would be likely to result from Tenant's failure,
including, without limitation, the costs and expenses incurred by Landlord
for:
(A) retaking possession of the Premises;
(B) cleaning and making repairs and alterations (including installation of
standard leasehold improvements for the uses permitted under this Lease,
whether or not the same shall be funded by a reduction of rent, direct
payment, or otherwise) necessary to return the Premises to good condition and
preparing the Premises for reletting, with any tenant improvements necessary
to prepare the Premises for reletting being amortized over the life of such
improvements and charged to Tenant based on the then remainder of the Term
hereof;
(C) removing, transporting and storing any of Tenant's property left at the
Premises (although Landlord shall have no obligation to remove, transport, or
store any of the said property);
(D) reletting the Premises, including, without limitation, brokerage
commissions, advertising costs, and attorney fees;
(E) attorney fees, expert witness fees and court costs in terminating this Lease
and enforcing Landlord's rights thereunder;
(F) any unamortized real estate brokerage commissions paid in connection with
this Lease; and
(G) costs of carrying the Premises, such as repairs, maintenance, taxes,
insurance premiums, utilities, and security precautions, if any; and
(v) all other amounts in addition to or in lieu of those previously set out as
may be permitted from time to time by applicable California law.
As used in clauses (i) and (ii) of Section 23(a), the worth at the time of award
is computed by allowing interest at the rate of ten percent (10%) per annum. As
used in clause (iii) of Section 23(a), the worth at the time of award is
computed by discounting that amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award, plus one percent (1%). As used in
this Section, the term rent shall include Monthly Rent and any other payments
required by Tenant under this Lease.
(b) Continue this Lease pursuant to the remedy described in California Civil
Code Section 1951.4 (Lessor may continue lease in effect after lessee's breach
and abandonment and recover rent as it becomes due if lessee has rights to
sublet or assign subject only to reasonable limitations). In such event Landlord
may without terminating this Lease,
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(i) recover all rent and other amounts payable as they become due; or
(ii) relet the Premises or any part on behalf of Tenant on terms and at the rent
that Landlord may deem advisable, all with the right to make alterations and
repairs to the Premises, at Tenant's cost, and apply the proceeds of reletting
to the rent and other amounts payable by Tenant. To the extent that the rent and
other amounts payable by Tenant under this Lease exceed the amount of the
proceeds from reletting, the Landlord may recover the excess from Tenant as and
when due.
(c) Re-enter the Premises, with or without terminating this Lease, and to remove
all persons and property from the Premises. Landlord may store the property
removed from the Premises in a public warehouse or elsewhere at the expense and
for the account of Tenant.
(d) None of the following remedial actions, alone or in combination, shall be
construed as an election by Landlord to terminate this Lease unless Landlord has
in fact given Tenant written notice that this Lease is terminated or unless a
court of competent jurisdiction decrees termination of this Lease: any act by
Landlord to maintain or preserve the Premises; any efforts by Landlord to relet
the Premises; any re-entry, repossession, or reletting of the Premises; or any
re-entry, repossession, or reletting of the Premises by Landlord pursuant to
this Section. If Landlord takes any of the previous remedial actions without
terminating this Lease, Landlord may nevertheless at any later time terminate
this Lease by written notice to Tenant.
(e) If Landlord relets the Premises, Landlord shall apply the revenue from the
reletting as follows: first, to the payment of any indebtedness other than rent
due from Tenant to Landlord; second, to the payment of any cost of reletting,
including, without limitation, finder's fees and leasing commissions; third, to
the payment of the cost of any maintenance and repairs to the Premises; and
fourth, to the payment of rent and other amounts due and unpaid under this
Lease. Landlord shall hold and apply the residue, if any, to payment of future
amounts payable under this Lease as the same may become due, and shall be
entitled to retain the eventual balance with no liability to Tenant. If the
revenue from reletting during any month, after application pursuant to the
previous provisions, is less than the sum of (i) Landlord's expenditures for the
Premises during that month and (ii) the amounts due from Tenant during that
month, Tenant shall pay the deficiency to Landlord immediately upon demand.
(f) After the occurrence of an Event of Default, Landlord, in addition to or in
lieu of exercising other remedies, may, but without any obligation to do so,
cure the breach underlying the Event of Default for the account and at the
expense of Tenant. However, Landlord shall by prior notice first allow Tenant a
reasonable opportunity to cure, except in cases of emergency, where Landlord may
proceed without prior notice to Tenant. Tenant shall, upon demand, immediately
reimburse Landlord for all costs, including costs of settlements, defense, court
costs, and attorney fees, that Landlord may incur in the course of any cure.
(g) No security or guaranty for the performance of Tenant's obligations that
Landlord may now or later hold shall in any way constitute a bar or defense to
any action initiated by Landlord for unlawful detainer or for the recovery of
the Premises, for enforcement of any obligation of Tenant, or for the recovery
of damages caused by a breach of this Lease by Tenant or by an Event of Default.
(h) Except where this is inconsistent with or contrary to any provisions of this
Lease, no right or remedy conferred on or reserved to either party is intended
to be exclusive of any other right or remedy, or any right or remedy given or
now or later existing at law or in equity or by statute. Except to the extent
that either party may have otherwise agreed in writing, no waiver by a party of
any violation or nonperformance by the other party of any obligations,
agreements, or covenants under this Lease shall be deemed to be a waiver of any
subsequent violation or nonperformance of the same or any other covenant,
agreement, or obligation, nor shall any forbearance by either party to exercise
a remedy for any violation or nonperformance by the other party be deemed a
waiver by that party of the rights or remedies with respect to that violation or
nonperformance.
Section 24. Late Charge.
Tenant acknowledges that Tenant's failure to pay any installment of Rent, or any
other amounts due under this Lease as and when due may cause Landlord to incur
costs not contemplated by Landlord when entering
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into this Lease, the exact nature and amount of which would be extremely
difficult and impracticable to ascertain. Such costs include, without
limitation, processing and accounting charges, and late charges that may be
imposed on Landlord by the terms of any encumbrance and note secured by any
encumbrance covering the Premises, extraordinary interest charges, penalties,
collection costs, attorney and accountant fees, and the like. Accordingly, if
any installment of Rent, or any other amount due under the Lease is not received
by Landlord as and when due, then Tenant shall pay to Landlord an amount equal
to ten percent (10%) of the past due amount, which the parties agree represents
a fair and reasonable estimate of the costs incurred by Landlord as a result of
the late payment by Tenant (the Late Charge).
Section 25. Default Interest.
All Rent and other amounts payable by Tenant to Landlord hereunder, if not
received by Landlord when and as due, shall bear interest from the due date
until paid at the maximum rate permitted by law. Interest due pursuant to this
Section shall be in addition to and not in lieu of late fees owing under Section
24 hereof. Acceptance of any late charge or interest payment shall not
constitute a waiver of Tenant's default with respect to the overdue amount, nor
prevent Landlord from exercising any of the other rights and remedies available
to Landlord under this Lease, at law, or in equity.
Section 26. Waiver.
Any express or implied waiver of a breach of any term of this Lease shall not
constitute a waiver of any further breach of the same or other term of this
Lease; and the acceptance of rent shall not constitute a waiver of any breach of
any term of this Lease, except as to the payment of rent accepted.
Section 27. Estoppel Certificates.
At any time, with at least ten (10) days' prior notice by Landlord, Tenant shall
execute, acknowledge, and deliver to Landlord a certificate, in the form
prescribed by Landlord, certifying:
(a) the Commencement Date, the occupancy date, and the Term;
(b) the amount of the Monthly Rent;
(c) the dates to which rent and other charges have been paid;
(d) that this Lease is unmodified and in full force or, if there have been
modifications, that this Lease is in full force, as modified, and stating the
date and nature of each modification;
(e) that no notice has been received by Tenant of any default by Tenant that
has not been cured, except, if any exist, those defaults shall be specified
in the certificate, and Tenant shall certify that no event has occurred that,
but for the expiration of the applicable time period or the giving of notice,
or both, would constitute an Event of Default under this Lease (to the extent
that none exist);
(f) that no default of Landlord is claimed by Tenant, except, if any, those
defaults shall be specified in the certificate; and
(g) other matters as may be reasonably requested by Landlord.
Any certificate may be relied on by prospective purchasers, mortgagees, or
beneficiaries under any deed of trust on the Premises or any part of it.
Tenant's failure to execute and deliver a completed Estoppel Certificate
within ten (10) days of Landlord's request therefore shall constitute an
Event of Default hereunder.
Section 28. Attorney Fees. If as a result of any breach or default or alleged
breach or alleged default on the part of Tenant under this Lease, Landlord uses
the services of an attorney in order to secure compliance with this Lease,
Tenant shall reimburse Landlord upon demand as additional rent for any and all
attorney fees and expenses incurred by Landlord, whether or not formal legal
proceedings are instituted, unless such breach or default or alleged breach or
alleged default results in a judgment in favor of Tenant. If any action at law
or in equity or any other proceeding is brought to recover any rent or other
sums under this Lease, or for or on account of any breach or alleged breach of
or to enforce or interpret any of the covenants, terms, or conditions of this
Lease, or for the recovery of the possession of the Premises, the prevailing
party shall be entitled to recover from the other party as part of prevailing
party's costs its actual attorney fees and other costs incurred in that action
or proceeding, including, but not limited to, expert expenses, in addition to
any other relief to which they may be entitled. The prevailing party shall
include, without limitation, (a) a party
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who dismisses an action in exchange for sums allegedly due; (b) the party who
receives performance from the other party of an alleged breach of covenant or
a desired remedy where that is substantially equal to the relief sought in an
action; or (c) the party determined to be the prevailing party by a court of
law. In addition, if either party to this Lease becomes a party to or is
involved in any way in any action concerning this Lease or the Premises by
reason in whole or in part of any act, neglect, fault, or omission of any
duty by the other party, its employees or contractors, the party subjected to
said involvement shall be entitled to reimbursement for any and all
reasonable attorney fees and costs.
Section 29. Security for Tenant's Performance.
(a) Security Deposit. Tenant agrees that, on or before the execution of this
Lease, Tenant shall deposit with Landlord the amount of Fifty Thousand Two
Hundred Sixty-Two Dollars ($50,262), which amount shall be held by Landlord
as security for the full and faithful performance of all of Tenant's
covenants and obligations under this Lease (as the same may be further
increased pursuant to Section 29(b)), (the Security Deposit), it being
expressly understood and agreed that the Security Deposit is not an advance
rental deposit or a measure of the Landlord's damages in case of Tenant's
default. Upon the occurrence of any default by Tenant hereunder, Landlord may
(but shall not be required to), from time to time and without prejudice to
any other remedy provided by this Lease or by law, use the Security Deposit
to the extent necessary to make good any arrears of rent or other payments or
liability caused by such default or to compensate Landlord for any other
loss, damage, liability, or expense which Landlord may suffer by reason of
Tenant's default. Tenant shall within ten (10) days after written demand
therefor pay to Landlord the amount that was applied in order to restore the
Security Deposit to the amount held by Landlord prior to the application (as
such amount may be increased by Section 29(a) below). Tenant's failure to so
restore the Security Deposit shall constitute an event of default under this
Lease on the part of Tenant. Although the Security Deposit shall be deemed
the property of Landlord, if Tenant fully and faithfully performs and
observes every provision of this Lease to be performed and observed by
Tenant, the Security Deposit, or any then unused balance thereof, shall be
returned to Tenant (or at Landlord's option, to the last assignee of Tenant's
interest hereunder) after the expiration of the Term and after Tenant has
vacated and surrendered the Premises in accordance with the terms hereof.
Tenant shall not have the right to apply this Security Deposit or any part
thereof toward the payment of any Rent or sums due hereunder. In the event of
termination of Landlord's interest in this Lease, Landlord shall transfer the
unused balance of said Deposit to Landlord's successor-in-interest whereupon
Tenant hereby agrees to release Landlord from liability for the return of
such Deposit provided such successor-in-interest agrees to return the
Security Deposit to Tenant in accordance with the terms hereof. Landlord
shall not be required to keep the Security Deposit separate from the general
accounts of Landlord nor pay Tenant any interest thereon.
(b) Letter of Credit. Tenant agrees that, on or before the execution of this
Lease, Tenant shall deposit with Landlord and maintain throughout the Lease Term
(except as provided below) a Four Hundred Thousand Dollar ($400,000) irrevocable
letter of credit in form and substance and issued by a bank reasonably
acceptable to Landlord and Landlord's lender and naming Landlord (and, if
required, Landlord's lender holding the first lien against the Property) as
beneficiary (the "Letter of Credit"). The Letter of Credit will secure the full
and faithful performance of each provision of this Lease to be performed by
Tenant. If Tenant fails to perform any of Tenant's obligations under this Lease,
Landlord shall have the absolute right to draw down the full amount of the
Letter of Credit on Landlord's sworn statement of any Tenant Event of Default.
The draw down shall be added to and increase the amount of the Security Deposit
retained by Landlord and thereafter required under Section 29(a) above. If
Landlord does apply the Security Deposit, as increased by the Letter of Credit
amount, Tenant must within ten (10) days written demand replenish the Security
Deposit to the combined sum of the amount of the Letter of Credit and the
Security Deposit as required under 29(a). Following the third anniversary of the
Commencement Date and on each anniversary of the Commencement Date thereafter,
the face amount of the letter of credit may be reduced by One Hundred Thousand
Dollars ($100,000) upon Tenant's written request, provided such request confirms
to Landlord in Landlord's reasonable discretion, with such evidence as Landlord
may reasonably require, that: (i) The Letter of Credit
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is in full force and effect and has not been drawn upon by Landlord; (ii) No
Event of Default has occurred under the Lease nor has there occurred any
event or omission which with the passage of time would constitute an Event of
Default; (iii) Tenant has experienced a minimum of three (3) consecutive
quarters in which the net income per quarter exceeds the annual rent due
hereunder. As used in this Section Net Income shall mean the gross revenues
and income of Tenant, exclusive of any extraordinary gains or losses or any
gains or losses from the sale or disposition of assets other than in the
ordinary course of business, less the aggregate for Tenant during such period
of: (a) operating expenses, (b) taxes, (c) depreciation and amortization of
payments and (d) any other items that are treated as expenses under GAAP, all
determined in accordance with GAAP consistently applied on a consolidated
basis, after eliminating all inter-company items.
Section 30. Authority. If Tenant is a corporation, trust, limited liability
company, or general or limited partnership, all individuals executing this
Lease on behalf of that entity represent that they are authorized to execute
and deliver this Lease on behalf of that entity. If Tenant is a corporation,
limited liability company, trust, or partnership, Tenant shall, prior to the
execution of this Lease, deliver to Landlord evidence of that authority and
evidence of due formation, all satisfactory to Landlord. If Tenant is a
partnership, Tenant shall furnish Landlord with a copy of Tenant's
partnership agreement and with a certificate from Tenant's attorney, stating
that the partnership agreement constitutes a correct copy of the existing
partnership agreement of Tenant. Tenant agrees that it shall in a timely
manner obtain all corporate and other approvals necessary to allow it to
execute this Lease and carry out Tenant's obligations hereunder.
Section 31. Notices. Except as otherwise expressly provided by law, all
notices or other communications required or permitted by this Lease or by law
to be served on or given to either party to this Lease by the other party
shall be in writing and shall be deemed served when personally delivered to
the party to whom they are directed, or in lieu of the personal service,
three days following deposit in the United States Mail, certified or
registered mail, return receipt requested, postage prepaid, addressed as set
forth above in the Summary of Terms. Either party, Tenant or Landlord, may
change the address for the purpose of this Section by giving written notice
of the change to the other party in the manner provided in this Section.
Section 32. Heirs and Successors. This Lease shall be binding on and shall inure
to the benefit of the heirs, executors, administrators, successors, and assigns
of Landlord and Tenant.
Section 33. Partial Invalidity. Should any provision of this Lease be held by
a court of competent jurisdiction to be either invalid or unenforceable, the
remaining provisions of this Lease shall remain in effect, unimpaired by the
holding.
Section 34. Entire Agreement. This instrument constitutes the sole agreement
between Landlord and Tenant respecting the Premises, the leasing of the
Premises to Tenant, and the specified lease term, and correctly sets forth
the obligations of Landlord and Tenant. Any agreement or representations
respecting the Premises or their leasing by Landlord to Tenant not expressly
set forth in this instrument are void.
Section 35. Time of Essence. Time is of the essence in this Lease.
Section 36. Amounts Deemed Rent. All monetary obligations of Tenant to
Landlord under the Lease, including, but not limited to, the Monthly Rent and
any amounts deemed additional rent hereunder shall be deemed rent.
Section 37. Amendments. This Lease may be modified only in writing and only if
signed by the parties at the time of the modification.
Section 38. Subordination, Nondisturbance and Attornment.
(a) This Lease and the rights of Tenant hereunder are subject and subordinate to
any ground or underlying lease and the lien of the holder of or beneficiary
under a mortgage or deed of trust which now or in the future encumbers the
Premises and to any and all advances made thereunder, and interest thereon, and
all modifications, renewals, supplements, consolidations, and replacements
thereof. Upon execution of this Lease, as a pre-condition to Landlord's
execution and delivery of this Lease, Tenant shall execute the
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Subordination, Attornment and Non-Disturbance Agreement in favor of
Landlord's lender having a first lien on the Premises attached as Exhibit S.
(b) Tenant agrees that any ground or underlying lessor or lender may at its
option, unilaterally elect to subordinate in whole or in part, such ground or
underlying lease or the lien of such mortgage or deed of trust to this Lease.
With at least ten (10) days' prior notice by Landlord Tenant agrees to
execute, acknowledge, and deliver to Landlord upon demand any and all
instruments required by Landlord or any such ground or underlying lessor or
lender evidencing the subordination, attornment or priority of this Lease, as
the case may be, provided such instrument contains the standard
non-disturbance and attornment provisions acknowledging Tenant's interest in
this Lease customarily provided by such lessor or lender. Tenant's failure to
so execute, acknowledge, and deliver such instruments within ten (10) days
after written request therefor shall constitute an Event of Default hereunder.
(c) Tenant agrees that this Lease and the rights of Tenant hereunder shall be
subject and subordinate to any agreement(s) placed upon the Property and the
real property owned by Landlord and adjacent to the Property and any
amendments, additions or supplements thereto, which provides for reciprocal
easements and/or covenants, conditions and restrictions pertaining to the
common areas located on the Property and the adjacent real property, which
agreements shall not materially interfere with Tenant's rights and use of the
Premises under this Lease or with Tenant's access to the Premises
(collectively "REA"). If a conflict between any such REA and this Lease
occurs, the provisions of the REA shall prevail provided that the REA is
recorded in the Official Records of the County of San Mateo and is binding
upon any such adjacent real property as well as the Property.
Section 39. Merger. The voluntary or other surrender of this Lease by Tenant,
or a mutual cancellation of the Lease, or a termination by Landlord shall not
work a merger, and shall, at the option of Landlord, terminate all or any
existing subtenancies or may, at the option of Landlord, operate as an
assignment to a Landlord of any of the subtenancies.
Section 40. Options To Extend Term.
(a) Tenant shall have one option (the Extension Option) to extend the Term
for three (3) years for the entire Premises by giving Landlord prior written
notice of Tenant's election to exercise this option not less than two hundred
ten (210) days before the expiration of the Term as the same may have been
extended. However, if there exists an uncured default on Tenant's part either
at the time of the exercise of any Extension Option or at the time that any
Option Period would commence, Landlord may cancel Tenant's exercise of such
Extension Option, in which case the Extension Option shall be of no further
force or effect and all subsequent Extension Options shall be deemed
canceled. Each Extension Option shall be on all the same terms of this Lease
provided that the Monthly Rent for each such Option Period shall be increased
in accordance with Section 42 of this Lease.
(b) The Extension Option is personal to the named tenant herein and any Transfer
of such tenant's interest in the Lease (other than a Permitted Transfer),
whether or not consented to by Landlord, shall cause such Extension Option to
terminate and be of no further force or effect.
Section 41. Right of Relocation. Intentionally Deleted.
Section 42. Determination of Monthly Rent for Extension Option. For purposes of
Section 41(a), Monthly Rent shall be determined as follows:
(a) Parties shall have until the later to occur of (i) fifteen (15) days from
the receipt by Landlord of Tenant's notice electing to exercise an Extension
Option, or (ii) one hundred ninety-five days prior to the expiration of the
initial Lease Term to agree on the Monthly Rent for the Option Period which
shall in any case no less than the previous Monthly Rental due for the last year
of the expiring Lease Term. If the parties agree on the Monthly Rent for the
Option Period, by such date, they shall immediately execute an amendment to this
Lease stating the Monthly Rent for the Option Period and memorializing the
extension of the Term in accordance with Section 41 hereof.
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(b) If the parties are unable to agree upon the Monthly Rent for the Option
Period in accordance with Section 42(a), then within fourteen (14) days after
the parties fail to agree on the Monthly Rent for the Option Period, each
party at its cost and by giving notice to the other party, shall appoint a
real estate appraiser with at least five (5) years full time MAI appraisal
experience in San Mateo County, to determine the Monthly Rent for the Option
Period, and shall deliver to said appraiser as well as the other party, such
party's proposal for the Monthly Rent for the Option Period. If a party does
not appoint an appraiser within said fourteen (14) day period and the other
party has given notice of the name of its appraiser, the single appraiser
appointed shall be the sole appraiser and shall determine the Monthly Rent
for the Option Period. If an appraiser is appointed by each of the parties as
provided in this section, they shall meet promptly and attempt to set the
Monthly Rent for the Option Period, by agreeing on which party's proposal
most closely reflects the Fair Market Rental Value of the Premises for the
Option Period. If they are unable to agree within thirty (30) days after the
second appraiser has been appointed, the two appraisers shall within ten (10)
days following the end of such thirty-day period chose a third appraiser or
if the two appraisers cannot agree on a third appraiser within such ten-day
period, either of the parties to this Lease, by giving ten (10) days notice
to the other party, can apply to the then Presiding Judge of the San Mateo
County Superior Court for the appointment of a third appraiser who meets the
qualifications stated in this section. The third appraiser, however, shall be
a person who has not previously acted in any capacity for either party during
the prior three years. Within thirty (30) days after the selection of the
third appraiser, a majority of the appraisers shall determine which party's
proposal more closely reflects the Fair Market Rental Value of the Premises
for the Option Period. The party whose proposal is not selected shall bear
the cost of appointing the third appraiser together with such third
appraiser's fee. As used herein, Fair Market Rental Value shall mean the then
prevailing annual rental rate per square foot of rentable area for office
space in comparable buildings and with comparable tenant improvements, in the
mid- San Francisco peninsula, San Mateo County area, for the renewal of
tenant designed premises which have been recently improved for tenant
occupancy similar to the Premises, comparable in area and location to the
space for which such rental rate is being determined (to the extent that
quoted rental rates vary with regard to location), being leased for a
duration comparable to the term for which such space is being leased and
taking into consideration rental concessions and abatements, tenant
improvement allowances, and renewal commissions, if any, being offered by
Landlord, the present condition of the space, operating expenses and taxes,
other adjustments to basic rent and other comparable factors to lease
renewal, but excluding any adjustments for brokerage commissions,
pre-occupancy construction period rent allowances, moving allowances or other
concessions offered in the market for new space leases.
(c) After the appraisers determine which party's proposal more closely
reflects the Fair Market Rental Value of the Premises for the Option Period,
the appraisers shall immediately notify the parties and the parties of their
findings and the parties shall immediately execute an amendment to this Lease
stating the Monthly Rent for the Option Period, which in any case shall be no
less than the previous Monthly Rental due for the last year of the expiring
Lease Term, and which amendment shall memorialize the extension of the Term
in accordance with Section 41 hereof.
Section 43. Improvements. Prior to the Commencement Date, Landlord shall provide
to Tenant, at Landlord's cost, a completed building shell including restrooms,
demising wall, common lobby/entrance, HVAC system stubbed to the Premises (but
not distributed) and roof screens as more particularly shown in attached Exhibit
C-1 (the "Base Building Improvements"). Pursuant to Exhibit C hereto, Tenant
shall construct Tenant Improvements (as defined in Exhibit C) for the Premises
at Tenant's cost. Landlord shall contribute a tenant improvement allowance (the
"Allowance") to construct such Tenant Improvements in the amount of $372,370 to
be applied toward all expenses associated with the construction, space planning,
engineering, construction drawings, construction management, signage and other
necessary permits directly associated with the Tenant Improvements. Under no
circumstances shall the Allowance be used for Tenant's due diligence review of
the Premises (or this Lease) nor the design, acquisition or planning costs of
Tenant's personal property, furniture, trade fixtures or equipment.
Section 44. Environmental Provisions.
(a) Definitions. As used in this Section, the following terms have the following
definitions:
"Access Agreement" means that Access Agreement dated as of April 29, 1997
between R&H and Landlord, a copy of which is attached hereto as Exhibit I-2
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"Agencies" means any federal, state, or local governmental authorities,
agencies, or other administrative bodies with jurisdiction over Landlord, Tenant
or the Premises or the Property.
"Costs" shall have the same definition as the word "Costs" as set forth in
Section 9.1(a) of the R&H Indemnity (defined herein).
"Environmental Documents" means the studies, tests and reports listed in Exhibit
I.
"Environmental Laws" means any federal, state, or local environmental, health,
or safety-related laws, regulations, standards, court decisions, ordinances,
rules, codes, orders, decrees, directives, guidelines, permits, or permit
conditions, currently existing and as amended, enacted, issued, or adopted in
the future that are or become applicable to Tenant or the Premises.
"Existing Environmental Conditions" means the presence of Hazardous Materials
at, on, in, under or from the Property (including in soil, surface, or
groundwater) on or before the date on which this Lease is signed, including
without limitation the conditions disclosed in the reports set forth in the
Environmental Documents.
"Hazardous Materials" shall have the same definition as the word term "Hazardous
Materials" as set forth in Section 9.1(b) of the R&H Indemnity.
"Remediation Order" means California Regional Water Quality Control Board
("CRWQCB") Order No. 93-004 and any amendments thereto.
"Remediation Work" means all environmental activities necessary in order for R&H
(or any other responsible party other than Tenant) to comply with the
Remediation Order and any subsequent order of any governmental agency respecting
the Existing Environmental Conditions which may include the removal of
contaminated soil, groundwater and installation, operation, maintenance, repair,
replacement and removal of wells, pumps, pipes, tanks and related facilities and
equipment for testing and monitoring environmental contamination and effecting
the correction, reduction or elimination of environmental contamination.
"R&H" means Rohm & Haas Company, prior owner of the Property and responsible
party for the Remediation Work and R&H Indemnity.
"R&H Indemnity" means that certain assignable indemnification by R&H of Landlord
with respect to Existing Environmental Conditions as set forth in Article IX of
that certain Purchase and Sale Agreement executed between Landlord and R&H and
dated February 10, 1997 (the "Purchase and Sale Agreement") a redacted copy of
which is attached hereto and incorporated herein as Exhibit I-1. Landlord
represents that, to the best of Landlord's knowledge, the R&H Indemnity is in
full force and effect.
"Tenant's Parties" means Tenant's employees, agents, customers, visitors,
invitees, licensees, contractors, designees, or subtenants.
(b) Disclosure, Remediation and Indemnification Regarding Existing Conditions.
(i) Environmental Disclosure. In accordance with Section 25359.7 of the
California Health and Safety Code, Landlord hereby gives notice to Tenant (i)
that releases of Hazardous Materials have come to be located on or beneath the
Property and (ii) of the matters set forth in the Environmental Documents.
(ii) Ongoing Remediation. Tenant acknowledges that the Remediation Work is
being conducted on the Property and Landlord represents, warrants, and agrees
that the Remediation Work will be conducted at no direct cost to Tenant
during the Lease Term, and that no part of the direct or indirect costs of
such Remediation Work shall be reimbursed by Tenant to Landlord or any other
person under this Lease or otherwise. All parties conducting the Remediation
Work shall have the right to use the Property for the purposes of performing
the Remediation Work pursuant to the terms and conditions of the Purchase and
Sale Agreement and the Access Agreement until the Remediation Work has been
completed. Tenant shall
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not interfere with the conduct of the Remediation Work in a manner that is
contrary to the rights of R&H under the Purchase and Sale Agreement and the
Access Agreement.
(iii) Assignment of R&H Indemnification. Pursuant to Section 9.2(b)
thereto, Landlord hereby irrevocably assigns to Tenant, without in any way
limiting the indemnity as it applies to Landlord and the Landlord
Indemnitees, on a non-exclusive basis to the fullest extent possible, all
rights provided under the R&H Indemnity, it being the intention of the
parties that Tenant shall have rights to enforce the R&H Indemnity
obligations as if Tenant were a direct party to the R&H Indemnity, provided,
however, that in no event shall Tenant have any direct or indirect obligation
or responsibility arising under or with respect to the R&H Indemnity or any
agreement of which it is a part or to which it relates.
(iv) Asbestos. Landlord represents that to the best of Landlord's
knowledge, there was no asbestos used in construction of the Base Building
Improvements and if asbestos is discovered in the Base Building Improvements,
absent any Alterations conducted by Tenant to introduce asbestos to the
Building, Landlord will be responsible for its removal in accordance with
applicable laws and regulations at Landlord's sole cost and expense
(c) Environmental Compliance.
(i) Tenant and Tenant's Parties will not, at any time during the Term, cause or
permit any Hazardous Materials to be brought upon, stored, manufactured,
generated, blended, handled, recycled, treated, disposed, or used on, under, or
about the Premises, the Building, or the Project for any purpose, except as
specifically approved in writing by Landlord ("Permitted Hazardous Materials"),
as amended from time to time. A copy of the Permitted Hazardous Materials as of
the date of this Lease is attached as Exhibit I-3. Any material change to the
Permitted Hazardous Materials must be approved in advance in writing by
Landlord, whose approval will not be unreasonably withheld, but may be
conditioned upon Tenant providing additional security, guarantees, insurance,
containment improvements and/or confirmation of the filing of any required or
recommended permits or plans with applicable government authorities and
compliance with any requirements contained therein. The foregoing
notwithstanding, Tenant may handle, store, use or dispose of products containing
small quantities of Hazardous Materials, (exclusive of the Prohibited Known
Contaminants defined herein) which products are of a type customarily found in
offices and houses (such as aerosol cans containing insecticides, toner for
copiers, paints, paint remover, and the like) on the Leased Premises provided
that Tenant shall handle, store, use and dispose of any such Hazardous Materials
in a safe and lawful manner and shall not allow such Hazardous Materials to
contaminate the Premises, the Building, the Property or the environment.
(ii) Tenant and Tenant's Parties will not, at any time during the Term, cause
any Prohibited Known Contaminants listed in the Schedule of Prohibited Known
Contaminants to be brought upon, stored, manufactured, generated, blended,
handled, recycled, treated, disposed, or used on, under, or about the Premises
or the Property for any purpose. A copy of the Prohibited Known Contaminants is
attached as Exhibit I-3.
(iii) During the Term, Tenant will take reasonable steps to protect against
intentional or negligent acts or omissions of third parties that might result
directly or indirectly in the release, disposal, or other placement of Hazardous
Materials on or under the Premises.
(iv) No asbestos-containing materials will be manufactured or installed for any
purposes on or as part of the Premises, whether as part of Tenant's or Tenant's
Parties' business operations or as tenant improvements, unless specifically
identified on Exhibit G and approved in advance in writing by Landlord, whose
approval will not be unreasonably withheld.
(v) Tenant will keep, operate, and maintain the Premises in compliance with all,
and will not cause or permit the Premises to be in violation of any,
Environmental Laws.
(vi) Neither Tenant nor any of Tenant's Parties will install or use any
underground storage tanks on the Premises.
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(e) Landlord's Right of Entry and Testing. Landlord and Landlord's
representatives have the right, but not the obligation, at any reasonable time
to enter onto and to inspect the Premises and to conduct reasonable testing,
monitoring, sampling, digging, drilling, and analysis to determine if Hazardous
Materials are present on, under, or about the Premises and to review and copy
any documents, materials, data, inventories or notices or correspondence to or
from private parties or governmental authorities directly related to the
possible release of Hazardous Materials in, on or from the Premises
(collectively, "Inspection"). If the Investigation indicates the presence of any
environmental condition that occurred during the Term as a result of Tenant's or
Tenant's Parties' activities, or failure to act where Tenant had a duty to act,
in connection with the Premises, Tenant will reimburse Landlord for the cost of
conducting the tests.
(f) Environmental Assessment. In the event Landlord has reasonable cause to
believe Tenant is in violation of the provisions of this Section 44 during or
upon expiration of the Lease Term, Landlord may require Tenant to retain a duly
licensed environmental consultant acceptable to Landlord that will perform an
environmental compliance audit of the Premises and Tenant's and Tenant's
Parties' business activities and compliance with the provisions of Section 44.
If the results of the environmental compliance audit indicate that Tenant is or
may be in violation of Section 44, Tenant will be responsible for the cost of
any testing required by Landlord. Tenant must promptly provide a copy of the
report from the consultant to Landlord upon receipt, and upon request must
promptly provide to Landlord a copy of all data, documents, and other
information prepared or gathered in connection with the report. Tenant
acknowledges that Tenant has been provided an adequate opportunity to conduct
Tenant's own environmental investigation of the Premises with independent
environmental experts and consultants.
(g) Notification.
(i) Tenant must give immediate written notice to Landlord of:
(A) any enforcement, remediation, or other regulatory action or order, taken or
threatened, by any Agency regarding, or in connection with, the presence,
release, or threat of release of any Hazardous Material on, under, about, or
from the Premises resulting from Tenant's use of the Premises;
(B) all demands or claims made or threatened by any third party against Tenant
or Tenant's Parties or the Premises relating to any liability, loss, damage, or
injury resulting from the presence, release, or threat of release of any
Hazardous Materials on, under, about, or from the Premises or otherwise
resulting from Tenant's use of the Premises;
(C) any significant spill, release, or discharge of a Hazardous Material on,
under, about, or from the Premises, including, without limitation, any spill,
release, or discharge required to be reported to any Agency under applicable
Environmental Laws; and
(D) all incidents or matters where Tenant and Tenant's Parties are required to
give notice to any Agency pursuant to applicable Environmental Laws.
(F) copies of all Hazardous Materials Business Plans, Hazardous Waste Management
Plans, Chemical Hygiene Plans and any and all other plans or reports, and any
and all required periodic or special updates to such reports, which Tenant is
required to file with governmental agencies regulating Tenant's use of Hazardous
Materials on the Premises.
(ii) Tenant must promptly provide to Landlord copies of all materials, reports,
technical data, Agency inspection reports, notices and correspondence, and other
information or documents relating to incidents or matters subject to
notification under Section 44(g)(i). Also, Tenant must promptly furnish to
Landlord copies of all permits, approvals, and registrations Tenant receives or
submits with respect to Tenant's operations on the Premises, including, without
limitation, installation permits, and closure permits.
(h) Remediation.
(i) If any Hazardous Materials are released or found on, under, or about the
Premises arising out of Tenant's or Tenant's Parties' activities, or failure to
act where Tenant had a duty to act, in connection with the Premises, Tenant must
promptly take all actions, at Tenant's sole expense, necessary to investigate
and remediate the release or presence of Hazardous Materials on, under, or about
the Premises in accordance
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with Environmental Laws and the requirements of all Agencies. However, unless an
emergency situation exists that requires immediate action, Landlord's written
approval of these actions will first be obtained, and the approval will not be
unreasonably withheld. Landlord's right of prior approval of these actions
includes, but is not limited to, the selection of any environmental consultant
to perform work on or related to the Premises, the scope of work, and sampling
activities to be performed by the consultant before the report is final. Tenant
will provide Landlord with at least three (3) business days' advance notice of
any sampling, and upon request of Landlord, will split samples with Landlord.
Tenant will also promptly provide Landlord with the results of any test,
investigation, or inquiry conducted by or on behalf of Tenant or Tenant's
Parties in connection with the presence or suspected presence of Hazardous
Materials on, under, about, or from the Premises. Tenant must notify Landlord in
advance and give Landlord the right to participate in any oral or written
communications with regulatory agencies concerning environmental conditions on
or arising from the Premises. Landlord has the right, but not the obligation, to
assume control of any required remediation on the Premises at Tenant's expense
if Tenant fails to notify Landlord and obtain Landlord's approvals as required
under Section 44(h). Within thirty (30) days after Tenant's completion of any
remediation of the Premises, Tenant must deliver to Landlord a letter from the
applicable Agency stating that the remediation was undertaken in accordance with
all applicable Environmental Laws and that any residual contamination remaining
after the remediation does not pose a threat to human health or the environment.
(ii) If Tenant or Tenant's Parties have caused or permitted a release of
Hazardous Materials that results in or threatens to result in Hazardous
Materials becoming present on, under, or about the Premises, threatens public
health or safety or the environment, or is in noncompliance with any applicable
Environmental Laws or requirements of Section 44, Landlord may demand that
Tenant promptly take action in accordance with Section 44(h)(i). If Tenant does
not respond within thirty (30) days (unless there is an emergency, in which case
Tenant must respond as soon as practicable, but not less than three (3) days),
Landlord has the right, but not the obligation, to enter onto the Premises and
take all actions reasonably necessary to investigate and fully remediate the
release or noncompliance at Tenant's sole expense (provided Tenant may seek
reimbursement under the R&H Indemnity or contribution from any other potentially
responsible party) which sums will be immediately due and payable upon receipt
of an invoice and will constitute additional rent under this Lease.
(j) Expiration and Termination Procedures. Upon expiration or termination of
this Lease and upon the request of Landlord, Tenant will at Tenant's sole
expense take all steps necessary to terminate, close, or transfer all
environmental permits, licenses, and other approvals or authorizations for the
Premises obtained by Tenant or for Tenant activities, equipment, or conditions
on the Premises, in accordance with all Environmental Laws. Tenant will also
obtain and provide to Landlord the written approval or verification of the
satisfactory completion of the termination, closure, or transfer from each
Agency with jurisdiction over the environmental permit, license, or other
approval obtained by Tenant or for Tenant activities or equipment.
(k) Tenant's Indemnification of Landlord. Tenant will indemnify, protect,
defend, and hold harmless Landlord and Landlord's partners, members, directors,
officers, employees, shareholders, lenders, agents, contractors, and each of
their respective successors and assigns (individually and collectively "Landlord
Indemnitees") from all claims, judgments, causes of action, damages, penalties,
fines, taxes, costs, liabilities, losses, and expenses arising as a result of or
in connection with Tenant's or Tenant's Parties' breach of any prohibition or
provision of Section 44, or the presence of any Hazardous Materials on or under
the Premises during the Term or any Hazardous Materials that migrate from the
Premises to other properties, as a result of Tenant's or Tenant's Parties'
activities, or failure to act where Tenant had a duty to act, on or in
connection with the Premises. This obligation by Tenant to indemnify, protect,
defend, and hold harmless Landlord Indemnitees includes, without limitation,
costs and expenses incurred for or in connection with any investigation,
cleanup, remediation, monitoring, removal, restoration, or closure work required
by the Agencies because of any Hazardous Materials present on, under, or about
the Premises as a result (directly or indirectly) of Tenant's or Tenant's
Parties' activities, or failure to act where Tenant had a duty to act; the costs
and expenses of restoring, replacing, or acquiring the equivalent of damaged
natural resources if required under any Environmental Law; all foreseeable
consequential damages; all reasonable damages for the loss or restriction on use
of rentable or usable space or of any amenity of the Premises; all reasonable
sums paid in settlement of claims; reasonable attorney fees; litigation,
arbitration, and administrative proceeding costs; and reasonable expert,
consultant, and laboratory fees. Neither the written consent of Landlord to the
presence of Hazardous Materials on or under the Premises, nor the strict
compliance by
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Tenant with all Environmental Laws, will excuse Tenant from the indemnification
obligation. This indemnity will survive the expiration or termination of this
Lease. Further, if Landlord detects a deficiency in Tenant's performance under
this indemnity and Tenant fails to correct the deficiency within ten (10) days
after receipt of written notice from Landlord, Landlord has the right to join
and participate in any legal proceedings or actions affecting the Premises that
are initiated in connection with any Environmental Laws. However, if the
correction of the deficiency takes longer than ten (10) business days, Landlord
may join and participate if Tenant fails to commence corrective action within
the ten (10) day period and after that diligently proceeds to correct the
deficiency.
Section 45. Publicity. Tenant on behalf of itself and its agents and
representatives expressly agrees that it is not authorized to announce this
Lease or the terms and conditions contained therein to any third party without
the prior written consent of Landlord.
Section 46. Easements. Landlord reserves the right to grant easements, rights,
and dedications that Landlord deems necessary or desirable, and to record parcel
maps and restrictions, so long as these easements, rights, dedications, maps,
and restrictions do not unreasonably interfere with Tenant's use or occupancy of
the Premises. Tenant agrees to sign any of these documents immediately upon
request of Landlord.
Section 47. Covenants and Conditions. Each term of this Lease performable by
Tenant shall be deemed both a covenant and a condition.
Section 48. Recordation. Upon request, Tenant shall execute, acknowledge, and
record a memorandum of this Lease in form and substance reasonably satisfactory
to Landlord.
Section 49. Transfer by Landlord. If Landlord transfers the Premises, Landlord
shall be relieved of all liability for the performance of Landlord's obligations
after the date of the transfer. However, any prepaid rent or security deposit
held by Landlord at the time of the transfer shall be delivered to the
transferee.
Section 50. Security Measures. Tenant acknowledges that Landlord shall have no
obligation to provide any guard service or other security measures to the
Premises, and Tenant assumes all responsibility for the protection of Tenant,
Tenant's agents, subtenants, employees, invitees, and customers, and the
property of Tenant and of Tenant's agents, subtenants, employees, invitees, and
customers from acts of third parties.
Section 51. Brokers. Tenant represents and warrants to Landlord that no real
estate broker, agent, or finder negotiated or was instrumental in negotiating or
representing Tenant in the negotiation of this Lease or the consummation hereof
except for Tenant's Broker. Landlord shall be responsible for the payment of the
commission or fee, if any, owed to Tenant's Broker pursuant to a separate fee
agreement between Landlord's Broker and Tenant's Broker. Tenant shall pay the
commission or fee of any other broker, agent, or finder acting for Tenant or
claiming any commissions or fees on the basis of contacts or dealings with
Tenant other than Tenant's Broker and Tenant shall indemnify and hold Landlord
harmless from and against any claims made by any such broker, agent, or finder
of Tenant and any and all costs and damages suffered by Landlord as a
consequence thereof, including without limitation attorney fees.
Section 52. Liability of Landlord.
(a) Limitation of Landlord Liability. Any liability of Landlord to Tenant under
this Lease (including all persons and entities that comprise Landlord, and any
successor landlord) and any recourse by Tenant against Landlord shall be limited
to the equity interest of Landlord and Landlord's successors in interest in and
to the Building and Property. On behalf of itself and all persons claiming by,
through, or under Tenant, Tenant expressly waives and releases Landlord from any
personal liability for breach of this Lease. Notwithstanding any other provision
of this Lease, Landlord shall not be liable for any consequential damages of any
kind (including lost economic opportunities, lost profits, lost proceeds and
similar types of damages), nor shall Landlord be liable for loss of or damage to
artwork, currency, jewelry, unique or valuable documents, securities,
instruments, electronics or other valuables, or for other property not in the
nature of ordinary fixtures, furnishings and equipment used in general
administrative and office activities and functions, which may result from any
default of the Lease by the Landlord or any action, omission, negligence or
misconduct of the Landlord in connection with the Property. Whenever in this
Lease Tenant (a) releases Landlord from any claim or liability, (b) waives or
limits any right of Tenant to assert any claim
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against Landlord or to seek recourse against any property of landlord or (c)
agrees to indemnify Landlord against any matters, the relevant release, waiver,
limitation or indemnity shall run in favor of and apply to Landlord, its agents,
its lenders, the constituent partners, members, shareholders or other owners of
Landlord or its agents, and the directors, officers, and employees of Landlord
and its agents and each such constituent partner, member, shareholder or other
owner.
(b) Sale by Landlord. In the event of a sale or conveyance of the Building by
any owner of the reversion then constituting Landlord, the transferor shall
thereby be released from any further liability upon any of the terms, covenants
or conditions (express or implied) herein contained in favor of Tenant, and in
such event, insofar as such transferor is concerned, Tenant agrees to look
solely to the successor in interest of such transferor in and to the Building
and this Lease. Tenant agrees to attorn to the successor in interest of such
transferor. If Tenant provides Landlord with security for Tenant's performance
of its obligations hereunder, and Landlord transfers, or provides a credit with
respect to, such security to the grantee or transferee, of Landlord's interest
in the Property, Landlord shall be released from any further responsibility or
liability for such security.
Section 54. Parking. Tenant shall have the right to the non-exclusive use of
Fifty-three (53) parking spaces in the parking lot outside of the Building and
located on the Property ("Parking Lot"). There shall be no parking rental
charged Tenant during the initial Lease Term, however, Landlord reserves the
right to implement reasonable market rate charges thereafter. The use of such
spaces shall be for the parking of motor vehicles used by Tenant, its officers,
employees and customers only, and shall be subject to all reasonable, uniform
and non-discriminatory applicable laws and the rules and regulations adopted by
Landlord from time to time for the use of the Parking Lot. Parking spaces may
not be assigned or transferred separate and apart from this Lease, and upon
expiration or earlier termination of this Lease, Tenant's rights with respect to
all leased parking spaces shall immediately terminate. Tenant and its agents,
employees, contractors, invitees or licensees shall not unreasonably interfere
with the rights of Landlord or others entitled to similar use of the Parking
Lot. The Parking Lot shall be subject to the reasonable control and management
of Landlord, who may, from time to time, establish, modify and enforce
reasonable, uniform and non-discriminatory roles and regulations with respect
thereto. Landlord reserves the right to change, reconfigure, or rearrange the
parking areas to reconstruct or repair any portion thereof and to restrict the
use of any parking areas and do such other acts in and to such areas as Landlord
deems necessary or desirable without such actions being deemed an eviction of
Tenant or a disturbance of Tenant's use of the Premise and without Landlord
being deemed in default hereunder; provided that Landlord shall use commercially
reasonable efforts to minimize (to the extent consistent with applicable laws)
the extent and duration of any resulting interference with Tenant's parking
rights. Landlord may in its sole discretion, convert the Parking Lot to a
reserved and/or controlled Parking Lot, or operate the Parking Lot (or a portion
thereof) as a tandem, attendant assisted and/or valet parking facility. If
parking places are not assigned pursuant to the terms of this Lease, Landlord
reserves the right at any time to assign parking spaces in a reasonable manner,
and Tenant shall thereafter be responsible to insure that its employees park in
the designed areas. Tenant shall, if requested by Landlord, comply with all
reasonable parking practices and otherwise furnish Landlord with such
information as Landlord reasonably requests. Landlord shall not be liable for
any damage of any nature to, or any theft of, vehicles or contents thereof, in
or about the Parking Lot. At Landlord's request, Tenant shall cause its
employees and agents using Tenant's parking spaces to execute an agreement
confirming the foregoing.
Section 55. Force Majeure. If performance by a party of any portion of this
Lease is made impossible by any prevention, delay, or stoppage caused by
strikes; lockouts; labor disputes; acts of God; inability to obtain services,
labor, or materials or reasonable substitutes for those items; government
actions; civil commotions; fire or other casualty; or other causes beyond the
reasonable control of the party obligated to perform, performance by that party
for a period equal to the period of that prevention, delay, or stoppage is
excused. Tenant's obligation to pay Rent, however, is not excused by this
section 55.
Section 56. Quite Enjoyment. Tenant, upon fully complying with and promptly
performing all of the terms, covenants and conditions of this Lease on its part
to be performed, and upon the prompt and timely payment of all sums due
hereunder, shall have and quietly enjoy the Premises for the Term set forth
herein, subject to all provisions of this Lease and all matters of record
against the Property.
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Section 57. Offer. Preparation of this Lease by Landlord or Landlord's agent and
submission to Tenant shall not be deemed an offer to lease. This Lease shall
become binding on Landlord and Tenant only when fully executed by Landlord and
Tenant, the Subordination, Attornment and Non-Disturbance Agreement attached as
Exhibit S has been executed by Landlord's lender and delivered to Landlord,
evidencing lender's consent to this Lease, and the Guaranty attached as Exhibit
G has been fully executed by Guarantor
Section 53. Governing Law. This Lease shall be governed by and construed in
accordance with California law.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date first
above written.
LANDLORD: Chestnut Bay, LLC, a California limited liability company
/s/ Michael Newbro
- ----------------------------------
Michael Newbro, President
TENANT: ImproveNet, Inc., a Delaware corporation
By: /s/ [ILLEGIBLE]
------------------------------
Its: President
------------------------------
By: /s/ [ILLEGIBLE]
------------------------------
Its: Chairman
------------------------------
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Exhibit A
PROPERTY DESCRIPTION
The land situated in the State of California, County of San Mateo, City of
Redwood City described as Parcel 2 as shown on that certain map entitled "PARCEL
MAP NO. 97-6, LYING ENTIRELY WITH THE CITY OF REDWOOD CITY, CALIFORNIA" filed in
the office of the County Recorder of San Mateo County, State of California on
December 10, 1997 in Book 70 of Parcel Maps at page(s) 17 and 18.
<PAGE>
EXHIBIT "C"
WORK LETTER AND CONSTRUCTION AGREEMENT FOR INITIAL IMPROVEMENT
THE WOODSIDE TECHNOLOGY CENTER, BUILDING 720, SUITE 200
This Work Letter and Construction Agreement for Initial Improvement of the
Premises ("Work Letter") is attached to and incorporated within that certain
Office/R&D Lease ("Lease") between Chestnut Bay LLC, a California limited
liability company ("Landlord"), and ImproveNet, Inc., a Delaware corporation
("Tenant").
RECITALS
WHEREAS, the undersigned Landlord and Tenant have executed and delivered the
Lease to which this Work Letter is attached, and into which this Work Letter is
fully incorporated by reference;
WHEREAS, the Lease provides for the leasing of space (the "Premises") within 720
Bay Street, Redwood City, California (hereinafter referred to as the
"Building");
WHEREAS, Landlord and Tenant desire to set forth herein their respective
agreements regarding the improvement of the Premises;
NOW, THEREFORE, in consideration of the foregoing recitals, the execution and
delivery of the Lease by the parties hereto, the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Landlord and Tenant, intending to be legally
bound, hereby agree as follows:
Section 1. DEFINITIONS.
1.01. Defined Terms. Capitalized terms used in the Lease and this Work Letter
shall have the same meanings ascribed to them in the Lease. Otherwise, the
capitalized terms used in this Work Letter shall have the meaning ascribed to
them at the point where defined.
1.02. "Base Building Improvements" shall mean the improvements to the Premises
provided by Landlord, shown in Space A of page 2 of Exhibit C of the Base
Building Plans.
1.03 "Base Building Plans" shall mean the improvements plan approved by Landlord
and Tenant and attached hereto as Exhibit C for the construction and
installation of the Base Building Improvements for the entire Building.
1.04 "Tenant Improvements" shall mean the improvements constructed and installed
in the Premises by Tenant in accordance with the Tenant Improvement Working
Drawings.
1.05 Intentionally deleted.
1.06 "Improvements" shall mean the combined Base Building Improvements and the
Tenant Improvements.
1.07 "Punch List Items" shall mean minor details of construction or decoration
or mechanical adjustments to the Base Building Improvements that do not
materially interfere with Tenant's occupancy of the Premises for the
construction by Tenant's Contractor of the Tenant Improvements.
1.08 "Tenant's Contractor" shall mean such contractor as Tenant designates and
Landlord approves in writing, provided Landlord will not unreasonably withhold
said approval.
1.09 "Tenant's Architect" shall mean API Design, Inc., Architectural
Planning/Interior Design FF
1.10 "Allowance" shall mean the $372,370 amount set forth in Section 43 of the
Lease representing Landlord's contribution toward the construction of the Tenant
Improvements to be applied toward all
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expenses associated with the construction, space planning, engineering,
construction drawings, construction management, signage and other necessary
permits directly associated with the Tenant Improvements. Under no circumstances
shall the Allowance be used for Tenant's due diligence review of the Premises
(or this Lease) nor the design, acquisition or planning costs of Tenant's
personal property, furniture, trade fixtures or equipment.
1.11 "Tenant Improvement Costs" shall mean the total cost of (i) the preparation
of the Tenant Improvement Working Drawings, (ii) the construction and
installation of the Tenant Improvements, and (iii) all other construction costs
associated improving the Premises for Tenant's occupancy excluding the Base
Building Improvements.
1.12 "Tenant Costs" shall mean the total of all Tenant Improvement Costs in
excess of the Allowance.
1.13 "Landlord's Architect" shall mean Gerald Yates, AIA.
1.14 "Landlord's Contractor" shall mean South Bay Construction.
1.15 "Ready for Occupancy" shall mean when Landlord's Architect has furnished
Landlord with a certificate that the Base Building Improvements work to be done
by Landlord in the Premises has been substantially completed for purposes of
Tenant's installation of the Tenant Improvements except for Punch List Work.
Section 2. DRAWINGS AND SPECIFICATIONS
2.01 Approval of Base Building Plans. The Base Building Plans attached hereto
are hereby approved by the parties for construction by Landlord.
2.02 Tenant Improvement Working Drawings. Tenant will cause to be prepared and
delivered to Landlord within ten (10) business days of the final execution of
this Work Letter final plans and specifications and working drawings for the
construction of the Tenant Improvements that will include structural, fire
protection, life safety, mechanical and electrical working drawings, and final
architectural drawings for the Improvements (collectively, Tenant Improvement
Working Drawings). The Tenant Improvement Working Drawings will not adversely
affects the mechanical, electrical, plumbing, heating, ventilating and air
conditioning, life-safety or other systems of the Building, the Base Building
Improvements, the structure or exterior appearance of the Building, or any other
tenant's use of such other tenant's premises in the Building. No later than five
(5) business days following Landlord's receipt thereof, Landlord shall either
approve the Tenant Improvement Working Drawings or set forth in reasonable
detail (which may be a mark-up of the plans) any changes necessary to bring the
Tenant Improvement Working Drawings into substantial conformity with the Base
Building Improvement Plans. Any structural modification to the Base Building
Improvements required by the Tenant Improvement Working Drawings shall be
identified by Landlord as a Change Order (defined herein). Landlord will not
unreasonably object to any items in the Tenant Improvement Working Drawings
necessitated by applicable law or City of Redwood City requirements, provided
that any increased cost or delay resulting from such change, which would not be
applicable to the Base Building Improvements except for the design of Tenant's
Tenant Improvements, shall be a Tenant Cost and/or a Tenant Delay. Upon receipt
of Landlord's comments, Tenant shall undertake such revisions as are reasonably
feasible and prepare final Tenant Improvement Working Drawings. Tenant shall
resubmit any disapproved plan to Landlord for approval within three (3) business
days which shall be reviewed by Landlord to confirm that Landlord's response to
the proposed Tenant Improvement Working Drawings has been incorporated into the
final Tenant Improvement Working Drawings. The above process will be repeated
until the Tenant Improvement Working Drawings are approved by Landlord. Upon
approval of the Tenant Improvement Working Drawings by Landlord and Tenant, the
final drawings and specifications will be referred to as the Approved Tenant
Improvement Working Drawings. Tenant acknowledges that Landlord shall review
Tenant's drawings for Landlord's sole benefit which cannot be relied upon by
Tenant with respect to the adequacy of such plans or their conformance with
applicable law. Failure
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of Tenant to prepare Tenant Improvement Working Drawings which are approved by
Landlord on or before June 15, 1999 shall constitute a Tenant Delay hereunder.
2.03 Revisions to Approved Tenant Improvement Working Drawings. If at any time
after approval of the Approved Tenant Improvement Drawings Tenant desires to
make revisions, Tenant shall submit proposed working drawings and specifications
reflecting such changes to Landlord ("Change Order"). Landlord shall promptly
review such drawings and specifications and shall notify Tenant of any comments
thereon or proposed revisions thereto within ten (10) days after receiving such
drawings and specifications. Tenant shall resubmit to Landlord any such drawings
and specifications which are not approved by Landlord within five (5) days after
Landlord's disapproval, with such revisions as are requested by Landlord. Upon
Landlord approval of the drawings and specifications, such drawings and
specifications shall constitute the Approved Tenant Improvement Working
Drawings. Tenant shall be responsible for all costs associated with an changes
to the Working Drawings. In the event such changes require modification to the
Base Building Improvements, Landlord shall obtain promptly from Landlord's
Contractor the amount of any adjustment in the Tenant Improvement Costs, Tenant
Delay or Tenant Delay costs resulting from such revisions and submit the amount
thereof to Tenant for Tenant's approval. Within three (3) days of receipt of
Landlord's estimate, Tenant shall advise Landlord whether to proceed or not to
proceed with the Base Building Improvement modifications. Upon Tenant's approval
of the revised Tenant Improvement Costs, such changes to the Base Building
Improvements shall be conducted by Landlord's Contractor at Tenant's sole cost
and expense. Once any adjustment and its related cost have been approved by
Tenant, Tenant shall be deemed to have given full authorization to Landlord,
through its contract with Contractor, to proceed with the work of constructing
and installing changes to the Base Building Improvements in accordance with the
Approved Tenant Improvement Working Drawings, as revised.
2.04 ADDITIONAL PROVISIONS. Landlord may charge Tenant a management fee for its
work (including, without limitation, its work in reviewing the plans for the
Tenant Improvements and any review of construction of the Tenant Improvements);
other fees specifically authorized under the Lease or this Work Letter, and (B)
reasonable fees with respect to structural modifications to the Base Building
Improvements necessitated by the Approved Tenant Improvement Working Drawings.
Tenant shall use HVAC and electrical engineers approved by Landlord for design
of the Tenant Improvements. If Tenant's engineer is not approved by Landlord for
the Tenant Improvements, Tenant may nevertheless employ such engineer for such
purpose, and Landlord within Landlord's reasonable judgment, may consult with an
independent engineer, or other consultant with respect to such improvements and
Tenant will reimburse Landlord for the reasonable fees and expenses incurred by
Landlord.
Section 3. PAYMENT OF COSTS
3.01 Contractor Payments. Tenant shall be responsible for all payments to
Tenant's Contractor. Landlord shall reimburse Tenant in the amount of Landlord's
Allowance in the following manner: Subject to Landlord's construction lender's
requirements and a retention of ten percent (10%), Landlord shall make progress
payments, on a pro rata basis to Tenant from Landlord's Allowance in the
proportion that the Allowance bears to the total cost for the construction of
the Tenant Improvements, from time to time as the Tenant Improvements are
constructed, based upon paid invoices and properly executed conditional lien
releases submitted from Contractor and the Tenant's Architect's certification
that such work has been properly completed through the date of such progress
payment. Landlord shall pay the balance of Landlord's Contribution upon receipt
of properly executed mechanics lien releases in compliance with California Civil
Code Section 3262(d)(4) (Unconditional Waiver and Release Upon Final Payment)
and upon Landlord's determination that no substandard work exists which
adversely affects the mechanical, electrical, plumbing, heating, ventilating and
air conditioning, life-safety or other systems of the Building, the Base
Building Improvements, the structure or exterior appearance of the Building, or
any other tenant's use of such other tenant's premises in the Building. Landlord
shall be entitled to suspend or terminate construction of the Tenant
Improvements and to declare Tenant in default in accordance with the terms of
the Lease if payment by Tenant of any amounts required to be paid by Tenant
under this Paragraph 3.01 are not received by Contractor when due.
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3.02 Suspension of Landlord's Obligations. The obligation of Landlord to make
any one or more payments pursuant to this Work Letter or to proceed with the
construction of the Base Building Improvements shall be suspended without
further act of the parties during any such time as there exists any event of
default under the Lease or any event or condition which, with the passage of
time or the giving of notice or both would constitute such an event of default.
Nothing in this Work Letter shall affect the obligations of Tenant under the
Lease with respect to any alterations, additions and improvements within the
Premises, including, without limitation, any obligation to obtain the prior
written consent of Landlord thereto. The obligation of Landlord to make any one
or more payments pursuant to this Work Letter or to proceed with the
construction of the Base Building Improvements shall be Suspended without
further act of the parties during any such time as there exists any event of
default under the Lease or any event or condition which, with the passage of
time or the giving of notice or both would constitute such an event of default.
Nothing in this Work Letter shall affect the obligations of Tenant under the
Lease with respect to any alterations, additions and improvements within the
Premises, including, without limitation, any obligation to obtain the prior
written consent of Landlord thereto.
3.03 Failure to Pay Tenant's Costs. Failure by Tenant to pay Tenant's Costs in
accordance with this Work Letter within ten (10) days of any Landlord's invoice
will constitute a failure by Tenant to pay rent when due under the Lease and
shall therefore constitute an event of default by Tenant under the Lease, and
Landlord shall have all of the remedies available to it under this Lease for
nonpayment of rent.
Section 4. CONSTRUCTION OF BASE BUILDING IMPROVEMENTS
4.01. Construction of Base Building Improvements. Promptly following
finalization and approval of the Approved Tenant Improvement Working
Drawings, Landlord will apply for and use diligent efforts to obtain the
necessary permits and approvals to allow construction of the Base Building
Improvements ("Permits"). Landlord shall execute a construction contract with
Landlord's Contractor who will diligently construct and complete the Base
Building Improvements substantially in accordance with Base Building Plans
subject to any approved Change Orders required by the Approved Tenant
Improvement Working Drawings. Landlord specifically reserves the right to
make at any time and from time to time during the construction of the Base
Building Improvements, any changes to the Base Building Plans necessary to
obtain any Permit or to comply with all applicable regulations, laws,
ordinances, codes and roles or to achieve the compatibility, as reasonably
determined by Landlord, of the Base Building Plans with the shell and the
core and the mechanical, plumbing, life safety and electrical systems of the
Building and any third-party warranties.
4.02. Condition of Improvements. Landlord's Contractor's construction
contract shall provide that all work performed by Landlord's Contractor will
be performed in a good and proper manner, will be of good quality and free
from defects in materials, and workmanship, and will be completed in
substantial compliance with the Base Building Plans, as the same may have
been modified by approved changes or other Revisions, alterations or
additions approved hereunder, on or before the September 1, 1999. Tenant and
its representatives shall have the right to inspect the work in progress,
provided that Tenant does not interfere with the progress of the work.
4.03 Punch List Work. The Premises shall be Ready for Occupancy
notwithstanding Landlord's Architect's submission of a punch list to
Landlord's Contractor. Tenant may add items to the punch list at any time
within ten (10) days after the Delivery Date. Landlord will cause Contractor
to diligently complete any Punch List Items no later than thirty (30) days
after the Premises are Ready for Occupancy, or thirty (30) days after
Tenant's notice as the case may be, except for those items which would
reasonably require in excess of thirty (30) clays to complete which items
Contractor shall commence to complete during said thirty day period and shall
diligently prosecute to completion.
4.04. Warranties. Landlord shall obtain from Landlord's Architect, Landlord's
Contractor and appropriate subcontractors commercially reasonable warranties
of all Base Building Improvement Work that may be assigned in whole or in
part to Tenant that the Base Building Improvements are free from defects in
workmanship or materials for a period of no less than one year from the date
of
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substantial completion thereof. Landlord shall assign all Landlord Contractor,
Landlord Architect and equipment vendor warranties to Tenant as of the
substantial completion of such work. Such warranties shall include: a warranty
from Landlord's Contractor that as of the Commencement Date, the sidewalks,
driveways, parking lot, truck doors, stubbed electrical and plumbing, roof and
roofing systems, stubbed VAV/HVAC system, including roof screens, standard
finish rest rooms, common lobby/entrance and demising wall serving the Premises
are in good operable condition; and a warranty from Landlord's Architect that as
of substantial completion thereof, the Base Building Improvements are in
compliance with current building codes. Landlord shall enforce such warranties
on Tenant's behalf for a minimum of one year from the date such warranties are
granted
Section 5. DELIVERY OF POSSESSION OF THE PREMISES
5.01 Delivery of Possession. Landlord shall be deemed to have delivered
possession of the Premises to Tenant on the earlier of: (i) the date on which
the Base Building Improvements have been certified as substantially completed
by Landlord's Architect for the purpose of Tenant's installation of the
Tenant Improvements, subject only to completion of Punch List Items ("Ready
for Occupancy"); or (ii) the date on which the Premises would have been Ready
for Occupancy but for Tenant Delays.
5.02 Delays in Delivery of Possession. Landlord shall exercise due diligence
to cause Landlord's Contractor to cause the Delivery Date to occur on the
Estimated Delivery Date. If, for any reasons whatsoever (other than Tenant
Delays), the Premises are not Ready for Occupancy by the Estimated Delivery
Date, this Lease shall not be void or voidable, nor shall Landlord be liable
for any loss or damages suffered by Tenant; provided however, that the
September 1, 1999 latest Commencement Date shall be extended one day for each
day after the Estimated Delivery Date that the actual Delivery Date occurs
and, provided further, that if possession of the Premises has not been
delivered to Tenant within five (5) months following the Estimated Delivery
Date, for any reason whatsoever (other than Tenant Delays and Unavoidable
Delays), either Landlord or Tenant may, at their option at any time
thereafter but prior to the delivery of possession, terminate this Lease by
notice to the other and Landlord and Tenant thereupon shall be released from
all obligations under this Lease.
5.03 Approvals by Landlord. Any approval by Landlord of or consent by
Landlord to any plans, specifications or other items to be submitted to
and/or reviewed by Landlord for the Tenant Improvements pursuant to this
Lease shall be deemed to be strictly limited to an acknowledgment of approval
or consent by Landlord thereto and such approval or consent shall not
constitute the assumption by Landlord of any responsibility for the accuracy,
sufficiency or feasibility of any plans, specifications or other such items
and shall not imply acknowledgment, representation or warranty by Landlord
that the design is safe, feasible, structurally sound or will comply with any
legal or any governmental requirements.
5.04. Tenant's Delay. If Landlord's Contractor shall be delayed in
substantially completing the Base Building Improvements as a result of: (a)
Tenant's failure to timely approve the Tenant Improvement Working Drawings;
(b) Tenant's revisions to the Approved Tenant Improvement Working Drawings
which require modification to the Base Building Improvements; (c) Tenant's
interference with Landlord's Contractor's schedule through Tenant's Work; (d)
Change Orders; or (e) delays caused by Tenant in Landlord's construction (all
of the foregoing being referred to herein collectively as "Tenant's Delay");
then the Premises will be deemed to have been Ready for Occupancy (and
Tenant's obligation to pay Base Rent shall be accelerated) one day earlier
for each day of Tenant Delay, but in any case no earlier than September 1,
1999.
Landlord must identify any claimed Tenant Delay by written notice to Tenant
within five (5) business days following the commencement of any claimed
Tenant Delay ("Tenant Delay Notice"). The Tenant Delay Notice shall specify
the cause of the Tenant Delay as well as the estimated number of days that
substantial completion will be delayed by such Tenant Delay. Landlord may not
claim any Tenant Delay which has not been timely documented by a Tenant Delay
Notice, which does not actually cause a delay in the Delivery Date beyond the
Estimated Delivery Date. Tenant acknowledges that the length of any Tenant's
Delay is to be measured by the duration of the delay in substantial
completion caused by the event or conduct constituting Tenant's Delay, which
may exceed the duration of such event or conduct due to the necessity of
rescheduling work or other causes.
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Within a reasonable time after the Premises are Ready for Occupancy, Landlord
shall notify Tenant of the actual delay in the Delivery Date beyond the
Estimated Delivery Date, if any, caused by each and all Tenant Delays and
Unavoidable Delays (defined below), if any, and the resultant Tenant Delay costs
and calculated Delivery Date, which shall be the binding Delivery Date between
the parties with respect to the Lease.
5.05 UNAVOIDABLE DELAYS: Delays caused by: acts of God, unexpected delays of
public agencies, labor disputes, strikes, fires, freight embargoes,
extraordinary rainy and stormy weather that impedes the construction of the
Improvements, inability to obtain supplies, materials, fuels, or other causes or
contingencies beyond the reasonable control of Landlord with reasonable advance
planning. Landlord must identify any claimed Unavoidable Delay by written notice
to Tenant within five (5) business days following the commencement of any
claimed Unavoidable Delay ("Unavoidable Delay Notice"), which Notice shall
specify the cause of the Unavoidable Delay as well as the estimated number of
days that Delivery Date will be delayed by such Unavoidable Delay. Landlord may
not claim any Unavoidable Delay which has not been timely documented by an
Unavoidable Delay Notice, which does not actually cause a delay in the Delivery
Date beyond the Estimated Delivery Date, or that is offset by a time saving
caused by Tenant.
Section 6. Construction of Tenant Improvements.
6.01. PRICING THE WORK, LANDLORD'S SUPERVISION FEE. Upon completion of the
Working Drawings for the Tenant Improvements, Tenant shall solicit bids for
construction of the Tenant Improvements (the "Contractor's Bid"). Upon Tenant
agreeing on a price, Tenant shall deliver a copy of the construction contract
(or other documentation verifying the final bid and work to be performed) to
Landlord, such delivery to occur no later than fifteen (15) days after
Landlord's approval of the Working Drawings. If the Contractor is other than
Landlord's Contractor, Landlord shall be entitled to receive a fee for the
supervision of Contractor in an amount equal to three percent (3%) of the cost
of constructing the Tenant Improvements in the Premises.
6.02 ADMINISTRATION OF TENANT'S WORK. Following the Delivery Date, and after
acceptance of bids, Tenant's Contractor shall administer the construction of the
Tenant Improvements in accordance with the Approved Tenant Improvement Working
Drawings. Upon and following any entry into the Premises by Tenant's Contractor
prior to the Commencement Date of the Lease Term, Tenant shall perform all of
the obligations of Tenant applicable under the Lease during the Term (except the
obligation to pay Monthly Rent and Tenant's Share of Operating Expenses),
including without limitation, obligations pertaining to insurance, indemnity,
compliance with laws, hazardous materials and Alterations (Section 11), except
to the extent specifically inconsistent with this Work Letter. If Tenant
requests the installation of any Tenant Improvements that do not conform to the
Approved Tenant Improvement Working Drawings or conflict with elements of the
approved Working Drawings after such administration begins, such request shall
be deemed a change and shall be subject to the provisions of Paragraph 2.03.
Tenant Improvements shall comply with all applicable regulations, laws,
ordinances, codes and rules, such compliance being the obligation of Tenant.
6.03 INDEMNIFICATION. Tenant will indemnify, defend (with counsel satisfactory
to Landlord), and hold Landlord harmless from all suits, claims, actions, loss,
liability, cost, or expense (including claims for workers' compensation,
attorney fees, and costs) based on personal injury or property damaged or
contract claims (excluding any contracts to which Landlord is a party in which
such case the terms of such contract shall apply) arising from the construction
of the Tenant's Improvements. Tenant will repair or, if reasonably necessary,
replace (or, at Landlord's election, reimburse Landlord for the cost of
repairing or so replacing) any portion of the Building, Base Building
Improvements, Parking Lot improvements or item of Landlord's equipment or any of
Landlord's real or personal property damaged, lost, or destroyed by Tenant its
contractors, subcontractors or suppliers or any other tenant, invitee or guest
of Landlord in the performance of Tenant's Improvements. Landlord shall give
Tenant notice of any such claimed loss within a reasonable time of such loss.
6.04 INSURANCE. Tenant's Contractor will obtain and provide Landlord with
certificates evidencing Worker's Compensation, public liability, property damage
and Builder's All Risk insurance in amounts and forms and with companies
reasonably satisfactory to Landlord. Tenant shall confirm
6
<PAGE>
that Tenant's general contractor requires and obtains evidence of such insurance
in customary amounts and forms from all of its subcontractors and suppliers.
6.05 RULES AND REGULATIONS. Tenant and Tenant's Contractor will comply with any
reasonable rules, regulations, or requirements that Landlord or Landlord's
Contractor may impose by written notice to Tenant given sufficiency in advance
to permit such compliance. Tenant's agreement with Tenant's Contractor will
require each of the general contractor and subcontractors to provide cleanup of
the construction area at reasonable intervals to the extent that cleanup is
necessitated by the performance of the Tenant's Improvements.
6.06 TENANT'S CONTRACTORS. Tenant's Contractor will be bondable and Landlord may
require Tenant's contractor to provide construction or completion bonds at
Tenant's expense. Tenant agrees that in compliance with Landlord's lender's
requirements the Tenant agrees that if it shall cause construction of the Tenant
Improvements to be performed on or about the Premises by contractors who shall
employ craft workers who are members of unions that are affiliated with the
AFL-CIO Building and Construction Trades Department. Landlord and Tenant shall
diligently cooperate to avoid any delay, loss or damage that may result from
any, work stoppage or interruption arising from the use of nonunion employees.
6.07 EARLY ENTRY. Landlord will permit entry of Tenant's Contractor and
subcontractors into the Premises for the purposes of performing Tenant's
Improvements, prior to the Delivery Date, but only at the times that Landlord
Contractor reasonably deem feasible under the circumstances and pursuant to the
requirements of this Section 6. This license to enter before commencement of the
Term is expressly conditioned on the contractor retained by Tenant working in
harmony and not interfering with the workers, mechanics, and contractors of
Landlord. If at any time the entry or work by Tenant's contractor causes any
unreasonable interference, permission to enter may be withdrawn by Landlord
immediately on written notice to Tenant. Tenant's work shall not interfere with
the completion of the Base Building Improvements and any such interference may
be considered a Tenant Delay hereunder. Tenant's early entry solely for the
installation of Tenant Improvements shall not constitute "possession" for
purposes of determining the Commencement Date under Section 2(a)(i) of the
Lease.
6.08 RISK OF LOSS. All materials, work, installations, and decorations of any
nature brought on or installed in the Premises by or on behalf of Tenant before
the commencement of the Term will be at Tenant's risk, and neither Landlord nor
any party acting on Landlord's behalf will be responsible for any damage, loss,
or destruction except for damage arising from gross negligence or willful
misconduct.
6.09 CONDITION OF TENANT'S IMPROVEMENTS. All work performed by Tenant will be
performed in a good and proper manner, will be of good quality and free from
defects in design, materials, and workmanship, and will be completed in strict
compliance with the Approved Tenant Improvement Working Drawings, as the same
may have been modified by Tenant by Change Orders or otherwise. All work to be
performed by or for Tenant pursuant to this Work Letter will be performed
diligently, in a first-class manner, and in compliance with all applicable laws,
ordinances, regulations, and rules of any public authority having jurisdiction
over the Premises and Tenant and (if applicable) Landlord's insurance carriers.
Landlord will have the right, but not the obligation, to periodically inspect
the work on the Premises and, if any, work fails to conform to the Approved
Tenant Improvement Working Drawings, may require changes in the method or
quality of the work to conform to such approved plans and specifications. Tenant
must file and provide Landlord with a copy of the Notice of Completion,
Certificate of Occupancy (or equivalent document) and any other required permit
or notice for the Tenant Improvements. Tenant must provide Landlord with
Tenant's Architect's Certificate of Substantial Completion (AIA Form G704) and a
set of "as-built" drawings for the completed Tenant Improvement work.
Section 7. MISCELLANEOUS.
7.01 Tenant's Representative. Tenant hereby designates __________ as its sole
representative with respect to the matters set forth in this Work Letter, who
shall have full authority and
7
<PAGE>
responsibility to act on behalf of the Tenant as required in this Work
Letter, and Landlord shall be entitled to rely upon the decisions and
agreements made by such representative as binding upon Tenant.
7.02 Landlord's Representative. Landlord hereby designates Mark Brannan of
Nicholson Construction Company as its sole representatives with respect to the
matters set forth in this Work Letter, who, until further notice to Tenant,
shall have full authority and responsibility to act on behalf of the Landlord as
required in this Work Letter.
7.03 Tenant's Lease Default. Notwithstanding any provision to the contrary
contained in this Lease, if an Event of Default as described in Section 22 of
the Lease or a default by Tenant under this Work Letter has occurred at any time
on or before the Commencement Date, then (i) in addition to all other rights and
remedies granted to Landlord pursuant to the Lease, Landlord shall have the
right to withhold payment of all or any portion of the Landlord's Allowance, and
(ii) all other obligations of Landlord under the terms of this Work Letter shall
be suspended until such time as such default is cured pursuant to the terms of
this Lease (in which case, Tenant shall be responsible for any delay in the
Delivery Date or Commencement Date caused by such inaction by Landlord).
7.04 Merger. The provisions of this Work Letter are deemed incorporated into the
Lease and together shall be interpreted as one document. Except as expressly set
forth in this Work Letter, Landlord has no other agreement with Tenant and has
no other obligation to do any work or pay any amounts with respect to the
Premises. Any other work in the Premises which may be permitted by Landlord
pursuant to the terms and conditions of the Lease shall be done at Tenant's sole
cost and expense and in accordance with the terms and conditions of the Lease.
7.05 Applicability of Work Letter. This Work Letter shall not be deemed
applicable to any additional space added to the original Premises at any time or
from time to time, whether by any options under the Lease or otherwise, or to
any portion of the original Premises or any additions thereto in the event of
damage or destruction of the Premises, condemnation of the Premises, or renewal
or extension of the initial term of the Lease, whether by any options under the
Lease or otherwise, unless expressly so provided in the Lease or any amendment
or supplement thereto.
IN WITNESS WHEREOF, the parties have executed this Work Letter as of the date of
the Lease.
"Landlord": Chestnut Bay LLC, a California limited liability company
/s/ Mike Newbro
- ----------------------------------------------------------------
Mike Newbro, President
Date: June 21 1999
"Tenant" ImproveNet, Inc., Delaware corporation.
/s/ Ron Cooper
- ----------------------------------------------------------------
Ronald B. Cooper, President
Date: June 21, 1999
8
<PAGE>
February 16, 1999
Ronald B. Cooper
6029 Canterbury Drive
Agoura Hills, CA 91301
RE: EMPLOYMENT TERMS
Dear Ron:
ImproveNet, Inc. (the "Company") is pleased to offer you the
position of Chief Executive Officer, on the following terms:
As the CEO, you will perform the duties customarily associated with
this position, including direct responsibility for the overall profit and
loss of the Company, managing the Company's growth plans and such duties as
may be assigned to you by the Company's Board of Directors (the "Board").
Your primary office will be the Company's headquarters, located at 1286
Oddstad Drive, Redwood City, California. In recognition of your personal
requirement to maintain your primary residence in Agoura Hills, California,
you may, at your discretion, open a satellite office with reasonable support
in the Los Angeles area to assist you in meeting your family needs while
leading the Company. When you commute from the Los Angeles area to Redwood
City, you will be reimbursed for reasonable, documented: (i) housing expenses
in the Redwood City area, and (ii) approved travel expenses consistent with
Company policy. In addition, the Company agrees to reimburse you for
reasonable, documented business expenses pursuant to Company policy.
Your compensation will be twenty five thousand dollars ($25,000) per
month, less payroll deductions and all required withholdings, paid
semi-monthly. When you begin work at ImproveNet, you will be eligible for a
bonus for fiscal year 1999, with a target of one hundred thousand dollars
($100,000) based on goals and objectives to be mutually agreed upon by you
and the Board within sixty (60) days of your date of employment.
The Company will loan you on a non-recourse basis up to five hundred
thousand dollars ($500,000) at the minimum interest rate allowable by law
pursuant to the terms of a mutually-agreeable promissory note to include the
following terms:
1. After the Company's private placement financing has closed and
is in the bank, you may draw on this loan up to a maximum two
hundred fifty thousand dollars ($250,000) per quarter.
2. The loan will be due and payable on the first day of the month
one year after the date the Company's Common Stock is publicly
traded, unless your employment with the Company has terminated
as described below.
<PAGE>
3. If the Company terminates your employment without cause within
two (2) years from your date of employment, you agree to repay
to the Company a portion of the principal plus accrued
interest within ninety (90) days of the termination date, as
follows: During the first year of employment, the Company will
forgive fifty percent (50%) of the loan balance. At the
beginning of the second full year of employment, the Company
will forgive seventy-five percent (75%) of the loan balance.
After the beginning of the third full year of employment, the
Company will forgive one hundred (100%) of the loan balance.
4. If you resign or the Company terminates your employment with
cause, you must repay the outstanding principal sum plus all
accrued interest within ninety (90) days after the termination
date. For the purpose of the promissory note, cause means: (i)
conviction of any felony or any crime involving moral
turpitude or dishonesty; (ii) participation in a fraud or act
of dishonesty against the Company; (iii) material breach of
the Company's policies; (iv) intentional damage to the
Company's property; (v) material breach of the Proprietary
Information and Inventions Agreement or other disclosure of
nonpublic Company information; or (vi) willful participation
in any conduct, either directly or indirectly, that competes
with the business of the Company.
5. The loan will be secured solely by a pledge of your stock in
the Company as may be acquired. In all circumstances, the
Company's recourse will be limited to the realizable value of
the vested portion of said stock.
You will be eligible for the following benefits in accordance with
Company policy: medical, vision, dental, life and AD&D insurance as well as
vacation, sick leave, and holidays. Details about these benefits will be
available for your review. To the extent that the medical, vision, dental,
life and AD&D benefits are not substantially equivalent to the benefits
provided to you by your previous employer, the Company will take all
reasonable steps during your first sixty (60) days of employment to provide
you with such benefits.
Upon approval by the Board, you will receive a stock option grant
(the "Option Grant"). The total number of shares of the common stock of the
Company (the "Common Stock"), which the Option Grant will entitle you to
purchase, will equal six percent (6%) of the fully diluted shares outstanding
of the Company immediately after its next financing. The exercise of the
Option Grant will be determined by the Board, but will not be in excess of
the fair market value of a share of the Common Stock on the date of the grant
or on the date of the closing of financing, as the case may be, as determined
by the Board. One-fourth of the shares covered by the Option Grant will vest
one year after the date of grant; 1/48th of such shares will vest monthly
thereafter as long as you remain in service with the Company. To the extent
permitted by applicable laws, any such stock option grant made pursuant to
this agreement, will be an incentive stock option. The terms of any such
stock option grant will be set out in an Incentive Stock Option, similar to
the one attached as Exhibit B. In addition, any such stock option grant will
include standard repurchase rights and a right of first refusal as mutually
agreed upon by the parties. You will have, at your discretion, the right to
receive up to fifty percent (50%) of your equity (three percent (3%) of the
total Company shares on a fully diluted basis) in the form of a grant of
shares to purchase restricted stock of the Company, provided, however, that
the Company will have a repurchase option with respect to the shares covered
by such grant of rights (the "Repurchase Option"). The Repurchase Option will
lapse as follows: one-fourth
<PAGE>
of the shares will be released from the Repurchase Option on the first
anniversary of the date of grant; 1/48th of the shares will be released
monthly thereafter as long as you remain in service with the Company. The
shares covered by such grant of rights may be subject to additional
repurchase rights should your service with the Company terminate and to a
right of first refusal. Specific terms of the grant of rights will be
finalized within sixty (60) days of your date of employment.
As an employee of the Company, you will be expected to abide by
Company rules and regulations, acknowledge in writing that you have read the
Company's Employee Handbook, and sign the Proprietary Information and
Inventions Agreement, attached as Exhibit A.
You may terminate your employment with the Company at any time and
for any reason whatsoever simply by notifying the Company. Likewise, the
Company may terminate your employment at any time and for any reason
whatsoever, with or without cause or advance notice. This at-will employment
relationship cannot be changed except in writing signed by a Company officer.
This letter agreement, together with your proprietary information
and inventions agreement, constitutes the complete and exclusive statement of
your employment agreement with the Company. The employment terms in this
letter supersede any other agreements or promises made to you by anyone,
whether oral or written. This Agreement is entered into without reliance upon
any promise, warranty or representation, written or oral, other than those
expressly contained herein, and it supersedes any other such promises,
warranties, representations or agreements. It may not be amended or modified
except by a written instrument signed by you and a duly authorized officer of
the Company. If any provision of this Agreement is determined to be invalid
or unenforceable, in whole or in part, this determination will not affect any
other provision of this Agreement. As required by law, this offer is subject
to satisfactory proof of your right to work in the United States.
Please sign and date this letter and the attached Proprietary
Information and Inventions Agreement, and return them to me if you wish to
accept employment at the Company under the terms described above. If you
accept our offer, we would like you to start on or before March 22, 1999.
We look forward to your favorable reply and to a productive and
enjoyable work relationship.
Very truly yours,
ImproveNet, Inc.
By: /s/ Robert Stevens
-------------------------------------
Robert Stevens
Chief Executive Officer
Exhibit A - Incentive Stock Option
Exhibit B -- Proprietary Information and Inventions Agreement
<PAGE>
ACKNOWLEDGED AND ACCEPTED:
/s/ Ronald B. Cooper
- -----------------------------------
Ronald B. Cooper
DATE: February 19, 1999
<PAGE>
===============================================================================
IMPROVENET, INC.
SERIES A PREFERRED STOCK
AND
WARRANT PURCHASE AGREEMENT
DATED JUNE 30, 1997
===============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
SECTION 1. AGREEMENT TO SELL AND PURCHASE..................................................................1
1.1 Authorization of Shares and Warrants............................................................1
1.2 Sale and Purchase...............................................................................1
SECTION 2. CLOSING, DELIVERY AND PAYMENT...................................................................2
2.1 Closing.........................................................................................2
2.2 Delivery........................................................................................2
2.3 Subsequent Sales of Shares......................................................................2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................................2
3.1 Organization, Good Standing and Qualification...................................................2
3.2 Capitalization; Voting Rights...................................................................3
3.3 Authorization; Binding Obligations..............................................................3
3.4 Financial Statements............................................................................3
3.4 Financial Statements TC "3.4 Financial Statements" \l "2".......................................3
3.5 Liabilities.....................................................................................4
3.6 Agreements; Action..............................................................................4
3.7 Obligations to Related Parties..................................................................5
3.8 Changes.........................................................................................5
3.9 Title to Properties and Assets; Liens, etc......................................................6
3.10 Patents and Trademarks..........................................................................6
3.11 Compliance with Other Instruments...............................................................7
3.12 Litigation......................................................................................7
3.13 Tax Returns and Payments........................................................................8
3.14 Employees.......................................................................................8
3.15 Proprietary Information and Inventions Agreements...............................................8
3.16 Obligations of Management.......................................................................8
3.17 Registration Rights.............................................................................8
3.18 Compliance with Laws; Permits...................................................................9
3.19 Environmental and Safety Laws...................................................................9
3.20 Offering Valid..................................................................................9
3.21 Full Disclosure.................................................................................9
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<CAPTION>
PAGE
<S> <C> <C> <C>
3.22 Qualified Small Business.......................................................................10
3.23 Minute Books...................................................................................10
3.24 Insurance......................................................................................10
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...............................................10
4.1 Requisite Power and Authority..................................................................10
4.2 Investment Representations.....................................................................10
4.3 Transfer Restrictions..........................................................................12
SECTION 5. CONDITIONS TO CLOSING..........................................................................12
5.1 Conditions to Purchasers'Obligations at the Closing............................................12
5.2 Conditions to Obligations of the Company.......................................................14
SECTION 6. MISCELLANEOUS..................................................................................14
6.1 Governing Law..................................................................................14
6.2 Survival.......................................................................................14
6.3 Successors and Assigns.........................................................................15
6.4 Entire Agreement...............................................................................15
6.5 Severability...................................................................................15
6.6 Amendment and Waiver...........................................................................15
6.7 Delays or Omissions............................................................................15
6.8 Notices........................................................................................16
6.9 Expenses.......................................................................................16
6.10 Attorneys'Fees.................................................................................16
6.11 Titles and Subtitles...........................................................................16
6.12 Counterparts...................................................................................16
6.13 Broker's Fees..................................................................................16
6.14 Exculpation Among Purchasers...................................................................16
6.15 Pronouns.......................................................................................17
6.16 California Corporate Securities Law............................................................17
</TABLE>
ii.
<PAGE>
IMPROVENET, INC.
SERIES A PREFERRED STOCK
AND
WARRANT PURCHASE AGREEMENT
THIS SERIES A PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the
"Agreement") is entered into as of June 30, 1997, by and among IMPROVENET,
INC., a California corporation (the "Company") and each of those persons and
entities, severally and not jointly, whose names are set forth on the
Schedule of Purchasers attached hereto as Exhibit A (which persons and
entities are hereinafter collectively referred to as "Purchasers" and each
individually as a "Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an (i)
aggregate of one million two hundred fifty thousand (1,250,000) shares of its
Series A Preferred Stock (the "Shares") and (ii) warrants in the form of
Exhibit C to purchase up to an aggregate of one hundred thousand (100,000)
shares of its Series A Preferred Stock (the "Warrants");
WHEREAS, Purchasers desire to purchase the Shares and the Warrants
on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares and the
Warrants to Purchasers on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES AND WARRANTS. On or prior to the Closing
(as defined in Section 2 below), the Company shall have authorized (i) the
sale and issuance to Purchasers of the Shares and the Warrants (ii) the
issuance of the shares of Series A Preferred Stock to be issued pursuant to
the exercise of the Warrants (the "Warrant Shares"), and (iii) the issuance
of such shares of Common Stock to be issued upon conversion of the Shares and
the Warrant Shares (the "Conversion Shares"). The Shares, the Warrant Shares
and the Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Restated Articles of Incorporation of the
Company, as amended, in the form attached hereto as Exhibit B (the "Restated
Articles"). The Warrants shall be in the form and have the rights set forth
in the form of Warrant Agreement ("Warrant Agreement") attached hereto as
Exhibit C.
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof,
at the Closing (as hereinafter defined) the Company hereby agrees to issue
and sell to each Purchaser, severally and not jointly, and each Purchaser
agrees to purchase from the Company, severally and not jointly,
1
<PAGE>
the number of Shares and Warrants set forth opposite such Purchaser's name on
Exhibit A, at an aggregate purchase price for each Purchaser set forth
opposite such Purchaser's name.
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares and
the Warrants under this Agreement (the "Closing") shall take place on the
date hereof, or at such other time as the Company and Purchasers may mutually
agree (such date is hereinafter referred to as the "Closing Date").
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing
the number of Shares and warrant certificates or agreements representing the
Warrants to be purchased at the Closing by each Purchaser, against payment of
the purchase price therefor by check, wire transfer made payable to the order
of the Company, cancellation of indebtedness or any combination of the
foregoing.
2.3 SUBSEQUENT SALES OF SHARES. At any time on or before the 30th
day following the Closing, the Company may sell up to the balance of the
authorized shares of Series A Preferred Stock and Warrants not sold at the
Closing to such persons as may be approved by the Board of Directors of the
Company. All such sales shall be made on the terms and conditions set forth
in this Agreement, including, without limitation, the representations and
warranties by such Purchasers as set forth in Section 4. Any shares of Series
A Preferred Stock and Warrants to purchase Series A Preferred Stock sold
pursuant to this Section 2.3 shall be deemed to be "Shares" and "Warrants",
respectively, for all purposes under this Agreement and any purchasers
thereof shall be deemed to be "Purchasers" for all purposes under this
Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit D, the Company hereby represents and warrants to each Purchaser as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California. The Company has all requisite corporate
power and authority to own and operate its properties and assets, to execute
and deliver this Agreement, the Investor Rights Agreement in the form
attached hereto as Exhibit E (the "Investor Rights Agreement"), the Right of
First Refusal and Co-Sale Agreement in the form attached hereto as Exhibit F
(the "Right of First Refusal and Co-Sale Agreement"), the Voting Agreement in
the form attached hereto as Exhibit G (the "Voting Agreement") and the Stock
Restriction Agreements in the forms attached hereto as Exhibit K (the "Stock
Restriction Agreements") (collectively, the "Related Agreements"), to issue
and sell the Shares and Warrants and to issue the Conversion Shares and
Warrant Shares and to carry out the provisions of this Agreement, the Related
Agreements and the Restated Articles and to carry on its business as
presently conducted and as presently proposed to be conducted. The Company is
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in all jurisdictions in which the nature of its
activities and of its
2.
<PAGE>
properties (both owned and leased) makes such qualification necessary. The
Company owns no equity securities of any other corporation, limited
partnership or similar entity. The Company is not a participant in any joint
venture, partnership or similar arrangement.
3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of
the Company, immediately prior to the Closing, will consist of twenty million
(20,000,000) shares of Common Stock, one million three hundred sixty-two
thousand five hundred twenty-one (1,362,521) shares of which are issued and
outstanding and six hundred thousand (600,000) shares of which are reserved
for future issuance to key employees pursuant to the Company's 1996 Stock
Option Plan and one million four hundred thousand (1,400,000) shares of
Preferred Stock, all of which are designated Series A Preferred Stock, none
of which are issued and outstanding. All issued and outstanding shares of the
Company's Common Stock (i) have been duly authorized and validly issued to
the persons listed on Exhibit H hereto, (ii) are fully paid and
nonassessable, and (iii) were issued in compliance with all applicable state
and federal laws concerning the issuance of securities. The rights,
preferences, privileges and restrictions of the Shares are as stated in the
Restated Articles. The Conversion Shares have been duly and validly reserved
for issuance. Other than as set forth on Exhibit H, and except as may be
granted pursuant to the Related Agreements, there are no outstanding options,
warrants, rights (including conversion or preemptive rights and rights of
first refusal), proxy or shareholder agreements, or agreements of any kind
for the purchase or acquisition from the Company of any of its securities.
When issued in compliance with the provisions of this Agreement and the
Restated Articles, the Shares, the Warrant Shares and the Conversion Shares
will be validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances; PROVIDED, HOWEVER, that the Shares, the Warrant
Shares, the Warrants and the Conversion Shares may be subject to restrictions
on transfer under state and/or federal securities laws as set forth herein or
as otherwise required by such laws at the time a transfer is proposed.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and shareholders necessary for
the authorization of this Agreement and the Related Agreements, the
performance of all obligations of the Company hereunder and thereunder at the
Closing and the authorization, sale, issuance and delivery of the Shares, the
Warrants and the Warrant Shares pursuant hereto and the Conversion Shares
pursuant to the Restated Articles has been taken or will be taken prior to
the Closing. The Agreement and the Related Agreements, when executed and
delivered, will be valid and binding obligations of the Company enforceable
in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; (ii) general
principles of equity that restrict the availability of equitable remedies;
and (iii) to the extent that the enforceability of the indemnification
provisions in Section 2.9 of the Investor Rights Agreement may be limited by
applicable laws. The sale of the Shares, the Warrants, the Warrant Shares and
the subsequent conversions of the Shares and the Warrant Shares into
Conversion Shares are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.
3.4 FINANCIAL STATEMENTS. The Company has delivered to each
Purchaser (a) its unaudited balance sheet as at December 31, 1996 and (b) its
unaudited balance sheet as at May
3.
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31, 1997 (the "Statement Date") and unaudited statement of income for the
five month period ending on the Statement Date (collectively, the "Financial
Statements"), copies of which are attached hereto as Exhibit L. The Financial
Statements, together with the notes thereto, are complete and correct in all
material respects and present fairly the financial condition and position of
the Company as of December 31, 1996 and the Statement Date; provided,
however, that the unaudited financial statements are subject to normal
recurring year-end audit adjustments (which are not expected to be material),
and do not contain all footnotes required under generally accepted accounting
principles.
3.5 LIABILITIES. The Company has no material liabilities and, to the
best of its knowledge, knows of no material contingent liabilities not
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to the Statement Date which have
not been, either in any individual case or in the aggregate, materially
adverse and in any event, has no liabilities in the aggregate in excess of
$25,000.
3.6 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby
and agreements between the Company and its employees with respect to the sale
of the Company's Common Stock, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or to its knowledge by which it is bound which
may involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 in the aggregate (other than obligations of, or
payments to, the Company arising from purchase or sale agreements entered
into in the ordinary course of business), or (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company
(other than licenses arising from the purchase of "off the shelf" or other
standard products), or (iii) provisions restricting or affecting the
development, manufacture or distribution of the Company's products or
services, or (iv) indemnification by the Company with respect to
infringements of proprietary rights (other than indemnification obligations
arising from purchase or sale agreements entered into in the ordinary course
of business).
(c) The Company has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than with respect to dividend
obligations, distributions, indebtedness and other obligations incurred in
the ordinary course of business) individually in excess of $25,000 or, in the
case of indebtedness and/or liabilities individually less than $25,000, in
excess of $50,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than
the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions
4.
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involving the same person or entity (including persons or entities the
Company has reason to believe are affiliated therewith) shall be aggregated
for the purpose of meeting the individual minimum dollar amounts of such
subsections.
3.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, shareholders, or employees of the Company
other than (a) for payment of current salary for services rendered, (b)
reimbursement for reasonable expenses incurred on behalf of the Company and
(c) for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company). None of the
officers, directors or shareholders of the Company, or any members of their
immediate families, are indebted to the Company or have any direct or
indirect ownership interest in any firm or corporation with which the Company
is affiliated or with which the Company has a business relationship, or any
firm or corporation which competes with the Company, except that officers,
directors and/or shareholders of the Company may own stock in publicly traded
companies which may compete with the Company. No officer, director or
shareholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company (other than
such contracts as relate to any such person's ownership of capital stock or
other securities of the Company). The Company is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
3.8 CHANGES. Since May 31, 1997, there has not been to the Company's
knowledge:
(a) Any change in the assets, liabilities, financial
condition or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had or
is expected to have a material adverse effect on such assets, liabilities,
financial condition or operations of the Company;
(b) Any resignation or termination of any key officers of
the Company; and the Company, to the best of its knowledge, does not know of
the impending resignation or termination of employment of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
5.
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(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the
Company is a party or by which it is bound which materially and adversely
affects the business, assets, liabilities, financial condition, operations or
prospects of the Company, including compensation agreements with the
Company's employees; or
(m) Any other event or condition of any character that,
either individually or cumulatively, has materially and adversely affected
the business, assets, liabilities, financial condition, operations or
prospects of the Company.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) those resulting from taxes which have
not yet become delinquent, (ii) minor liens and encumbrances which do not
materially detract from the value of the property subject thereto or
materially impair the operations of the Company, and (iii) those that have
otherwise arisen in the ordinary course of business. All facilities,
machinery, equipment, fixtures, vehicles and other properties owned, leased
or used by the Company are in good operating condition and repair and are
reasonably fit and usable for the purposes for which they are being used. The
Company is in compliance with all material terms of each lease to which it is
a party or is otherwise bound.
3.10 PATENTS AND TRADEMARKS. To the best of its knowledge, the
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, information and other
proprietary rights and processes necessary for its business as now conducted
and as proposed to be conducted, without any known infringement of the rights
of others. There are no outstanding options, licenses or agreements of any
kind relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of
"off the shelf" or standard products. The Company has not received any
communications alleging that the Company has violated or, by conducting its
business as proposed, would violate any of
6.
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the patents, trademarks, service marks, trade names, copyrights or trade
secrets or other proprietary rights of any other person or entity. The
Company is not aware that any of its employees is obligated under any
contract (including licenses, covenants or commitments of any nature) or
other agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with their duties to the Company
or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor
the conduct of the Company's business as proposed, will, to the Company's
knowledge, conflict with or result in a breach of the terms, conditions or
provisions of, or constitute a default under, any contract, covenant or
instrument under which any employee is now obligated. The Company does not
believe it is or will be necessary to utilize any inventions, trade secrets
or proprietary information of any of its employees made prior to their
employment by the Company, except for inventions, trade secrets or
proprietary information that have been assigned to the Company.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Restated Articles or Bylaws, or of
any provision of any mortgage, indenture, contract, agreement, instrument or
contract to which it is party or by which it is bound or of any judgment,
decree, order, writ or, to its knowledge, any statute, rule or regulation
applicable to the Company which would materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects
of the Company. The execution, delivery, and performance of and compliance
with this Agreement, and the Related Agreements, and the issuance and sale of
the Shares, the Warrants and the Warrant Shares and of the Conversion Shares
pursuant to the Restated Articles, will not, with or without the passage of
time or giving of notice, result in any such material violation, or be in
conflict with or constitute a default under any such term, or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
3.12 LITIGATION. There is no action, suit, proceeding or
investigation pending or to the Company's knowledge currently threatened
against the Company that questions the validity of this Agreement, or the
Related Agreements or the right of the Company to enter into any of such
agreements, or to consummate the transactions contemplated hereby or thereby,
or which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity
ownership of the Company, nor is the Company aware that there is any basis
for the foregoing. The foregoing includes, without limitation, actions
pending or threatened (or any basis therefor known to the Company) involving
the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality. There is no action,
suit, proceeding or investigation by the Company currently pending or which
the Company intends to initiate.
7.
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3.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments imposed, and to
the Company's knowledge all other taxes due and payable by the Company on or
before the Closing have been paid or will be paid prior to the time they
become delinquent. The Company has not been advised (i) that any of its
returns, federal, state or other, have been or are being audited as of the
date hereof, or (ii) of any deficiency in assessment or proposed judgment to
its federal, state or other taxes. The Company has no knowledge of any
liability of any tax to be imposed upon its properties or assets as of the
date of this Agreement that is not adequately provided for.
3.14 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity
pending or, to the Company's knowledge, threatened with respect to the
Company. No employee has any agreement or contract, written or verbal,
regarding his employment. The Company is not a party to or bound by any
currently effective employment contract, deferred compensation arrangement,
bonus plan, incentive plan, profit sharing plan, retirement agreement or
other employee compensation plan or agreement. To the Company's knowledge, no
employee of the Company, nor any consultant with whom the Company has
contracted, is in violation of any term of any employment contract,
proprietary information agreement or any other agreement relating to the
right of any such individual to be employed by, or to contract with, the
Company because of the nature of the business to be conducted by the Company;
and to the Company's knowledge the continued employment by the Company of its
present employees, and the performance of the Company's contracts with its
independent contractors, will not result in any such violation. The Company
has not received any notice alleging that any such violation has occurred. No
employee of the Company has been granted the right to continued employment by
the Company or to any material compensation following termination of
employment with the Company. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any officer, key employee or group of key
employees.
3.15 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each former
and current employee, officer and consultant of the Company has executed a
Proprietary Information and Inventions Agreement in the form of Exhibit I
attached hereto. No current employee, officer or consultant of the Company
has excluded works or inventions made prior to his or her employment with the
Company from his or her assignment of inventions pursuant to such employee,
officer or consultant's Proprietary Information and Inventions Agreement.
3.16 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any
officer or key employee of the Company planning to work less than full time
at the Company in the future.
3.17 REGISTRATION RIGHTS. Except as required pursuant to the
Investor Rights Agreement, the Company is presently not under any obligation,
and has not granted any rights, to
8.
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register (as defined in Section 1.1 of the Investor Rights Agreement) any of
the Company's presently outstanding securities or any of its securities that
may hereafter be issued.
3.18 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the Company is
not in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of
its properties which violation would materially and adversely affect the
business, assets, liabilities, financial condition, operations or prospects
of the Company. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or
declarations are required to be filed in connection with the execution and
delivery of this Agreement and the issuance of the Shares, Warrants, Warrant
Shares or the Conversion Shares, except such as has been duly and validly
obtained or filed, or with respect to any filings that must be made after the
Closing, as will be filed in a timely manner. The Company has all franchises,
permits, licenses and any similar authority necessary for the conduct of its
business as now being conducted by it, the lack of which could materially and
adversely affect the business, properties, prospects or financial condition
of the Company and believes it can obtain, without undue burden or expense,
any similar authority for the conduct of its business as planned to be
conducted.
3.19 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no
material expenditures are or will be required in order to comply with any
such existing statute, law or regulation.
3.20 OFFERING VALID. Assuming the accuracy of the representations
and warranties of the Purchasers contained in Section 4.2 hereof, the offer,
sale and issuance of the Shares and the Warrants, the sale and issuance of
the Warrant Shares upon exercise of the Warrants and the issuance of the
Conversion Shares will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act") and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all
applicable state securities laws. Neither the Company nor any agent on its
behalf has solicited or will solicit any offers to sell or has offered to
sell or will offer to sell all or any part of the Shares, the Warrants or the
Warrant Shares to any person or persons so as to bring the sale of such
Shares, the Warrants or the Warrant Shares by the Company within the
registration provisions of the Securities Act or any state securities laws.
3.21 FULL DISCLOSURE. The Company's business plan dated November
1996, as amended, (the "Business Plan"), this Agreement, the Exhibits hereto,
the Related Agreements and all other documents delivered by the Company to
Purchasers or their attorneys or agents in connection herewith or therewith
or with the transactions contemplated hereby or thereby, do not contain any
untrue statement of a material fact nor, to the Company's knowledge, omit to
state a material fact necessary in order to make the statements contained
herein or therein not misleading. Notwithstanding the foregoing, the Business
Plan provided to each of the Purchasers was prepared by the management of the
Company in a good faith effort to describe the Company's proposed business
and products and the markets therefore. The assumptions applied
9.
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in preparing the Business Plan appeared reasonable to management as of the
date thereof; however, there is no assurance that these assumptions will
prove to be valid or that the objectives set forth in the Business Plan will
be achieved. To the Company's knowledge, there are no facts regarding the
Company which (individually or in the aggregate) materially adversely affect
the business, assets, liabilities, financial condition, prospects or
operations of the Company that have not been set forth in the Agreement, the
Exhibits hereto, the Related Agreements or in other documents delivered to
Purchasers or their attorneys or agents in connection herewith.
3.22 QUALIFIED SMALL BUSINESS. The Company represents and warrants
to the Purchasers that, to the best of its knowledge, the Shares should
qualify as "Qualified Small Business Stock" as defined in Section 1202(c) of
the Internal Revenue Code of 1986, as amended (the "Code"), as of the date
hereof.
3.23 MINUTE BOOKS. The minute books of the Company provided to the
Purchasers or their counsel contain a complete summary of all meetings of
directors and shareholders since the time of incorporation and correctly
reflect all issuances of stock or other equity rights in the Company.
3.24 INSURANCE. The Company has or will obtain promptly following
Closing fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company as
follows (it being agreed that such representations and warranties do not in
any way limit or effect the Purchasers' right to rely upon, and enforce any
breach of, the representations and warranties of the Company set forth in
this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver
this Agreement and the Related Agreements and to carry out their provisions.
All action on Purchaser's part required for the lawful execution and delivery
of this Agreement and the Related Agreements have been or will be effectively
taken prior to the Closing. Upon their execution and delivery, this Agreement
and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (i) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application affecting enforcement of creditors' rights, (ii)
general principles of equity that restrict the availability of equitable
remedies, and (iii) to the extent that the enforceability of the
indemnification provisions of Section 2.9 of the Investor Rights Agreement
may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither
the Shares, the Warrants, the Warrant Shares nor the Conversion Shares have
been registered under the Securities Act. Purchaser also understands that the
Shares and the Warrants are being offered and sold pursuant to an exemption
from registration contained in the Securities Act based in part
10.
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upon Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
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. Purchaser must bear the
economic risk of this investment indefinitely unless the Shares, the Warrants
and the Warrant Shares (or the Conversion Shares) are registered pursuant to
the Securities Act, or an exemption from registration is available. Purchaser
understands that the Company has no present intention of registering the
Shares, the Warrants, the Warrant Shares, the Conversion Shares or any shares
of its Common Stock. Purchaser also understands that there is no assurance
that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow Purchaser
to transfer all or any portion of the Shares, the Warrants, the Warrant
Shares, or the Conversion Shares under the circumstances, in the amounts or
at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares, the Warrants, the Warrant Shares and the Conversion Shares for
Purchaser's own account for investment only, and not with a view towards
their distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that by reason of its, or of its management's, business or
financial experience, Purchaser has the capacity to protect its own interests
in connection with the transactions contemplated in this Agreement, and the
Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the
Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities
Act.
(e) COMPANY INFORMATION. Purchaser has received and read
the Financial Statements and Business Plan and has had an opportunity to
discuss the Company's business, management and financial affairs with
directors, officers and management of the Company and has had the opportunity
to review the Company's operations and facilities. Purchaser has also had the
opportunity to ask questions of and receive answers from, the Company and its
management regarding the terms and conditions of this investment.
(f) RULE 144. Purchaser acknowledges and agrees that the
Shares, the Warrants, and, if issued, the Conversion Shares and the Warrant
Shares must be held indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such registration is available.
Purchaser has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act, which permits limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things: the availability of certain
current public information about the Company, the resale occurring not less
than one year after a party has purchased and paid for the security to be
sold, the sale being through an unsolicited "broker's transaction" or in
transactions directly with a market maker (as
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said term is defined under the Securities Exchange Act of 1934, as amended)
and the number of shares being sold during any three-month period not
exceeding specified limitations.
(g) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on Exhibit A; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located
at the address or addresses of the Purchaser set forth on Exhibit A.
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees
that the Shares, the Warrants and, if issued, the Conversion Shares and the
Warrant Shares are subject to restrictions on transfer as set forth in the
Investor Rights Agreement.
SECTION 5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING.
Purchasers' obligations to purchase the Shares and the Warrants at the
Closing are subject to the satisfaction, at or prior to the Closing, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. 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 with the same force and effect as if they had been made as of
the Closing Date, and the Company shall have performed all obligations and
conditions herein required to be performed or observed by it on or prior to
the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the Warrants and the proposed issuance of the
Conversion Shares and the Warrant Shares shall be legally permitted by all
laws and regulations to which Purchasers and the Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement and the
Related Agreements (except for such as may be properly obtained subsequent to
the Closing).
(d) FILING OF RESTATED ARTICLES. The Restated Articles
shall have been filed with the Secretary of State of the State of California.
(e) CORPORATE DOCUMENTS. The Company shall have delivered
to Purchasers or their counsel, copies of all corporate documents of the
Company as Purchasers shall reasonably request.
(f) RESERVATION OF WARRANT SHARES. The Warrant Shares
issuable upon exercise of the Warrants shall have been duly authorized and
reserved for issuance upon such conversion.
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(g) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares and the Warrant Shares shall have been
duly authorized and reserved for issuance upon such conversion.
(h) COMPLIANCE CERTIFICATE. The Company shall have
delivered to Purchasers a Compliance Certificate, executed by the President
of the Company, dated the date of the Closing, to the effect that the
conditions specified in subsections (a), (c), (d) and (f) of this Section 5.1
have been satisfied.
(i) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as Exhibit E shall have been
executed and delivered by the parties thereto.
(j) RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. The Right
of First Refusal and Co-Sale Agreement substantially in the form attached
hereto as Exhibit F shall have been executed and delivered by the parties
thereto. The stock certificates representing the shares subject to the Right
of First Refusal and Co-Sale Agreement shall have been delivered to the
Secretary of the Company and shall have had appropriate legends placed upon
them to reflect the restrictions on transfer set forth on the Right of First
Refusal and Co-Sale Agreement.
(k) VOTING AGREEMENT. A Voting Agreement substantially in
the form attached hereto as Exhibit G shall have been executed and delivered
by the parties thereto.
(l) BOARD OF DIRECTORS. Upon the Closing, the authorized
size of the Board of Directors of the Company shall be three (3) members and
the Board shall consist of Robert Stevens, Garrett Gruener and one vacancy.
(m) LEGAL OPINION. The Purchasers shall have received from
legal counsel to the Company an opinion addressed to them, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit J.
(n) STOCK RESTRICTIONS AGREEMENTS. The Company shall have
entered into a Stock Restriction Agreement with each of Robert Stevens and
Jan Sherman in substantially the form attached hereto as Exhibit K.
(o) VICE PRESIDENT OF MARKETING. The Company shall have
hired a Vice President of Marketing who is reasonably acceptable to Alta
California Partners, L.P.
(p) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall
be reasonably satisfactory in substance and form to the Purchasers and their
special counsel, and the Purchasers and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
13.
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5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares and the Warrants at each Closing is
subject to the satisfaction, on or prior to the Closing, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by those Purchasers acquiring Shares and
the Warrants in Section 4 hereof shall be true and correct in all material
respects at the date of the Closing, with the same force and effect as if
they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have
performed and complied with all agreements and conditions herein required to
be performed or complied with by such Purchasers on or before the Closing.
(c) FILING OF RESTATED ARTICLES. The Restated Articles
shall have been filed with the Secretary of State of the State of California.
(d) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as Exhibit E shall have been
executed and delivered by the Purchasers.
(e) RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. A Right
of First Refusal and Co-Sale Agreement substantially in the form attached
hereto as Exhibit F shall have been executed and delivered by the parties
thereto. The stock certificates representing the shares subject to the Right
of First Refusal and Co-Sale Agreement shall have been delivered to the
Secretary of the Company and shall have had appropriate legends placed upon
them to reflect the restrictions on transfer set forth on the Right of First
Refusal and Co-Sale Agreement.
(f) VOTING AGREEMENT. A Voting Agreement substantially in
the form attached hereto as Exhibit G shall have been executed and delivered
by the parties thereto.
(g) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement and the
Related Agreements (except for such as may be properly obtained subsequent to
the Closing).
SECTION 6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California as such laws are applied to agreements
between California residents entered into and performed entirely in
California.
6.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser
and the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the
14.
<PAGE>
transactions contemplated hereby shall be deemed to be representations
and warranties by the Company hereunder solely as of the date of such
certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares, the Warrants, the Warrant Shares
and the Conversion Shares from time to time.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Related Agreements and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or
bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and holders of at least sixty-six and
two-thirds percent (66-2/3%) of the Shares (treated as if converted and
including any Conversion Shares into which the Shares have been converted
that have not been sold to the public).
(b) The obligations of the Company and the rights of the
holders of the Shares and the Conversion Shares under the Agreement may be
waived only with the written consent of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the Shares (treated as if converted and
including any Conversion Shares into which the Shares have been converted
that have not been sold to the public).
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Restated Articles, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default
or noncompliance, or any acquiescence therein, or of or in any similar
breach, default or noncompliance thereafter occurring. It is further agreed
that any waiver, permit, consent or approval of any kind or character on any
Purchaser's part of any breach, default or noncompliance under this
Agreement, the Related Agreements or under the Restated Articles or any
waiver on such party's part of any provisions or conditions of the Agreement,
the Related Agreements, or the Restated Articles must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, the Related Agreements, the Restated
Articles, by law, or otherwise afforded to any party, shall be cumulative and
not alternative.
15.
<PAGE>
6.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party to be notified; (ii) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day; (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one (1)
day after deposit with a nationally recognized overnight courier, specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the Company at the address as set forth on the signature
page hereof and to Purchaser at the address set forth on Exhibit A attached
hereto or at such other address as the Company or Purchaser may designate by
ten (10) days advance written notice to the other parties hereto.
6.9 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance
of the Agreement. The Company shall, at the Closing, reimburse the reasonable
fees of and expenses of special counsel for the Purchasers, not to exceed
$12,000, and shall reimburse such special counsel for reasonable expenses
incurred in connection with the negotiation, execution, delivery and
performance of this Agreement.
6.10 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party
in such dispute shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or
with respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
6.11 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
6.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.13 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any
broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto
further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in
this Section 6.13 being untrue.
6.14 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that
it is not relying upon any person, firm, or corporation, other than the
Company and its officers and directors, in making its investment or decision
to invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Shares and Conversion Shares.
16.
<PAGE>
6.15 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
6.16 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 OR IN THE ABSENCE OF AN EXEMPTION FROM
SUCH QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY
THE COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY
CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH
QUALIFICATION BEING AVAILABLE
[THIS SPACE INTENTIONALLY LEFT BLANK]
17.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the SERIES A
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT as of the date set forth in
the first paragraph hereof.
COMPANY: PURCHASERS:
IMPROVENET, INC. -----------------------------------
[Print Name of Purchaser]
By: /s/ Robert L. Stevens By: /s/ All Series A Investors
-------------------------------------- --------------------------------
Robert L. Stevens, President
Title:
-----------------------------
<PAGE>
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
SHARES OF PURCHASE PURCHASE AGGREGATE
SERIES A PRICE FOR PRICE FOR PURCHASE
NAME AND ADDRESS PREFERRED WARRANTS SHARES WARRANTS PRICE
- ------------------------------------- ------------ ------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Alta California Partners, L.P. 977,660 78,213 $976,877.87 $782.13 $977,660
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Alta Embarcadero Partners, LLC 22,340 1,787 $22,322.13 $17.87 $22,340
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
William Egan 50,000 4,000 $49,960.00 $40.00 $50,000
Burr, Egan, Deleage & Co.
One Post Office Square, #3800
Boston, MA 02109
Charles H. Finnie 25,000 2,000 $24,980.00 $20.00 $25,000
Volpe Brown Whelan
& Company, LLC
One Maritime Plaza
San Francisco, CA 94111
GC&H Investments 20,000 1,600 $19,984.00 $16.00 $20,000
Cooley Godward LLP
One Maritime Plaza
20th Floor
San Francisco, CA 94111-3580
David S. Smith and Louise H. 50,000 4,000 $49,960.00 $40.00 $50,000
Smith, Trustees for the David H.
Smith and Louise H. Smith
Family Trust Dated 5/4/84
Post Office Box 475
Graton, CA 95444
Lynn Brown Kargman and 25,000 2,000 $24,980.00 $20.00 $25,000
William M. Kargman
221 Mount Auburn Street
Cambridge, MA 02138
Thomas W. Brugger 25,000 2,000 $24,980.00 $20.00 $25,000
805 Bay view Way
Redwood City, CA 94062
Stuart Gannes and 10,000 800 $9,992 $8.00 $10,000
Catherine Gannes
945 Elsinore Drive
Palo Atlo, CA 94303
1,205,000 96,400 $1,204,036.00 $964.00 $1,205,000.00
</TABLE>
SERIES A PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Schedule of Purchasers............................................Exhibit A
Restated Articles.................................................Exhibit B
Form of Warrant ..................................................Exhibit C
Schedule of Exceptions............................................Exhibit D
Investor Rights Agreement.........................................Exhibit E
Right of First Refusal and Co-Sale Agreement......................Exhibit F
Voting Agreement..................................................Exhibit G
List of Shareholders and Optionholders............................Exhibit H
Proprietary Information and Inventions Agreement..................Exhibit I
Form of Legal Opinion ............................................Exhibit J
Stock Restriction Agreement.......................................Exhibit K
Financial Statements..............................................Exhibit L
</TABLE>
i.
<PAGE>
EXHIBIT H
LIST OF SHAREHOLDERS AND OPTIONHOLDERS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------- --------------
SHAREHOLDERS SHARES
- ----------------------------------------------------------------------------------------------------------- --------------
<S> <C>
Thomas L. Blair 60,000
- ----------------------------------------------------------------------------------------------------------- --------------
Boone Family Trust dtd 8/8/86 10,000
- ----------------------------------------------------------------------------------------------------------- --------------
Thomas W. Brugger 40,000
- ----------------------------------------------------------------------------------------------------------- --------------
Lee Cuthbert 2,600
- ----------------------------------------------------------------------------------------------------------- --------------
David S. Smith & Louise H. Smith, TTEES for the David S & Louise H. Smith Family Trust DTD 5/4/84 60,293
- ----------------------------------------------------------------------------------------------------------- --------------
Gerald J. Flannelly 40,000
- ----------------------------------------------------------------------------------------------------------- --------------
Thomas E. Fortmann 35,800
- ----------------------------------------------------------------------------------------------------------- --------------
John Paul Hanna 10,000
- ----------------------------------------------------------------------------------------------------------- --------------
Henry Adams & Patricia S. Adams, TTEES for the Adams Trust DTD 9/1/77 25,000
- ----------------------------------------------------------------------------------------------------------- --------------
Kenyon Trust Agreement DTD 9/9/93 70,740
- ----------------------------------------------------------------------------------------------------------- --------------
Rachel Chuah McNamara 20,000
- ----------------------------------------------------------------------------------------------------------- --------------
William F. Nandor and JoAnne Nandor 20,000
- ----------------------------------------------------------------------------------------------------------- --------------
PaineWebber, as Custodian for Martin E. Hellman IRA Rollover 25,000
- ----------------------------------------------------------------------------------------------------------- --------------
William C. Rea 20,000
- ----------------------------------------------------------------------------------------------------------- --------------
Robert Stevens & Karen L. Stevens, TTEES URTA 8/9/78, as amended 266,088
- ----------------------------------------------------------------------------------------------------------- --------------
Jan Sherman 200,000
- ----------------------------------------------------------------------------------------------------------- --------------
William W. Smith 25,000
- ----------------------------------------------------------------------------------------------------------- --------------
Stephen L. & Joanne Jacobs, TTEES of the Jacobs Living Trust DTD 9/23/93 20,000
- ----------------------------------------------------------------------------------------------------------- --------------
Robert L. Stevens 200,000
- ----------------------------------------------------------------------------------------------------------- --------------
G. Bickley Stevens II & Sara J. Emerson 25,000
- ----------------------------------------------------------------------------------------------------------- --------------
G. Bickley Stevens II 110,000
- ----------------------------------------------------------------------------------------------------------- --------------
Weil Family Trust 1980 45,000
- ----------------------------------------------------------------------------------------------------------- --------------
Frederick C. Woerner 12,000
- ----------------------------------------------------------------------------------------------------------- --------------
Charles J. Woodruff & Ruth Anne Woodruff 20,000
- ----------------------------------------------------------------------------------------------------------- --------------
1,362,521
- ----------------------------------------------------------------------------------------------------------- --------------
- ----------------------------------------------------------------------------------------------------------- --------------
<CAPTION>
OPTIONHOLDERS SHARES
<S> <C>
- ----------------------------------------------------------------------------------------------------------- --------------
Robert Stevens 20,000
- ----------------------------------------------------------------------------------------------------------- --------------
Jan Sherman 20,000
- ----------------------------------------------------------------------------------------------------------- --------------
Rachael Chuah McNamara 30,000
- ----------------------------------------------------------------------------------------------------------- --------------
David Smith 2,500
- ----------------------------------------------------------------------------------------------------------- --------------
Steve Jacobs 2,500
- ----------------------------------------------------------------------------------------------------------- --------------
Larry Henniger 2,000
- ----------------------------------------------------------------------------------------------------------- --------------
G. Bickley Stevens II 1,500
- ----------------------------------------------------------------------------------------------------------- --------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPROVENET, INC.
SERIES B PREFERRED STOCK
AND
WARRANT PURCHASE AGREEMENT
DATED MARCH 17, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. AGREEMENT TO SELL AND PURCHASE..............................................1
1.1 Authorization of Shares and Warrants........................................1
1.2 Sale and Purchase...........................................................1
SECTION 2. CLOSING, DELIVERY AND PAYMENT...............................................2
2.1 Closing.....................................................................2
2.2 Delivery....................................................................2
2.3 Subsequent Sale of Shares...................................................2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................2
3.1 Organization, Good Standing and Qualification...............................2
3.2 Capitalization; Voting Rights...............................................3
3.3 Authorization; Binding Obligations..........................................3
3.4 Financial Statements........................................................4
3.5 Liabilities.................................................................4
3.6 Agreements; Action..........................................................4
3.7 Obligations to Related Parties..............................................5
3.8 Changes.....................................................................5
3.9 Title to Properties and Assets; Liens, etc..................................6
3.10 Patents and Trademarks......................................................6
3.11 Compliance with Other Instruments...........................................7
3.12 Litigation..................................................................7
3.13 Tax Returns and Payments....................................................8
3.14 Employees...................................................................8
3.15 Proprietary Information and Inventions Agreements...........................8
3.16 Obligations of Management...................................................8
3.17 Registration Rights.........................................................9
3.18 Compliance with Laws; Permits...............................................9
3.19 Environmental and Safety Laws...............................................9
3.20 Offering Valid..............................................................9
3.21 Full Disclosure.............................................................9
3.22 Qualified Small Business...................................................10
3.23 Minute Books...............................................................10
3.24 Insurance..................................................................10
<PAGE>
<CAPTION>
PAGE
<S> <C>
3.25 Use of Proceeds............................................................10
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS...........................10
4.1 Requisite Power and Authority..............................................10
4.2 Investment Representations.................................................11
4.3 Transfer Restrictions......................................................12
SECTION 5. COVENANTS OF THE SERIES B PURCHASERS.......................................12
5.1 Future Financing...........................................................12
SECTION 6. CONDITIONS TO CLOSING......................................................14
6.1 Conditions to Purchasers' Obligations at the Closing.......................14
6.2 Conditions to Obligations of the Company...................................15
SECTION 7. MISCELLANEOUS..............................................................16
7.1 Governing Law..............................................................16
7.2 Survival...................................................................16
7.3 Successors and Assigns.....................................................16
7.4 Entire Agreement...........................................................17
7.5 Severability...............................................................17
7.6 Amendment and Waiver.......................................................17
7.7 Delays or Omissions........................................................17
7.8 Waiver of Conflicts........................................................17
7.9 Notices....................................................................18
7.10 Expenses...................................................................18
7.11 Attorneys' Fees............................................................18
7.12 Titles and Subtitles.......................................................18
7.13 Counterparts...............................................................18
7.14 Broker's Fees..............................................................18
7.15 Exculpation Among Purchasers...............................................19
7.16 Pronouns...................................................................19
7.17 California Corporate Securities Law........................................19
</TABLE>
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Schedule of Purchasers...............................Exhibit A
Restated Articles....................................Exhibit B
Form of Warrant .....................................Exhibit C
Schedule of Exceptions...............................Exhibit D
Amended and Restated Investor Rights Agreement.......Exhibit E
Amended and Restated Right
of First Refusal and Co-Sale Agreement............Exhibit F
Amended and Restated Voting Agreement................Exhibit G
List of Shareholders and Optionholders...............Exhibit H
Proprietary Information and Inventions Agreement.....Exhibit I
Form of Legal Opinion ...............................Exhibit J
Financial Statements.................................Exhibit K
</TABLE>
<PAGE>
IMPROVENET, INC.
SERIES B PREFERRED STOCK
AND
WARRANT PURCHASE AGREEMENT
THIS SERIES B PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the
"Agreement") is entered into as of March 17, 1998, by and among IMPROVENET,
INC., a California corporation (the "Company") and each of those persons and
entities, severally and not jointly, whose names are set forth on the Schedule
of Purchasers attached hereto as Exhibit A (which persons and entities are
hereinafter collectively referred to as "Purchasers" and each individually as a
"Purchaser").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an (i)
aggregate of two million two hundred twenty two thousand two hundred
twenty-three (2,222,223) shares of its Series B Preferred Stock (the "Shares")
and (ii) warrants in the form of Exhibit C to purchase up to an aggregate of
fifty four thousand (54,000) shares of its Series B Preferred Stock (the
"Warrants");
WHEREAS, Purchasers desire to purchase the Shares and the Warrants on
the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares and the
Warrants to Purchasers on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES AND WARRANTS. On or prior to the
Closing (as defined in Section 2 below), the Company shall have authorized (i)
the sale and issuance to Purchasers of the Shares and the Warrants, (ii) the
issuance of the shares of Series B Preferred Stock to be issued pursuant to the
exercise of the Warrants (the "Warrant Shares"), and (iii) the issuance of such
shares of Common Stock to be issued upon conversion of the Shares and the
Warrant Shares (the "Conversion Shares"). The Shares, the Warrant Shares and the
Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Restated Articles of Incorporation of the Company,
as amended, in the form attached hereto as Exhibit B (the "Restated Articles").
The Warrants shall be in the form and have the rights set forth in the form of
Warrant Agreement ("Warrant Agreement") attached hereto as Exhibit C.
1.
<PAGE>
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing (as hereinafter defined) the Company hereby agrees to issue and sell
to each Purchaser, severally and not jointly, and each Purchaser agrees to
purchase from the Company, severally and not jointly, the number of Shares and
Warrants set forth opposite such Purchaser's name on Exhibit A, at an aggregate
purchase price for each Purchaser set forth opposite such Purchaser's name.
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares and the
Warrants under this Agreement (the "Closing") shall take place on the date
hereof, or at such other time as the Company and Purchasers may mutually agree
(such date is hereinafter referred to as the "Closing Date").
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing the
number of Shares and warrant certificates or agreements representing the
Warrants to be purchased at the Closing by each Purchaser, against payment of
the purchase price therefor by check, wire transfer made payable to the order of
the Company, cancellation of indebtedness or any combination of the foregoing.
2.3 SUBSEQUENT SALE OF SHARES. At any time on or before the sixtieth
day following the Closing, the Company may sell up to the balance of the
authorized shares of Series B Preferred Stock and Warrants not sold at the
Closing to such persons as may be approved by the Board of Directors of the
Company and by unanimous approval of the Purchasers. All such sales shall be
made on the terms and conditions set forth in this Agreement, including, without
limitation, the representations and warranties by the Purchasers as set forth in
Section 4. Any shares of Series B Preferred Stock and Warrants sold pursuant to
this Section 2.3 shall be deemed "Shares" and "Warrants", respectively, for all
purposes under this Agreement and any purchasers thereof shall be deemed to be
"Purchasers" for all purposes under this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on the Schedule of Exceptions attached hereto as
Exhibit D, the Company hereby represents and warrants to each Purchaser as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, the Amended and Restated Investor Rights Agreement in the form
attached hereto as Exhibit E (the "Investor Rights Agreement"), the Amended and
Restated Right of First Refusal and Co-Sale Agreement in the form attached
hereto as Exhibit F (the "Right of First Refusal and Co-Sale Agreement") and the
Amended and Restated Voting Agreement in the form attached hereto as Exhibit G
(the "Voting Agreement") (collectively, the "Related Agreements"), to issue and
sell the Shares and Warrants and to issue the Conversion Shares and Warrant
Shares and to carry out the provisions of this Agreement, the Related Agreements
and the Restated Articles and to carry on its business as presently conducted
and as presently proposed to be conducted. The Company is duly qualified and is
authorized to
2.
<PAGE>
do business and is in good standing as a foreign corporation in all
jurisdictions in which the nature of its activities and of its properties (both
owned and leased) makes such qualification necessary. The Company owns no equity
securities of any other corporation, limited partnership or similar entity. The
Company is not a participant in any joint venture, partnership or similar
arrangement.
3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of the
Company, immediately prior to the Closing, will consist of twenty million
(20,000,000) shares of Common Stock, one million three hundred seventy-nine
thousand thirty-nine (1,379,039) shares of which are issued and outstanding and
one million (1,000,000) shares of which are reserved for future issuance to key
employees pursuant to the Company's 1996 Stock Option Plan and five million
(5,000,000) shares of Preferred Stock, of which (i) one million four hundred
thousand (1,400,000) are designated Series A Preferred Stock, one million two
hundred five thousand (1,205,000) of which are issued and outstanding, and (ii)
two million four hundred (2,400,000) are designated Series B Preferred Stock,
none of which are issued and outstanding. All issued and outstanding shares of
the Company's Common Stock and Preferred Stock (i) have been duly authorized and
validly issued to the persons listed on Exhibit H hereto, (ii) are fully paid
and nonassessable, and (iii) were issued in compliance with all applicable state
and federal laws concerning the issuance of securities. The rights, preferences,
privileges and restrictions of the Shares are as stated in the Restated
Articles. The Conversion Shares have been duly and validly reserved for
issuance. Other than as set forth on Exhibit H, and except as may be granted
pursuant to the Related Agreements, there are no outstanding options, warrants,
rights (including conversion or preemptive rights and rights of first refusal),
proxy or shareholder agreements, voting agreements or agreements of any kind for
the purchase or acquisition from the Company of any of its securities. When
issued in compliance with the provisions of this Agreement and the Restated
Articles, the Shares, the Warrant Shares and the Conversion Shares will be
validly issued, fully paid and nonassessable, and will be free of any liens or
encumbrances; PROVIDED, HOWEVER, that the Shares, the Warrant Shares, the
Warrants and the Conversion Shares may be subject to restrictions on transfer
under state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and shareholders necessary for
the authorization of this Agreement and the Related Agreements, the
performance of all obligations of the Company hereunder and thereunder at the
Closing and the authorization, sale, issuance and delivery of the Shares, the
Warrants and the Warrant Shares pursuant hereto and the Conversion Shares
pursuant to the Restated Articles has been taken or will be taken prior to
the Closing. The Agreement and the Related Agreements, when executed and
delivered, will be valid and binding obligations of the Company enforceable
in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; (ii) general
principles of equity that restrict the availability of equitable remedies;
and (iii) to the extent that the enforceability of the indemnification
provisions in Section 3.9 of the Investor Rights Agreement may be limited by
applicable laws. The sale of the Shares, the Warrants, the Warrant Shares and
the subsequent conversions of the Shares and
3.
<PAGE>
the Warrant Shares into Conversion Shares are not and will not be subject to
any preemptive rights or rights of first refusal that have not been properly
waived or complied with.
3.4 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser
(a) its unaudited balance sheet as of December 31, 1997 (the "Statement Date")
and an unaudited profit and loss statement for the twelve (12) month period
ending on the Statement Date (collectively, the "Financial Statements"), copies
of which are attached hereto as Exhibit K. The Financial Statements, together
with the notes thereto, are complete and correct in all material respects and
present fairly the financial condition and position of the Company as of
December 31, 1997; PROVIDED, HOWEVER, that the unaudited financial statements
are subject to normal recurring year-end audit adjustments (which are not
expected to be material) and do not contain all footnotes required under
generally accepted accounting principles.
3.5 LIABILITIES. The Company has no material liabilities and, to the
best of its knowledge, knows of no material contingent liabilities not disclosed
in the Financial Statements, except current liabilities incurred in the ordinary
course of business subsequent to the Statement Date which have not been, either
in any individual case or in the aggregate, materially adverse and in any event,
has no liabilities in the aggregate in excess of $25,000.
3.6 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby and
agreements between the Company and its employees with respect to the sale of the
Company's Common Stock, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates
or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 in the aggregate (other than obligations of, or
payments to, the Company arising from purchase or sale agreements entered into
in the ordinary course of business), or (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company (other
than licenses arising from the purchase of "off the shelf" or other standard
products), or (iii) provisions restricting or affecting the development,
manufacture or distribution of the Company's products or services, or (iv)
indemnification by the Company with respect to infringements of proprietary
rights (other than indemnification obligations arising from purchase or sale
agreements entered into in the ordinary course of business).
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than with respect to dividend obligations,
distributions, indebtedness and other obligations incurred in the ordinary
course of business) individually in excess of $25,000 or, in the case of
indebtedness and/or liabilities individually less than $25,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged
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or otherwise disposed of any of its assets or rights, other than the sale of its
inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
3.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, shareholders, or employees of the Company other
than (a) for payment of current salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company). None of the officers, directors or
shareholders of the Company, or any members of their immediate families, are
indebted to the Company or have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company, except that officers, directors and/or shareholders of the
Company may own stock in publicly traded companies which may compete with the
Company. No officer, director or shareholder, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company (other than such contracts as relate to any such person's ownership
of capital stock or other securities of the Company). The Company is not a
guarantor or indemnitor of any indebtedness of or otherwise provides credit
enhancement to any other person, firm or corporation.
3.8 CHANGES. Since the Statement Date, there has not been to the
Company's knowledge:
(a) Any change in the assets, liabilities, financial condition
or operations of the Company, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or is expected
to have a material adverse effect on such assets, liabilities, financial
condition or operations of the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
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(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company
is a party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company, including compensation agreements with the Company's employees; or
(m) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (i) those resulting from taxes which have not
yet become delinquent, (ii) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (iii) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
3.10 PATENTS AND TRADEMARKS. To the best of its knowledge, the Company
owns or possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information and other proprietary
rights and processes necessary for its business as now conducted and as proposed
to be conducted, without any known infringement of
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the rights of others. There are no outstanding options, licenses or agreements
of any kind relating to the foregoing, nor is the Company bound by or a party to
any options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
information and other proprietary rights and processes of any other person or
entity other than such licenses or agreements arising from the purchase of "off
the shelf" or standard products. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would interfere with their duties to
the Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any employee is now obligated. The Company does not believe it is or will be
necessary to utilize any inventions, trade secrets or proprietary information of
any of its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been duly and
validly assigned to the Company.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Restated Articles or Bylaws. The Company is not in
violation or default of any provision of any mortgage, indenture, contract,
agreement, instrument or contract to which it is party or by which it is bound
or of any judgment, decree, order, writ or, to its knowledge, any statute, rule
or regulation applicable to the Company. The execution, delivery, and
performance of and compliance with this Agreement, and the Related Agreements,
and the issuance and sale of the Shares, the Warrants and the Warrant Shares and
of the Conversion Shares pursuant to the Restated Articles, will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such term,
or result in the creation of any mortgage, pledge, lien, encumbrance or charge
upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit license,
authorization or approval applicable to the Company, its business or operations
or any of its assets or properties.
3.12 LITIGATION. There is no action, suit, proceeding or investigation
pending or to the Company's knowledge currently threatened against the Company
that questions the validity of this Agreement, or the Related Agreements or the
right of the Company to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company, nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's
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employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers. The
Company is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Company currently pending or which the Company intends to initiate.
3.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. All taxes shown
to be due and payable on such returns, any assessments imposed, and to the
Company's knowledge all other taxes due and payable by the Company on or before
the Closing have been paid or will be paid prior to the time they become
delinquent. The Company has not been advised (i) that any of its returns,
federal, state or other, have been or are being audited as of the date hereof,
or (ii) of any deficiency in assessment or proposed judgment to its federal,
state or other taxes. The Company has no knowledge of any liability of any tax
to be imposed upon its properties or assets as of the date of this Agreement
that is not adequately provided for.
3.14 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. No
employee has any agreement or contract, written or verbal, regarding his
employment. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement. To the Company's knowledge, no employee of the Company, nor
any consultant with whom the Company has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation has
occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer or key
employee, or that any group of key employees, intends to terminate their
employment with the Company, nor does the Company have a present intention to
terminate the employment of any officer, key employee or group of key employees.
3.15 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each former and
current employee, officer and consultant of the Company has executed a
Proprietary Information and Inventions Agreement in the form of Exhibit I
attached hereto. No current employee, officer or consultant of the Company has
excluded works or inventions made prior to his or her employment with the
Company from his or her assignment of inventions pursuant to such employee,
officer or consultant's Proprietary Information and Inventions Agreement.
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3.16 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any officer
or key employee of the Company planning to work less than full time at the
Company in the future.
3.17 REGISTRATION RIGHTS. Except as required pursuant to the Investor
Rights Agreement, the Company is presently not under any obligation, and has not
granted any rights, to register (as defined in Section 1.1 of the Investor
Rights Agreement) any of the Company's presently outstanding securities or any
of its securities that may hereafter be issued.
3.18 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the Company is
not in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which violation would materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of this
Agreement and the issuance of the Shares, Warrants, Warrant Shares or the
Conversion Shares, except such as has been duly and validly obtained or filed,
or with respect to any filings that must be made after the Closing, as will be
filed in a timely manner. The Company has all franchises, permits, licenses and
any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could materially and adversely affect the
business, properties, prospects or financial condition of the Company and
believes it can obtain, without undue burden or expense, any similar authority
for the conduct of its business as planned to be conducted.
3.19 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
3.20 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale
and issuance of the Shares and the Warrants, the sale and issuance of the
Warrant Shares upon exercise of the Warrants and the issuance of the Conversion
Shares will be exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Securities Act") and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws. Neither the Company nor any agent on its behalf has solicited
or will solicit any offers to sell or has offered to sell or will offer to sell
all or any part of the Shares, the Warrants or the Warrant Shares to any person
or persons so as to bring the sale of such Shares, the Warrants or the Warrant
Shares by the Company within the registration provisions of the Securities Act
or any state securities laws.
3.21 FULL DISCLOSURE. The Company's business plan dated October 1997,
as amended, (the "Business Plan"), this Agreement, the Exhibits hereto, the
Related Agreements and all other
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documents delivered by the Company to Purchasers or their attorneys or agents in
connection herewith or therewith or with the transactions contemplated hereby or
thereby, do not contain any untrue statement of a material fact nor, to the
Company's knowledge, omit to state a material fact necessary in order to make
the statements contained herein or therein not misleading. Notwithstanding the
foregoing, the Business Plan provided to each of the Purchasers was prepared by
the management of the Company in a good faith effort to describe the Company's
proposed business and products and the markets therefore. The forward-looking
statements made in the Business Plan appeared reasonable to management as of the
date thereof; however, there is no assurance that these forward-looking
statements will prove to be valid or that the objectives set forth in the
Business Plan will be achieved. To the Company's knowledge, there are no facts
regarding the Company which (individually or in the aggregate) materially
adversely affect the business, assets, liabilities, financial condition,
prospects or operations of the Company that have not been set forth in the
Agreement, the Exhibits hereto, the Related Agreements or in other documents
delivered to Purchasers or their attorneys or agents in connection herewith.
3.22 QUALIFIED SMALL BUSINESS. The Company represents and warrants to
the Purchasers that, to the best of its knowledge, the Shares should qualify as
"Qualified Small Business Stock" as defined in Section 1202(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), as of the date hereof.
3.23 MINUTE BOOKS. The minute books of the Company provided to the
Purchasers or their counsel contain a complete summary of all meetings of
directors and shareholders since the time of incorporation and correctly reflect
all issuances of stock or other equity rights in the Company.
3.24 INSURANCE. The Company has or will obtain promptly following
Closing fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
3.25 USE OF PROCEEDS. The net proceeds received by the Company from the
sale of the Shares shall be used by the Company for working capital.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company as follows
(it being agreed that such representations and warranties do not in any way
limit or effect the Purchasers' right to rely upon, and enforce any breach of,
the representations and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Related Agreements have been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency,
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reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, (ii) general principles of equity that
restrict the availability of equitable remedies, and (iii) to the extent that
the enforceability of the indemnification provisions of Section 3.9 of the
Investor Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares, the Warrants, the Warrant Shares nor the Conversion Shares have been
registered under the Securities Act. Purchaser also understands that the Shares
and the Warrants are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon Purchaser's
representations contained in the Agreement. Purchaser hereby represents and
warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement 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. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares, the Warrants and the Warrant
Shares (or the Conversion Shares) are registered pursuant to the Securities Act,
or an exemption from registration is available. Purchaser understands that the
Company has no present intention of registering the Shares, the Warrants, the
Warrant Shares, the Conversion Shares or any shares of its Common Stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any portion
of the Shares, the Warrants, the Warrant Shares, or the Conversion Shares under
the circumstances, in the amounts or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares, the Warrants, the Warrant Shares and the Conversion Shares for
Purchaser's own account for investment only and not with a view towards their
distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement and the Related Agreements. Further,
Purchaser is aware of no publication of any advertisement in connection with the
transactions contemplated in the Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(e) COMPANY INFORMATION. Purchaser has received and read the
Financial Statements and Business Plan and has had an opportunity to discuss the
Company's business, management and financial affairs with directors, officers
and management of the Company and has had the opportunity to review the
Company's operations and facilities. Purchaser has also had the opportunity to
ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.
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(f) RULE 144. Purchaser acknowledges and agrees that the
Shares, the Warrants, and, if issued, the Conversion Shares and the Warrant
Shares must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available.
Purchaser has been advised or is aware of the provisions of Rule 144 promulgated
under the Securities Act, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things: the availability of certain current public information about
the Company, the resale occurring not less than one year after a party has
purchased and paid for the security to be sold, the sale being through an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934, as
amended) and the number of shares being sold during any three-month period not
exceeding specified limitations.
(g) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on Exhibit A; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located at
the address or addresses of the Purchaser set forth on Exhibit A.
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees that
the Shares, the Warrants and, if issued, the Conversion Shares and the Warrant
Shares are subject to restrictions on transfer as set forth in the Investor
Rights Agreement.
SECTION 5. COVENANTS OF THE SERIES B PURCHASERS.
5.1 FUTURE FINANCING. The Company may sell and all Purchasers hereto
(the "Future Purchasers") shall be obligated to purchase from the Company,
additional shares of Preferred Stock as follows:
(a) The Company may sell an aggregate amount of shares of the
Company's Series B-1 Preferred Stock (the Series B-1 Preferred) with a total
purchase price of two million dollars ($2,000,000) (the "Future Financing"). The
Future Purchasers will be obligated to participate in the Future Financing on a
pro rata basis upon the Company's achievement of all of the following
operational milestones (the Milestones") within the period beginning on March
17, 1998 and ending January 1, 1999 (the "Milestone Target Period") (except for
the Milestone listed in subparagraph (v) below, which the Company may achieve by
March 17, 1999); the Milestones listed below need not be achieved during the
same month, so long as such Milestones are at least at ninety percent (90%) of
the targeted level when the final Milestone is achieved. Such Milestones are as
follows:
(i) WEBSITE VISITORS. The Company receives an
aggregate of 400,000 Website visitors, including homeowners responding via toll
free calls, to its Website within any given month within 1998;
(ii) SUBMITTED JOBS. The Company processes 11,000
jobs in any given month in 1998; such jobs may include jobs that possess
insufficient information, Billable Jobs (as defined below) and jobs where lists
are delivered dynamically to homeowners without
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processing; all such jobs must include confidential contact information
(however, dynamically generated lists for homeowners will not be processed with
faxes to contractors);
(iii) BILLABLE JOBS. The Company processes 9,000 jobs
that contain confirmed project submissions by homeowners who provide the
required confidential contact information in processed trades ("Billable Jobs")
in any given month in 1998. Billable Jobs do not include the following (i) jobs
where there is insufficient information to process the job or (ii) test jobs.
Billable Jobs do not require a positive response from contractors.
(iv) CONTRACTOR/DESIGNER RESPONSE RATE. The Company
receives an average of 2.5 interested contractors per Billable Job for projects
with a budget in excess of $5,000 or more in any given month in 1998;
(v) REVENUE. The Company either (i) collects $160,000
in cash in any given month from March 17, 1998 through January 1, 1999 from its
revenue-generating sources and the Company collects 30% of potential Billable
Job revenue (expected to be delayed about ninety (90) days from the Billable Job
submission), generated in any given month in 1998; or (ii) from January 1, 1999
until March 17, 1999, collects $200,000 in cash in any given month and the
Company collects at least 30% of potential Billable Job revenue generated in any
given month from March 17, 1998 through March 17, 1999;
(vi) HIRING OF A CHIEF FINANCIAL OFFICER. The Company
hires a new Chief Financial Officer within any given month of 1998; and
(vii) TECHNICAL. The Company has fully completed the
porting of its database systems into Microsoft SQL server or the equivalent from
the current Acius 4D database system by January 1, 1999.
Once a majority of the Future Purchasers reasonably determines that all
the Milestones have been achieved at any point during the Milestone Target
Period, then the Future Purchasers are obligated to participate in the Future
Financing on a pro rata basis upon the following terms: The price per share of
Series B-1 Preferred shall be determined based on a pre-money valuation of the
Company of nineteen million eight hundred seventy-five thousand dollars
($19,875,000) calculated on a fully-diluted basis (including options outstanding
under the Company's 1996 Stock Option Plan and the number of shares of Common
Stock which could be obtained through the exercise or conversion of all other
rights, options, warrants and convertible securities outstanding on the date of
issuance of the Series B-1 Preferred). If one of the Future Purchasers fails to
participate in the Future Financing (the "Non-Participating Purchaser"), the
other Future Purchasers may purchase the shares allocated to the
Non-Participating Purchaser on a pro rata basis. The Company shall also have the
right to buy back the Shares and the Warrants of the Non-Participating Purchaser
at $0.01 per share in addition to all other legal remedies that the Company
might have available to it.
In the event the Company fails to achieve the Milestones set forth
above, the Future Purchasers will be under no obligation to purchase shares of
Series B-1 Preferred. The purchase and sale of the Series B-1 Preferred will be
made on substantially the same terms and conditions
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contained in the Purchase Agreement, except for the original purchase price,
conversion price and the liquidation preference amount (however, the Series B-1
Preferred will be treated pari passu with the Series A Preferred Stock and
Series B Preferred Stock), and the Future Purchasers will purchase such shares
in the same proportion to each other as the Series B Stock purchased under the
Purchase Agreement.
SECTION 6. CONDITIONS TO CLOSING.
6.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING. Purchasers'
obligations to purchase the Shares and the Warrants at the Closing are subject
to the satisfaction, at or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. 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
with the same force and effect as if they had been made as of the Closing Date,
and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the Warrants and the proposed issuance of the
Conversion Shares and the Warrant Shares shall be legally permitted by all laws
and regulations to which Purchasers and the Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
(d) FILING OF RESTATED ARTICLES. The Restated Articles shall
have been filed with the Secretary of State of the State of California.
(e) CORPORATE DOCUMENTS. The Company shall have delivered to
Purchasers or their counsel, copies of all corporate documents of the Company as
Purchasers shall reasonably request.
(f) RESERVATION OF WARRANT SHARES. The Warrant Shares issuable
upon exercise of the Warrants shall have been duly authorized and reserved for
issuance upon such conversion.
(g) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares and the Warrant Shares shall have been
duly authorized and reserved for issuance upon such conversion.
(h) COMPLIANCE CERTIFICATE. The Company shall have delivered
to Purchasers a Compliance Certificate, executed by the President of the
Company, dated the date
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of the Closing, to the effect that the conditions specified in subsections (a),
(c), (d), (f) and (g) of this Section 6.1 have been satisfied.
(i) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as Exhibit E shall have been executed
and delivered by the parties thereto.
(j) RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. The Right of
First Refusal and Co-Sale Agreement substantially in the form attached hereto as
Exhibit F shall have been executed and delivered by the parties thereto. The
stock certificates representing the shares subject to the Right of First Refusal
and Co-Sale Agreement shall have been delivered to the Secretary of the Company
and shall have had appropriate legends placed upon them to reflect the
restrictions on transfer set forth on the Right of First Refusal and Co-Sale
Agreement.
(k) VOTING AGREEMENT. The Company will obtain the signatures
of the President of the Company, Robert Stevens, Jan Sherman, Allstate Insurance
Company, Alta California Partners, L.P., Alta Embarcadero Partners, LLC, ARCH
Venture Fund III, L.P., Anthony Glaves, Harold Kawaguchi, Alex Knight and
Madrona Investment Group, LLC, whose signatures are required to execute the
Voting Agreement, substantially in the form attached hereto as Exhibit G.
(l) BOARD OF DIRECTORS. Upon the Closing, the authorized size
of the Board of Directors of the Company shall be five (5) members and the Board
shall consist of Robert Stevens, Garrett Gruener, Stuart Gannes, Robert Nelsen
and one vacancy.
(m) LEGAL OPINION. The Purchasers shall have received from
legal counsel to the Company an opinion addressed to them, dated as of the
Closing Date, in substantially the form attached hereto as Exhibit J.
(n) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and their
special counsel, and the Purchasers and their special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as they may reasonably request.
(o) PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. All key
employees shall have executed a Proprietary Information and Inventions Agreement
that is reasonably acceptable to Investors' counsel.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares and the Warrants at each Closing is
subject to the satisfaction, on or prior to the Closing, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by those Purchasers acquiring Shares and the Warrants in
Section 4 hereof shall
15.
<PAGE>
be true and correct in all material respects at the date of the Closing, with
the same force and effect as if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by such Purchasers on or before the Closing.
(c) FILING OF RESTATED ARTICLES. The Restated Articles shall
have been filed with the Secretary of State of the State of California.
(d) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as Exhibit E shall have been executed
and delivered by the Purchasers.
(e) RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. A Right of
First Refusal and Co-Sale Agreement substantially in the form attached hereto as
Exhibit F shall have been executed and delivered by the parties thereto. The
stock certificates representing the shares subject to the Right of First Refusal
and Co-Sale Agreement shall have been delivered to the Secretary of the Company
and shall have had appropriate legends placed upon them to reflect the
restrictions on transfer set forth on the Right of First Refusal and Co-Sale
Agreement.
(f) VOTING AGREEMENT.. The Company will obtain the signatures
of the President of the Company, Robert Stevens, Jan Sherman, Allstate Insurance
Company, Alta California Partners, L.P., Alta Embarcadero Partners, LLC, ARCH
Venture Fund III, L.P., Anthony Glaves, Harold Kawaguchi, Alex Knight and
Madrona Investment Group, LLC, whose signatures are required to execute the
Voting Agreement, substantially in the form attached hereto as Exhibit G.
(g) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
SECTION 7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and performed entirely in California.
7.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and the
closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
16.
<PAGE>
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares, the Warrants, the Warrant Shares and
the Conversion Shares from time to time.
7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Related Agreements, the Business Plan and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein and
therein.
7.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and holders of at least a majority of the Shares
(treated as if converted and including any Conversion Shares into which the
Shares have been converted that have not been sold to the public).
(b) The obligations of the Company and the rights of the
holders of the Shares and the Conversion Shares under the Agreement may be
waived only with the written consent of the holders of at least a majority of
the Shares (treated as if converted and including any Conversion Shares into
which the Shares have been converted that have not been sold to the public).
7.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Restated Articles, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on any Purchaser's
part of any breach, default or noncompliance under this Agreement, the Related
Agreements or under the Restated Articles or any waiver on such party's part of
any provisions or conditions of the Agreement, the Related Agreements, or the
Restated Articles must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, the Related Agreements, the Restated Articles, by law, or otherwise
afforded to any party, shall be cumulative and not alternative.
7.8 WAIVER OF CONFLICTS. Each party to this Agreement acknowledges that
legal counsel for the Company, Cooley Godward LLP ("Cooley Godward"), has in the
past and may
17.
<PAGE>
continue in the future to perform legal services for one or more of the
Purchasers or their affiliates in matters unrelated to the transactions
contemplated by this Agreement, including, but not limited to, the
representation of the Purchasers in matters of a similar nature to the
transactions contemplated herein. Each party to this Agreement hereby (a)
acknowledges that they have had an opportunity to ask for and have obtained
information relevant to such representation, including disclosure of the
reasonably foreseeable adverse consequences of such representation; (b)
acknowledges that with respect to the transactions contemplated herein, Cooley
Godward has represented the Company and not any individual Purchaser or any
individual shareholder, director or employee of the Company; and (c) gives its
informed consent to Cooley Godward's representation of the Company in the
transactions contemplated by this Agreement and Cooley Godward's representation
of one or more of the Purchasers or their affiliates in matters unrelated to
such transactions.
7.9 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to
Purchaser at the address set forth on Exhibit A attached hereto or at such other
address as the Company or Purchaser may designate by ten (10) days advance
written notice to the other parties hereto.
7.10 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the Agreement. The Company shall, at the Closing, reimburse the reasonable fees
of and expenses of special counsel for the Purchasers, not to exceed $15,000,
and shall reimburse such special counsel for reasonable expenses incurred in
connection with the negotiation, execution, delivery and performance of this
Agreement.
7.11 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
7.12 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
7.14 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto
18.
<PAGE>
is or will be entitled to any broker's or finder's fee or any other commission
directly or indirectly in connection with the transactions contemplated herein.
Each party hereto further agrees to indemnify each other party for any claims,
losses or expenses incurred by such other party as a result of the
representation in this Section 6.13 being untrue.
7.15 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser nor the respective
controlling persons, officers, directors, partners, agents, or employees of any
Purchaser shall be liable for any action heretofore or hereafter taken or
omitted to be taken by any of them in connection with the Shares and Conversion
Shares.
7.16 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
7.17 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 OR IN THE ABSENCE OF AN EXEMPTION FROM SUCH
QUALIFICATION IS UNLAWFUL. PRIOR TO ACCEPTANCE OF SUCH CONSIDERATION BY THE
COMPANY, THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED OR AN EXEMPTION FROM SUCH QUALIFICATION
BEING AVAILABLE.
[THIS SPACE INTENTIONALLY LEFT BLANK]
19.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the SERIES B
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT as of the date set forth in the
first paragraph hereof.
COMPANY: PURCHASERS:
IMPROVENET, INC. -----------------------------
125 UNIVERSITY AVENUE (PRINT NAME OF PURCHASER)
PALO ALTO, CA 94301
By: /s/ Robert L. Stevens By: /s/ All Series B Investors
-------------------------------------- --------------------------
Robert L. Stevens, President
Title:
------------------------
<PAGE>
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
CONVERTIBLE
SHARES OF SERIES B PROMISSORY NEW SERIES B AGGREGATE
NAME AND ADDRESS PREFERRED WARRANTS(1) NOTES(2) INVESTMENT PURCHASE PRICE
- ---------------------------- ---------------- ----------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Allstate Insurance Company 496,032 12,054 $ 1,250,000.64
2775 Sanders Road
Suite A3
Northbrook, Illinois 60062
Attn: Michael Curran
Alta California Partners, L.P. 543,147 13,198 $ 147,059.82 $ 1,221,670.62 $ 1,368,730.44
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
Alta Embarcadero Partners, LLC 12,409 302 $ 3,359.36 $ 27,911.32 $ 31,270.68
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
ARCH Venture Fund III, L.P. 813,492 19,768 $ 2,049,999.84
8735 Higgins Road
Suite 225
Chicago, IL 60631
Anthony Glaves 9,921 241 $ 25,000.92
1030 Parkinson
Palo Alto, CA 94301
Harold Kawaguchi 9,921 241 $ 25,000.92
626 38th Avenue
Seattle, WA 98122
Alex Knight 9,921 241 $ 25,000.92
1116 Harvard Avenue East
Seattle, WA 98102
Madrona Investment Group, LLC 39,683 964 $ 100,001.16
1000 Second Avenue, Suite 3700
Seattle, WA 98104
---------------- ----------- ---------------- --------------- ----------------
---------------- ----------- ---------------- --------------- ----------------
Total 1,934,526 47,009 $ 150,419.18 $ 1,249,581.94 $ 4,875,005.52
</TABLE>
- ----------------------------
1 $0.01 per share shall be allocated to the purchase price of the warrants.
2 Includes principal and interest earned as of the date hereof.
SERIES B PREFERRED STOCK AND WARRANT AGREEMENT
<PAGE>
EXHIBIT H
LIST OF SHAREHOLDERS AND OPTIONHOLDERS
<TABLE>
<CAPTION>
SHAREHOLDERS SHARES
<S> <C>
Adams Trust Dated 9/1/77 25,000
Alta California Partners, L.P. 977,660
Alta Embarcadero Partners, LLC 22,340
Antun Bendis 22,187
Boone Family Trust dtd 8/8/86 10,000
Thomas L. Blair 60,000
Thomas Brugger 40,000
Tom Brugger 25,000
Lee Cuthbert 2,600
Bill Egan 50,000
Charlie Finnie 25,000
Gerald J. Flannelly 40,000
Thomas E. Fortmann 35,800
Stuart Gannes 10,000
GC&H Investments 20,000
Kim Garretson 3,500
John Paul Hanna 10,000
Martin E. Hellman IRA 25,000
Stephen L and Joanee Jacobs, Trustees of the Jacobs Living Trust Dated 09/23/93 20,000
Lynn Brown Kargman 25,000
The Kenyon Trust Dated 09/09/93 70,740
Rachel Chuah McNamara 20,000
William F. Nandor 20,000
William C. Rea 20,000
Jan M. Sherman 200,000
William W. Smith 35,408
David & Louise Smith Trust 60,293
David S. and Louise H. Smith Family Trust dated 5/4/84 60,293
G. Bickley Stevens, II 135,000
Robert L. Stevens 200,000
Robert L. and Karen Stevens Trustees Under Recovable Trust Dated 8/9/78 266,088
Olga Tikhonora 2,708
Weil Family Trust 1980 46,110
Frederick C. Woerner 12,000
Charles J. & Ruth Anne Woodruff 20,000
Kathy Anne Woodruff 2,188
Danielle D. Zarosi 1,667
TOTAL 2,584,039
OPTIONHOLDERS SHARES
Antun Bendis 55,000
Kelly Conway 40,000
William Crosby 30,000
William Crosby 10,000
Dennis Galloway 10,000
Stuart Gannes 7,222
Kim Garretson 6,000
Christopher Kane 5,000
Awele Ndili 38,683
Jan Sherman 24,500
Jan Sherman 20,000
Bic Stevens 1,500
Robert Stevens 71,250
Robert Stevens 20,000
Olga Tikhonova 5,000
Kathy Anne Woodruff 5,000
Janna Zachary 5,000
Danielle Zarosi 5,000
TOTAL 339,155
WARRANTHOLDERS SHARES
Alta California Partners, L.P. 78,213
Alta Embarcadero Partners, LLC 1,787
Thomas W. Brugger 2,000
William Egan 4,000
Charles Finnie 2,000
Stuart Gannes 800
GC&H Investments 1,600
Steve Jacobs 5,000
Lynn Brown Kargman and William M. Kargman 2,000
David S. Smith and Louise H. Smith Trustees for the David S. and Louise H. Smith Family Trust 4,000
Dated 5/4/84
Bic Stevens 5,000
TOTAL 106,400
</TABLE>
<PAGE>
==============================================================================
IMPROVENET, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
DATED MARCH 29, 1999
==============================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
SECTION 1. AGREEMENT TO SELL AND PURCHASE...........................1
1.1 Authorization of Shares..................................1
1.2 Sale and Purchase........................................1
SECTION 2. CLOSING, DELIVERY AND PAYMENT............................2
2.1 Closing..................................................2
2.2 Delivery.................................................2
2.3 Subsequent Sale of Shares................................2
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............2
3.1 Organization, Good Standing and Qualification............2
3.2 Capitalization; Voting Rights............................3
3.3 Authorization; Binding Obligations.......................3
3.4 Financial Statements.....................................4
3.5 Liabilities..............................................4
3.6 Agreements; Action.......................................4
3.7 Obligations to Related Parties...........................5
3.8 Changes..................................................5
3.9 Title to Properties and Assets; Liens, etc...............6
3.10 Patents and Trademarks...................................6
3.11 Compliance with Other Instruments........................7
3.12 Litigation...............................................7
3.13 Tax Returns and Payments.................................7
3.14 Employees................................................7
3.15 Proprietary Information and Inventions Agreements........8
3.16 Obligations of Management................................8
3.17 Registration Rights......................................8
3.18 Compliance with Laws; Permits............................8
3.19 Environmental and Safety Laws............................8
3.20 Offering Valid...........................................9
3.21 Full Disclosure..........................................9
3.22 Qualified Small Business.................................9
3.23 Minute Books.............................................9
3.24 Insurance................................................9
</TABLE>
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C> <C>
3.25 Small Business Concern...................................9
3.26 Year 2000 Compliance.....................................9
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........10
4.1 Requisite Power and Authority...........................10
4.2 Investment Representations..............................10
4.3 Transfer Restrictions...................................11
SECTION 5. CONDITIONS TO CLOSING...................................11
5.1 Conditions to Purchasers' Obligations at the Closing....11
5.2 Conditions to Obligations of the Company................13
SECTION 6. MISCELLANEOUS...........................................13
6.1 Governing Law...........................................13
6.2 Survival................................................13
6.3 Successors and Assigns..................................14
6.4 Entire Agreement........................................14
6.5 Severability............................................14
6.6 Amendment and Waiver....................................14
6.7 Delays or Omissions.....................................14
6.8 Waiver of Conflicts.....................................14
6.9 Notices.................................................15
6.10 Expenses................................................15
6.11 Attorneys' Fees.........................................15
6.12 Titles and Subtitles....................................15
6.13 Counterparts............................................15
6.14 Broker's Fees...........................................15
6.15 Exculpation Among Purchasers............................15
6.16 Pronouns................................................16
</TABLE>
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Schedule of Purchasers.................................Exhibit A
First Restated Certificate of Incorporation............Exhibit B
Schedule of Exceptions.................................Exhibit C
Second Amended and Restated
Investor Rights Agreement...........................Exhibit D
Second Amended and Restated Right
of First Refusal and Co-Sale Agreement..............Exhibit E
Second Amended and Restated Voting Agreement...........Exhibit F
List of Shareholders, Optionholders
and Warrantholders..................................Exhibit G
Financial Statements...................................Exhibit H
Proprietary Information and Inventions Agreement.......Exhibit I
Form of Legal Opinion .................................Exhibit J
</TABLE>
<PAGE>
IMPROVENET, INC.
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES C PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT") is
entered into as of March 29th, 1999, by and among IMPROVENET, INC., a Delaware
corporation (the "COMPANY") and each of those persons and entities, severally
and not jointly, whose names are set forth on the Schedule of Purchasers
attached hereto as EXHIBIT A (which persons and entities are hereinafter
collectively referred to as "PURCHASERS" and each individually as a
"PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of three million five hundred thirty-seven thousand five hundred
twenty-four (3,537,524) shares of its Series C Preferred Stock (the "SHARES");
WHEREAS, Purchasers desire to purchase the Shares on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to the
Purchasers on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized (a) the sale and issuance to
Purchasers of the Shares, (b) the issuance of such shares of common stock to be
issued upon conversion of the Shares (the "CONVERSION SHARES"). The Shares and
the Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the First Restated Certificate of Incorporation of the
Company in the form attached hereto as EXHIBIT B (the "RESTATED CERTIFICATE").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing the Company hereby agrees to issue and sell to each Purchaser,
severally and not jointly, and each Purchaser agrees to purchase from the
Company, severally and not jointly, the number of Shares set forth opposite such
Purchaser's name on EXHIBIT A at an aggregate purchase price for each Purchaser
set forth opposite such Purchaser's name.
1.
<PAGE>
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares under
this Agreement (the "Closing") shall take place on the date hereof, or at such
other time as the Company and Purchasers may mutually agree (such date is
hereinafter referred to as the "CLOSING DATE").
2.2 DELIVERY. At the Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing the
number of Shares purchased at the Closing by each Purchaser, against payment of
the purchase price therefor by check, wire transfer made payable to the order of
the Company, cancellation of indebtedness or any combination of the foregoing.
2.3 SUBSEQUENT SALE OF SHARES. At any time on or before the sixtieth
day following the Closing, the Company may sell up to the balance of the
authorized shares of Series C Preferred Stock not sold at the Closing to such
persons as may be approved by the Board of Directors of the Company. All such
sales shall be made on the terms and conditions set forth in this Agreement,
including, without limitation, the representations and warranties by the
Purchasers as set forth in Section 4. Any shares of Series C Preferred Stock
sold pursuant to this Section 2.3 shall be deemed to be Shares for all purposes
under this Agreement, any purchasers thereof shall be deemed to be Purchasers
for all purposes under this Agreement, and such persons or entities shall become
parties to this Agreement, that certain Second Amended and Restated Investor
Rights Agreement dated as of the date hereof, by and among the Company, certain
other Preferred Stock holders and the Purchasers, the form of which is attached
hereto as EXHIBIT D (the "INVESTOR RIGHTS AGREEMENT"), that certain Second
Amended and Restated Right of First Refusal and Co-Sale Agreement dated as of
the date hereof, by and among the Company, certain other Preferred Stock holders
a certain shareholder and the Purchasers, the form of which is attached hereto
as EXHIBIT E (the "CO-SALE AGREEMENT") and that certain Second Amended and
Restated Voting Agreement dated as of the date hereof, by and among the Company,
certain other Preferred Stock holders, certain Holders (as therein defined),
certain Stock Holders (as therein defined) and the Purchasers, the form of which
is attached hereto as EXHIBIT F (the "VOTING AGREEMENT") and shall have the
rights and obligations of a Purchaser and an Investor, respectively hereunder
and thereunder. The respective Exhibits to each of the Related Agreements (as
defined in Section 3.1 below) shall be revised to reflect any such additional
purchasers.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on the Schedule of Exceptions attached hereto as
EXHIBIT C, the Company hereby represents and warrants to each Purchaser as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, the Investor Rights Agreement, the Co-Sale Agreement and the
Voting Agreement (collectively, the "RELATED AGREEMENTS"), to issue and sell the
Shares and to issue the Conversion Shares and to carry out the provisions of
this Agreement, the Related Agreements and the Restated Certificate and to carry
on its business as presently conducted and as presently proposed to be
conducted. The Company is duly qualified and is authorized to do business and is
in good standing as a foreign corporation in all jurisdictions in which the
nature of its activities and of its properties (both owned and leased) makes
such qualification necessary. The Company owns no equity securities of any other
corporation, limited partnership or similar entity. The Company is not a
participant in any joint venture, partnership or similar arrangement.
2.
<PAGE>
3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of the
Company, immediately prior to the Closing, will consist of twenty million
(20,000,000) shares of common stock, of which (i) one million four hundred six
thousand two hundred eighty nine (1,406,289) shares are issued and outstanding,
(ii) eight hundred forty five thousand nine hundred seventy (845,970) shares are
reserved for future issuance to employees pursuant to the Company's Amended and
Restated 1996 Stock Option Plan, (iii) seven hundred twenty one thousand seven
hundred eighty (721,780) shares are subject to outstanding options pursuant to
the 1996 Stock Option Plan (provided, however, the Company on the date hereof
shall issue to Mr. Ronald Cooper an option to purchase six percent (6%) of the
fully diluted shares of the Company outstanding immediately after the Closing of
this transaction) and (iv) ten thousand (10,000) shares are subject to
outstanding warrants to purchase common stock, and eight million (8,000,000)
shares of Preferred Stock, of which (A) one million three hundred one thousand
four hundred (1,301,400) are designated Series A Preferred Stock, one million
two hundred five thousand (1,205,000) of which are issued and outstanding and
ninety-six thousand four hundred (96,400) of which are reserved for issuance
pursuant to outstanding warrants to purchase Series A Preferred Stock, (B) one
million nine hundred eighty-one thousand five hundred thirty-five (1,981,535)
are designated Series B Preferred Stock, one million nine hundred thirty-four
thousand five hundred twenty-six (1,934,526) of which are issued and outstanding
and forty-seven thousand and nine (47,009) of which are reserved for issuance
pursuant to outstanding warrants to purchase Series B Preferred Stock and (C)
three million seven hundred thousand (3,700,000) are designed Series C Preferred
Stock, none of which are issued and outstanding as of the date immediately prior
to the date hereof. All issued and outstanding shares of the Company's common
stock and preferred stock (I) have been duly authorized and validly issued to
the persons listed on EXHIBIT G hereto, (II) are fully paid and nonassessable,
and (III) were issued in compliance with all applicable state and federal laws
concerning the issuance of securities. The rights, preferences, privileges and
restrictions of the Shares are as stated in the Restated Certificate. The
Conversion Shares have been duly and validly reserved for issuance. Other than
as set forth on EXHIBIT G, and except as may be granted pursuant to the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
shareholder agreements, voting agreements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. When issued
in compliance with the provisions of this Agreement and the Restated
Certificate, the Shares and the Conversion Shares will be validly issued, fully
paid and nonassessable, and will be free of any liens or encumbrances; PROVIDED,
HOWEVER, that the Shares and the Conversion Shares may be subject to
restrictions on transfer under state and/or federal securities laws as set forth
herein or as otherwise required by such laws at the time a transfer is proposed.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder and thereunder at the Closing and the
authorization, sale, issuance and delivery of the Shares pursuant hereto and the
Conversion Shares pursuant to the Restated Certificate has been taken or will be
taken prior to the Closing. The Agreement and the Related Agreements, when
executed and delivered, will be valid and binding obligations of the Company
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, (b) general principles
of equity that restrict the availability of equitable remedies and (c) to the
extent that the enforceability of the indemnification provisions in Section 3.9
of the Investor Rights Agreement may be limited by applicable laws. The sale of
the Shares and the subsequent conversion of the Shares into Conversion Shares
are not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
3.
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3.4 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser
(a) its audited balance sheet as of December 31, 1997 and an audited profit and
loss statement for the twelve (12) month period ending on December 31, 1997, (b)
its unaudited balance sheet as of December 31, 1998 (the "STATEMENT DATE") and
an unaudited profit and loss statement for the twelve (12) month period ending
on the Statement Date (collectively, the "FINANCIAL STATEMENTS"), copies of
which are attached hereto as EXHIBIT H. The Financial Statements, together with
the notes thereto, are complete and correct in all material respects and present
fairly the financial condition and position of the Company as of December 31,
1998; PROVIDED, HOWEVER, that the unaudited financial statements are subject to
normal recurring year-end audit adjustments (which are not expected to be
material) and do not contain all footnotes required under generally accepted
accounting principles.
3.5 LIABILITIES. The Company has no material liabilities and, to the
best of its knowledge, knows of no material contingent liabilities, not
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to the Statement Date which have not
been, either in any individual case or in the aggregate, materially adverse and
in any event, has no liabilities in the aggregate in excess of $25,000.
3.6 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby and
agreements between the Company and its employees with respect to the sale of the
Company's common stock, there are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates
or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company is a party or to its knowledge by which it is bound which may
involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 in the aggregate (other than obligations of, or
payments to, the Company arising from purchase or sale agreements entered into
in the ordinary course of business), or (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company (other
than licenses arising from the purchase of "off the shelf" or other standard
products or entered into in the ordinary course of business), or (iii)
provisions restricting or affecting the development, manufacture or distribution
of the Company's products or services, or (iv) indemnification by the Company
with respect to infringements of proprietary rights (other than indemnification
obligations arising from purchase or sale agreements entered into in the
ordinary course of business).
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than with respect to dividend obligations,
distributions, indebtedness and other obligations incurred in the ordinary
course of business) individually in excess of $25,000 or, in the case of
indebtedness and/or liabilities individually less than $25,000, in excess of
$50,000 in the aggregate, (iii) made any loans or advances to any person, other
than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise
disposed of any of its assets or rights, other than the sale of its inventory in
the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
4.
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3.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company other
than (a) for payment of current salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company). None of the officers, directors or
stockholders of the Company, or any members of their immediate families, are
indebted to the Company or have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company, except that officers, directors and/or stockholders of the
Company may own stock in publicly traded companies which may compete with the
Company. No officer, director or stockholder, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company (other than such contracts as relate to any such person's ownership
of capital stock or other securities of the Company). The Company is not a
guarantor or indemnitor of any indebtedness of or otherwise provides credit
enhancement to any other person, firm or corporation.
3.8 CHANGES. Since the Statement Date, there has not been to the
Company's knowledge:
(a) Any change in the assets, liabilities, financial condition
or operations of the Company, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or is expected
to have a material adverse effect on such assets, liabilities, financial
condition or operations of the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or
of a material debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend or
other distribution of the assets of the Company;
(i) Any labor organization activity;
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(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets;
(l) Any change in any material agreement to which the Company
is a party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company, including compensation agreements with the Company's employees; or
(m) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good
and marketable title to its properties and assets, and good title to its
leasehold estates, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than (a) those resulting from taxes which have not
yet become delinquent, (b) minor liens and encumbrances which do not materially
detract from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in good
operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
3.10 PATENTS AND TRADEMARKS. To the best of its knowledge, the Company
owns or possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, information and other proprietary
rights and processes necessary for the Company's business as now conducted and
as proposed to be conducted, without any known infringement of the rights of
others. The Schedule of Exceptions contains a complete list of the patents and
pending patent applications of the Company. There are no outstanding options,
licenses or agreements of any kind relating to the foregoing nor is the Company
bound by or a party to any options, licenses or agreements of any kind with
respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information and other proprietary rights and processes
of any other person or entity other than such licenses or agreements arising
from the purchase of "off the shelf" or standard products. The Company has not
received any communications alleging that the Company has violated or, by
conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would
interfere with their duties to the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement or the Related Agreements nor the carrying on of the
Company's business by the employees of the Company nor the conduct of the
Company's business as proposed will, to the Company's knowledge, conflict with
or result in a breach of the terms, conditions or provisions of or constitute a
default under any contract, covenant or instrument under which any employee is
now obligated. The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of its
6.
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employees made prior to their employment by the Company, except for inventions,
trade secrets or proprietary information that have been duly and validly
assigned to the Company.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Restated Certificate or Bylaws. The Company is not
in violation or default of any provision of any mortgage, indenture, contract,
agreement, instrument or contract to which it is party or by which it is bound
or of any judgment, decree, order, writ or, to its knowledge, any statute, rule
or regulation applicable to the Company. The execution, delivery and performance
of and compliance with this Agreement, and the Related Agreements, and the
issuance and sale of the Shares and of the Conversion Shares pursuant to the
Restated Certificate will not, with or without the passage of time or giving of
notice, result in any such material violation, or be in conflict with or
constitute a default under any such term, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
3.12 LITIGATION. There is no action, suit, proceeding or investigation
pending or to the Company's knowledge currently threatened against the Company
that questions the validity of this Agreement, the Related Agreements or the
right of the Company to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees, their
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. The Company is not a party or subject
to the provisions of any order, writ, injunction, judgment or decree of any
court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company currently pending or which the
Company intends to initiate.
3.13 TAX RETURNS AND PAYMENTS. The Company has timely filed all tax
returns (federal, state and local) required to be filed by it. These returns and
reports are true and correct in all material respect. All taxes shown to be due
and payable on such returns, any assessments imposed, and to the Company's
knowledge all other taxes due and payable by the Company on or before the
Closing have been paid or will be paid prior to the time they become delinquent.
The Company has not been advised (a) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof or (b) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes. The Company has no knowledge of any liability of any tax to be imposed
upon its properties or assets as of the date of this Agreement that is not
adequately provided for.
3.14 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. No
employee has any agreement or contract, written or verbal, regarding his
employment. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
plan or agreement. To the Company's knowledge, no employee of the Company nor
any consultant with whom the Company has contracted is in violation of any term
of any employment contract, proprietary information agreement or any other
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agreement relating to the right of any such individual to be employed by or to
contract with the Company, because of the nature of the business to be conducted
by the Company; and to the Company's knowledge the continued employment by the
Company of its present employees, and the performance of the Company's contracts
with its independent contractors, will not result in any such violation. The
Company has not received any notice alleging that any such violation has
occurred. No employee of the Company has been granted the right to continued
employment by the Company or to any material compensation following termination
of employment with the Company. The Company is not aware that any officer, key
employee or any group of key employees intends to terminate their employment
with the Company nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of key employees.
3.15 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. Each former and
current employee, officer and consultant of the Company has executed a
Proprietary Information and Inventions Agreement in the form of EXHIBIT I
attached hereto. No current employee, officer or consultant of the Company has
excluded works or inventions made prior to his or her employment with the
Company from his or her assignment of inventions pursuant to such employee's,
officer's or consultant's Proprietary Information and Inventions Agreement.
3.16 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any officer
or key employee of the Company planning to work less than full time at the
Company in the future.
3.17 REGISTRATION RIGHTS. Except as required pursuant to the Investor
Rights Agreement, the Company is presently not under any obligation and has not
granted any rights to register (as defined in Section 2.1 of the Investor Rights
Agreement) any of the Company's presently outstanding securities or any of its
securities that may hereafter be issued.
3.18 COMPLIANCE WITH LAWS; PERMITS. To its knowledge, the Company is
not in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which violation would materially and adversely affect the business,
assets, liabilities, financial condition, operations or prospects of the
Company. No governmental orders, permissions, consents, approvals or
authorizations are required to be obtained and no registrations or declarations
are required to be filed in connection with the execution and delivery of this
Agreement and the issuance of the Shares or the Conversion Shares, except such
as has been duly and validly obtained or filed, or with respect to any filings
that must be made after the Closing, as will be filed in a timely manner. The
Company has all franchises, permits, licenses and any similar authority
necessary for the conduct of its business as now being conducted by it, the lack
of which could materially and adversely affect the business, properties,
prospects or financial condition of the Company and believes it can obtain,
without undue burden or expense, any similar authority for the conduct of its
business as planned to be conducted. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
3.19 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is
not in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be required in order to comply with any such existing
statute, law or regulation.
8.
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3.20 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale
and issuance of the Shares and the issuance of the Conversion Shares will be
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT") and will have been registered or qualified (or
are exempt from registration and qualification) under the registration, permit
or qualification requirements of all applicable state securities laws. Neither
the Company nor any agent on its behalf has solicited or will solicit any offers
to sell or has offered to sell or will offer to sell all or any part of the
Shares to any person or persons so as to bring the sale of such Shares by the
Company within the registration provisions of the Securities Act or any state
securities laws.
3.21 FULL DISCLOSURE. The Private Placement Memorandum dated December
1998 (the "PPM"), this Agreement, the Exhibits hereto, the Related Agreements
and all other documents delivered by the Company to the Purchasers or their
attorneys or agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, do not contain any untrue statement of a
material fact nor, to the Company's knowledge, omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. Notwithstanding the foregoing, the PPM provided to each of the
Purchasers was prepared by the management of the Company in a good faith effort
to describe the Company's proposed business and products and the markets
therefore. The forward-looking statements made in the PPM appeared reasonable to
management as of the date thereof; however, there is no assurance that these
forward-looking statements will prove to be valid or that the objectives set
forth in the PPM will be achieved. To the Company's knowledge, there are no
facts regarding the Company which (individually or in the aggregate) materially
adversely affect the business, assets, liabilities, financial condition,
prospects or operations of the Company that have not been set forth in the PPM,
the Agreement, the Exhibits hereto, the Related Agreements or in other documents
delivered to Purchasers or their attorneys or agents in connection herewith.
3.22 QUALIFIED SMALL BUSINESS. The Company represents and warrants to
the Purchasers that, to the best of its knowledge, the Shares should qualify as
"QUALIFIED SMALL BUSINESS STOCK" as defined in Section 1202(c) of the Internal
Revenue Code of 1986, as amended (the "CODE"), as of the date hereof.
3.23 MINUTE BOOKS. The minute books of the Company provided to the
Purchasers or their counsel contain a complete summary of all meetings of
directors and stockholders since the time of incorporation and correctly reflect
all issuances of stock or other equity rights in the Company.
3.24 INSURANCE. The Company has or will obtain promptly following
Closing fire and casualty insurance policies with coverage customary for
companies similarly situated to the Company.
3.25 SMALL BUSINESS CONCERN. The Company together with its "affiliates"
(as that term is defined in Section 121.103 of Title 13 of the Code of Federal
Regulations (the "FEDERAL REGULATIONS")), is a "SMALL BUSINESS CONCERN" within
the meaning of the Small Business Investment Act of 1958, as amended (the "SMALL
BUSINESS ACT"), and the regulations promulgated thereunder, including Section
121.301 of Title 13 of the Federal Regulations (a "SMALL BUSINESS CONCERN"). The
information delivered to each Purchaser that is a licensed Small Business
Investment Company (an "SBIC PURCHASER") on SBA Forms 480, 652 and 1031
delivered in connection herewith is true and correct.
3.26 YEAR 2000 COMPLIANCE. All of the Company's products and services
(including any products or services currently under development as of the date
hereof) will record, store, process and calculate and present calendar dates
falling on and after January 1, 2000, and will calculate any information
dependent on or relating to such dates in the same manner and with the same
functionality,
9.
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data integrity and performance as the products record, store, process,
calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates
(collectively "YEAR 2000 COMPLIANT"). None of the Company's material products
will lose material functionality with respect to the introduction of records
containing dates falling on or after January 1, 2000. The Company has taken
all reasonable actions to ensure that all of the Company's internal computer
systems, including without limitation, its accounting systems, are Year 2000
Compliant.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company as follows
(it being agreed that such representations and warranties do not in any way
limit or effect the Purchasers' right to rely upon and enforce any breach of the
representations and warranties of the Company set forth in this Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
action on Purchaser's part required for the lawful execution and delivery of
this Agreement and the Related Agreements has been or will be effectively taken
prior to the Closing. Upon their execution and delivery, this Agreement and the
Related Agreements will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights, (b) general principles
of equity that restrict the availability of equitable remedies, and (c) to the
extent that the enforceability of the indemnification provisions of Section 3.9
of the Investor Rights Agreement may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares nor the Conversion Shares have been registered under the Securities Act.
Purchaser also understands that the Shares are being offered and sold pursuant
to an exemption from registration contained in the Securities Act based in part
upon Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement 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. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares or the Conversion Shares are
registered pursuant to the Securities Act or an exemption from registration is
available. Purchaser understands that the Company has no present intention of
registering the Shares, the Conversion Shares or any shares of its Common Stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any portion
of the Shares or the Conversion Shares under the circumstances in the amounts or
at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment only
and not with a view towards their distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own
10.
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interests in connection with the transactions contemplated in this Agreement
and the Related Agreements. Further, Purchaser is aware of no publication of
any advertisement in connection with the transactions contemplated in the
Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(e) COMPANY INFORMATION. Purchaser has received and read the
Financial Statements and the PPM and has had an opportunity to discuss the
Company's business, management and financial affairs with directors, officers
and management of the Company and has had the opportunity to review the
Company's operations and facilities. Purchaser has also had the opportunity to
ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.
(f) RULE 144. Purchaser acknowledges and agrees that the
Shares and, if issued, the Conversion Shares must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption from
such registration is available. Purchaser has been advised or is aware of the
provisions of Rule 144 promulgated under the Securities Act, which permits
limited resale of shares purchased in a private placement subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the number of
shares being sold during any three-month period not exceeding specified
limitations.
(g) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on EXHIBIT A hereto; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located at
the address or addresses of the Purchaser set forth on EXHIBIT A hereto.
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees that
the Shares and, if issued, the Conversion Shares are subject to restrictions on
transfer as set forth in the Investor Rights Agreement.
SECTION 5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE CLOSING. Purchasers'
obligations to purchase the Shares at the Closing are subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. 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
with the same force and effect as if they had been made as of the Closing Date,
and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to the Closing.
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(b) PERFORMANCE OF OBLIGATIONS. The Company shall have
performed and complied with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it on or
before the Closing.
(c) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Shares and the proposed issuance of the Conversion Shares shall
be legally permitted by all laws and regulations to which Purchasers and the
Company are subject.
(d) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
(e) FILING OF RESTATED CERTIFICATE. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware.
(f) CORPORATE DOCUMENTS. The Company shall have delivered to
Purchasers or their counsel, copies of all corporate documents of the Company as
Purchasers shall reasonably request.
(g) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(h) COMPLIANCE CERTIFICATE. The Company shall have delivered
to Purchasers a Compliance Certificate, executed by the President of the
Company, dated the date of the Closing, to the effect that the conditions
specified in subsections (a), (b), (d), (e) and (g) of this Section 5.1 have
been satisfied.
(i) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as EXHIBIT D shall have been executed
and delivered by the parties thereto.
(j) RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. The Right of
First Refusal and Co-Sale Agreement substantially in the form attached hereto as
EXHIBIT E shall have been executed and delivered by the parties thereto.
(k) VOTING AGREEMENT. The Voting Agreement substantially in
the form attached hereto as EXHIBIT F shall have been executed and delivered by
the parties thereto.
(l) BOARD OF DIRECTORS. Upon the Closing, the authorized size
of the Board of Directors of the Company shall be five (5) members and the Board
shall consist of Robert L. Stevens, Garrett Gruener, Stuart Gannes, Alex Knight
and Andrew Anker.
(m) LEGAL OPINION. The Purchasers shall have received from
legal counsel to the Company an opinion addressed to them, dated as of the
Closing Date, in substantially the form attached hereto as EXHIBIT J.
(n) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchasers and
12.
<PAGE>
their special counsel, and the Purchasers and their special counsel shall
have received all such counterpart originals or certified or other copies of
such documents as they may reasonably request.
(o) PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. All key
employees shall have executed a Proprietary Information and Inventions Agreement
that is reasonably acceptable to Investors' counsel.
5.2 CONDITiONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Shares at the Closing is subject to the satisfaction, on
or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by those Purchasers acquiring Shares in Section 4 hereof
shall be true and correct in all material respects at the date of the Closing,
with the same force and effect as if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have
performed and complied with all agreements and conditions herein required to be
performed or complied with by such Purchasers on or before the Closing.
(c) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as EXHIBIT D shall have been executed
and delivered by the Purchasers.
(d) RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT. A Right of
First Refusal and Co-Sale Agreement substantially in the form attached hereto as
EXHIBIT E shall have been executed and delivered by the parties thereto.
(e) VOTING AGREEMENT. The Voting Agreement substantially in
the form attached hereto as EXHIBIT F shall have been executed and delivered by
the parties thereto.
(f) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Related
Agreements (except for such as may be properly obtained subsequent to the
Closing).
SECTION 6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of California as such laws are applied to agreements
between California residents entered into and performed entirely in California.
6.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and the
Closing of the transactions contemplated hereby. All statements as to factual
matters contained in any certificate or other instrument delivered by or on
behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
13.
<PAGE>
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares and the Conversion Shares from time
to time.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Related Agreements, the PPM and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
6.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and holders of at least a majority of the Shares
(treated as if converted and including any Conversion Shares into which the
Shares have been converted that have not been sold to the public).
(b) The obligations of the Company and the rights of the
holders of the Shares and the Conversion Shares under the Agreement may be
waived only with the written consent of the holders of at least a majority of
the Shares (treated as if converted and including any Conversion Shares into
which the Shares have been converted that have not been sold to the public).
(c) Any amendment, modification or waiver effected in
accordance with Section 6.6(a) or Section 6.6(b) with the consent of the
requisite parties 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), each future holder and the Company (even if
such holder did not consent to such amendment, modification or waiver).
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Restated Certificate, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of or in any similar breach,
default or noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on any Purchaser's
part of any breach, default or noncompliance under this Agreement, the Related
Agreements or under the Restated Certificate or any waiver on such party's part
of any provisions or conditions of the Agreement, the Related Agreements, or the
Restated Certificate must be in writing and shall be effective only to the
extent specifically set forth in such writing. All remedies, either under this
Agreement, the Related Agreements, the Restated Certificate, by law, or
otherwise afforded to any party, shall be cumulative and not alternative.
6.8 WAIVER OF CONFLICTS. Each party to this Agreement acknowledges that
legal counsel for the Company, Cooley Godward LLP ("COOLEY GODWARD"), has in the
past and may continue in the future to perform legal services for one or more of
the Purchasers or their affiliates in matters unrelated to the transactions
contemplated by this Agreement, including, but not limited to, the
representation of the
14.
<PAGE>
Purchasers in matters of a similar nature to the transactions contemplated
herein. Each party to this Agreement hereby (a) acknowledges that they have
had an opportunity to ask for and have obtained information relevant to such
representation, including disclosure of the reasonably foreseeable adverse
consequences of such representation, (b) acknowledges that with respect to
the transactions contemplated herein, Cooley Godward has represented the
Company and not any individual Purchaser or any individual stockholder,
director or employee of the Company and (c) gives its informed consent to
Cooley Godward's representation of the Company in the transactions
contemplated by this Agreement and Cooley Godward's representation of one or
more of the Purchasers or their affiliates in matters unrelated to such
transactions.
6.9 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient, if not, then on the next business
day; (c) five days after having been sent by registered or certified mail,
return receipt requested, postage prepaid; or (d) one day after deposit with a
nationally recognized overnight courier, specifying next day delivery, with
written verification of receipt. All communications shall be sent to the Company
at the address as set forth on the signature page hereof and to Purchaser at the
address set forth on EXHIBIT A attached hereto or at such other address as the
Company or Purchaser may designate by ten days advance written notice to the
other parties hereto.
6.10 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
the Agreement. The Company shall, at the Closing, reimburse the reasonable fees
of and expenses of Gunderson Dettmer Stough Villeneuve Franklin Hachigian, LLP,
special counsel for the Purchasers, not to exceed $20,000.
6.11 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
6.12 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.14 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein, except that the Company shall be obligated
to compensate Hambrecht & Quist for its fees incurred in connection with this
transaction pursuant to its engagement letter with the Company related to this
transaction. Each party hereto further agrees to indemnify each other party for
any claims, losses or expenses incurred by such other party as a result of the
representation in this Section 6.14 being untrue.
6.15 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser nor the
15.
<PAGE>
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Shares and Conversion Shares.
6.16 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
[THIS SPACE INTENTIONALLY LEFT BLANK]
16.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the SERIES C
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASERS:
IMPROVENET, INC. ----------------------------
1286 ODDSTAD DRIVE (PRINT NAME OF PURCHASER)
REDWOOD CITY, CA 94063
By: /s/ Robert L. Stevens By: /s/ All Series C Investors
------------------------------- ------------------------------------
Robert L. Stevens, President Title:
---------------------------------
Address:
-------------------------------
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
<PAGE>
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
SHARES OF SERIES C AGGREGATE
NAME AND ADDRESS PREFERRED PURCHASE PRICE
----------------------------------------------- --------------------------- ---------------------------
<S> <C> <C>
Allstate Insurance Company 306,278 $1,999,995.34
2775 Sanders Road, Suite A3
Northbrook, Illinois 60062
Attn: Michael Curran
Alta California Partners, L.P. 411,728 $2,688,583.84
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Alta Embarcadero Partners, LLC 9,406 $61,421.18
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ARCH Venture Fund III, L.P. 612,558 $4,000,003.74
8735 Higgins Road, Suite 225
Chicago, IL 60631
August Capital II, L.P. 1,378,255 $9,000,005.15
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
Zero Stage Capital VI Limited Partnership 306,279 $2,000,001.87
101 Main Street, 17th Floor
Cambridge, MA 02142-1519
Matthew G. Norton Company 153,140 $1,000,004.20
801 Second Avenue
13th Floor
Seattle, WA 98104
Norman D. Colbert 3,382 $22,084.46
One Bush Street
San Francisco, CA 94104
Robert A. Keller 3,382 $22,084.46
One Bush Street
San Francisco, CA 94104
Paul W. Noglows 3,382 $22,084.46
One Bush Street
San Francisco, CA 94104
EXHIBIT A-1
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SERIES C AGGREGATE
NAME AND ADDRESS PREFERRED PURCHASE PRICE
----------------------------------------------- --------------------------- ---------------------------
<S> <C> <C>
Hambrecht & Quist California 14,931 $97,499.43
One Bush Street
San Francisco, CA 94104
Hambrecht & Quist Employee Venture Fund, L.P. 5,743 $37,501.79
II
One Bush Street
San Francisco, CA 94104
Access Technology Partners, L.P. 120,980 $789,999.40
One Bush Street
San Francisco, CA 94104
Access Technology Partners Brokers Fund, L.P. 1,340 $8,750.20
One Bush Street
San Francisco, CA 94104
Kellett Partners, L.P. 89,587 $585,002.46
200 Galleria Parkway
Suite 1800
Atlanta, GA 30339
Clear Fir Partners, LP 9,954 $65,000.27
4303 54th Avenue, N.E.
Seattle, WA 98105
GG-JS Joint Venture, LLC * 8,429 $55,041.37
2000 First Avenue, Suite 1001
Seattle, WA 98121
J2 JV, LLC * 3,828 $24,996.84
2000 First Avenue, Suite 1001
Seattle, WA 98121
Heidorn-Staenberg Joint Venture, LLC * 5,359 $34,994.27
2000 First Avenue, Suite 1001
Seattle, WA 98121
</TABLE>
- ----------------------------
* With a copy to:
Randall L. Price
Karr Tuttle Campbell
1201 Third Avenue, Suite 2900
Seattle, WA 98101
EXHIBIT A-2
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SERIES C AGGREGATE
NAME AND ADDRESS PREFERRED PURCHASE PRICE
----------------------------------------------- --------------------------- ---------------------------
<S> <C> <C>
KFIT - JRS Joint Venture, LLC * 3,828 $24,996.84
2000 First Avenue, Suite 1001
Seattle, WA 98121
Lum-Staenberg Joint Venture, LLC * 3,828 $24,996.84
2000 First Avenue, Suite 1001
Seattle, WA 98121
MAD Fund JV, LLC * 3,828 $24,996.84
2000 First Avenue, Suite 1001
Seattle, WA 98121
Carmel Fund LLC * 3,828 $24,996.84
2000 First Avenue, Suite 1001
Seattle, WA 98121
Blackshirts Joint Venture, LLC * 5,359 $34,994.27
2000 First Avenue, Suite 1001
Seattle, WA 98121
JR-JS JV, LLC * 3,828 $24,996.84
2000 First Avenue, Suite 1001
Seattle, WA 98121
Alco JV, LLC * 3,828 $24,996.84
2000 First Avenue, Suite 1001
Seattle, WA 98121
GT-JS JV, LLC * 3,828 $24,996.84
2000 First Avenue, Suite 1001
Seattle, WA 98121
ANV Joint Venture, LLC * 3,828 $24,996.84
2000 First Avenue, Suite 1001
Seattle, WA 98121
</TABLE>
- ----------------------------
* With a copy to:
Randall L. Price
Karr Tuttle Campbell
1201 Third Avenue, Suite 2900
Seattle, WA 98101
EXHIBIT A-3
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
<TABLE>
<CAPTION>
SHARES OF SERIES C AGGREGATE
NAME AND ADDRESS PREFERRED PURCHASE PRICE
----------------------------------------------- --------------------------- ---------------------------
<S> <C> <C>
Madrona Investment Group, LLC 15,314 $100,000.42
1000 Second Avenue, Suite 3700
Seattle, WA 98104
Alex Knight 7,657 $50,000.21
1116 Harvard Avenue East
Seattle, WA 98102
Lise Buyer 1,914 $12,498.42
164 Selby Lane
Atherton, CA 94027
Danielle Iuliano 1,914 $12,498.42
2400 Hanover Street
Palo Alto, CA 94304
Stanford University 7,657 $50,000.21
2770 Sand Hill Road
Menlo Park, CA 94025
Harold Kawaguchi 3,829 $25,003.37
626 38th Avenue
Seattle, WA 98122
Charles M. Brown 7,657 $50,000.21
P.O. Box 222
785 Shiloh Road
Adamsville, TN 38310
Stuart Gannes 3,829 $25,003.37
1160 Bryant Street
Palo Alto, CA 94301
Charles E. Fenton 3,829 $25,003.37
4010 Cloverland Drive -------------------------- --------------------------
Phoenix, MD 21131
TOTAL 3,537,524 $23,100,031.72
========================== ==========================
</TABLE>
EXHIBIT A-4
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
- ------------------------------------------------------------------------------
IMPROVENET, INC.
SERIES D PREFERRED STOCK
PURCHASE AGREEMENT
DATED SEPTEMBER 10, 1999
- ------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1.AGREEMENT TO SELL AND PURCHASE..........................................................................1
1.1 Authorization of Shares.........................................................................1
1.2 Sale and Purchase...............................................................................1
SECTION 2.CLOSING, DELIVERY AND PAYMENT...........................................................................1
2.1 Closing.........................................................................................1
2.2 Delivery........................................................................................1
SECTION 3.REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................2
3.1 Organization, Good Standing and Qualification...................................................2
3.2 Capitalization; Voting Rights...................................................................2
3.3 Authorization; Binding Obligations..............................................................3
3.4 Financial Statements............................................................................3
3.5 Liabilities.....................................................................................3
3.6 Agreements; Action..............................................................................4
3.7 Obligations to Related Parties..................................................................4
3.8 Changes.........................................................................................5
3.9 Title to Properties and Assets; Liens, etc......................................................6
3.10 Patents and Trademarks..........................................................................6
3.11 Compliance with Other Instruments...............................................................7
3.12 Litigation......................................................................................7
3.13 Tax Returns and Payments........................................................................8
3.14 Employees.......................................................................................8
3.15 Proprietary Information and Inventions Agreements...............................................9
3.16 Obligations of Management.......................................................................9
3.17 Registration Rights and Voting Agreements.......................................................9
3.18 Compliance with Laws; Permits..................................................................10
3.19 Environmental and Safety Laws..................................................................10
3.20 Offering Valid.................................................................................10
3.21 Full Disclosure................................................................................10
3.22 Qualified Small Business.......................................................................11
3.23 Minute Books...................................................................................11
3.24 Insurance......................................................................................11
3.25 Small Business Concern.........................................................................11
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.26 Year 2000 Compliance...........................................................................11
3.27 Foreign Corrupt Practices Act..................................................................11
3.28 Directors and Officers.........................................................................12
SECTION 4.REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.......................................................12
4.1 Requisite Power and Authority..................................................................12
4.2 Investment Representations.....................................................................12
4.3 Transfer Restrictions..........................................................................13
SECTION 5.CONDITIONS TO CLOSING..................................................................................13
5.1 Conditions to Purchasers' Obligations at the First Closing.....................................13
5.2 Conditions to Obligations of the Company.......................................................15
SECTION 6.MISCELLANEOUS..........................................................................................16
6.1 Governing Law..................................................................................16
6.2 Survival.......................................................................................16
6.3 Successors and Assigns.........................................................................16
6.4 Entire Agreement...............................................................................16
6.5 Severability...................................................................................16
6.6 Amendment and Waiver...........................................................................16
6.7 Delays or Omissions............................................................................17
6.8 Waiver of Conflicts............................................................................17
6.9 Notices........................................................................................17
6.10 Transfer Taxes.................................................................................18
6.11 Expenses.......................................................................................18
6.12 Attorneys' Fees................................................................................18
6.13 Titles and Subtitles...........................................................................18
6.14 Counterparts...................................................................................18
6.15 Broker's Fees..................................................................................18
6.16 Press Releases/Use of General Electric Name....................................................18
6.17 Exculpation Among Purchasers...................................................................18
6.18 Alternative Dispute Resolution.................................................................19
6.19 Pronouns.......................................................................................19
</TABLE>
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
<S> <C>
Schedule of Purchasers........................................................Exhibit A
Second Restated Certificate of Incorporation..................................Exhibit B
Schedule of Exceptions........................................................Exhibit C
Third Amended and Restated
Investor Rights Agreement..................................................Exhibit D
Third Amended and Restated Right
of First Refusal and Co-Sale Agreement.....................................Exhibit E
Third Amended and Restated Voting Agreement...................................Exhibit F
List of Stockholders, Optionholders
and Warrantholders.........................................................Exhibit G
Financial Statements..........................................................Exhibit H
Proprietary Information and Inventions Agreement..............................Exhibit I
Form of Legal Opinion ........................................................Exhibit J
Internet Development, Marketing and
Distribution Agreement.....................................................Exhibit K
Form of GE Warrant............................................................Exhibit L
</TABLE>
<PAGE>
IMPROVENET, INC.
SERIES D PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "AGREEMENT")
is entered into as of September 10, 1999, by and among IMPROVENET, INC., a
Delaware corporation (the "COMPANY") and each of those persons and entities,
severally and not jointly, whose names are set forth on the Schedule of
Purchasers attached hereto as EXHIBIT A (which persons and entities are
hereinafter collectively referred to as "PURCHASERS" and each individually as
a "PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of two million one hundred thousand eight hundred forty three
(2,100,843) of its Series D Preferred Stock (the "SHARES");
WHEREAS, Purchasers desire to purchase the Shares on the terms and
conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares to the
Purchasers on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES. On or prior to the First Closing (as
defined in Section 2 below), the Company shall have authorized (a) the sale
and issuance to Purchasers of the Shares, (b) the issuance of such shares of
common stock to be issued upon conversion of the Shares (the "CONVERSION
SHARES"). The Shares and the Conversion Shares shall have the rights,
preferences, privileges and restrictions set forth in the Second Restated
Certificate of Incorporation of the Company in the form attached hereto as
EXHIBIT B (the "RESTATED CERTIFICATE").
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof,
at the Closing the Company hereby agrees to issue and sell to each Purchaser,
severally and not jointly, and each Purchaser agrees to purchase from the
Company, severally and not jointly, the number of Shares set forth opposite
such Purchaser's name on EXHIBIT A at an aggregate purchase price for each
Purchaser set forth opposite such Purchaser's name.
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares
under this Agreement (the "FIRST CLOSING") shall take place on the date
hereof (such date is hereinafter referred to as the "FIRST CLOSING Date").
2.2 DELIVERY. At the First Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing the
number of Shares purchased at the First
1.
<PAGE>
Closing by each Purchaser, against payment of the purchase price therefor by
check, wire transfer made payable to the order of the Company, cancellation
of indebtedness or any combination of the foregoing.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as specifically set forth under the corresponding section
number of the Schedule of Exceptions attached hereto as EXHIBIT C, the
Company hereby represents and warrants to each Purchaser as of the First
Closing as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite corporate power
and authority to own and operate its properties and assets, to execute and
deliver this Agreement, the Investor Rights Agreement, the Co-Sale Agreement
and the Voting Agreement (collectively, the "RELATED AGREEMENTS"), to issue
and sell the Shares and to issue the Conversion Shares and to carry out the
provisions of this Agreement, the Related Agreements and the Restated
Certificate and to carry on its business as presently conducted and as
presently proposed to be conducted. The Company is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
all jurisdictions in which the nature of its activities and of its properties
(both owned and leased) makes such qualification necessary. The Company does
not have any investment in, control, either directly or indirectly, nor own
any equity securities of any other corporation, limited partnership or
similar entity. The Company is not a participant in any joint venture,
partnership or similar arrangement. The Company has delivered to the
Purchasers true and complete copies of the Bylaws and Charter as currently in
effect.
3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of the
Company, immediately prior to the First Closing, will consist of (a) thirty-one
million (31,000,000) shares of common stock, of which (i) one million five
hundred ninety three thousand five hundred eight (1,593,508) shares are issued
and outstanding, (ii) one hundred seventy thousand four hundred fifty two
(170,452) shares are reserved for future issuance to employees pursuant to the
Company's Amended and Restated 1996 Stock Option Plan, (iii) one million seven
hundred ten thousand seventy nine (1,710,079) shares are subject to outstanding
options pursuant to the Amended and Restated 1996 Stock Option Plan and (iv) ten
thousand (10,000) shares are subject to outstanding warrants to purchase common
stock, and (b) nine million four hundred eighty two thousand nine hundred thirty
five (9,482,935) authorized shares of preferred stock, of which (i) one million
three hundred one thousand four hundred (1,301,400) are designated Series A
Preferred Stock, one million two hundred seven thousand (1,207,000) of which are
issued and outstanding and ninety-four thousand four hundred (94,400) of which
are reserved for issuance pursuant to outstanding warrants to purchase Series A
Preferred Stock, (ii) one million nine hundred eighty-one thousand five hundred
thirty-five (1,981,535) are designated Series B Preferred Stock, one million
nine hundred thirty-four thousand five hundred twenty-six (1,934,526) of which
are issued and outstanding and forty-seven thousand and nine (47,009) of which
are reserved for issuance pursuant to outstanding warrants to purchase Series B
Preferred Stock, (iii) three million seven hundred thousand (3,700,000) are
designated Series C Preferred Stock, three million five hundred thirty-seven
thousand five hundred twenty-four (3,537,524) of which are issued and
outstanding and forty seven thousand one hundred sixty seven (47,167) of which
are reserved for issuance pursuant to an outstanding warrant to purchase Series
C Preferred Stock, (iv) two million five hundred thousand (2,500,000) are
designated Series D Preferred Stock, none of which are issued and outstanding as
of the date hereof. All issued and outstanding shares of the Company's common
stock and preferred stock (I) have been duly authorized and validly issued to
the persons listed on EXHIBIT G hereto, (II) are fully paid and nonassessable,
and (III) were issued in compliance with all applicable state and federal laws
concerning
2.
<PAGE>
the issuance of securities. The rights, preferences, privileges and
restrictions of the Shares are as stated in the Restated Certificate. The
Conversion Shares have been duly and validly reserved for issuance. Other
than as set forth on EXHIBIT G, and except as may be granted pursuant to the
Related Agreements, there are no outstanding options, warrants, rights
(including conversion or preemptive rights and rights of first refusal),
proxy or stockholder agreements, voting agreements or agreements of any kind
for the purchase or acquisition from the Company of any of its securities.
EXHIBIT G reflects a complete and accurate list of all the Company's
outstanding shares, warrants, convertible or exchangeable securities and
options as of the time immediately after the First Closing and EXHIBIT G
reflects any dilution and exercise of preemptive rights triggered by the
transactions contemplated hereby. When issued in compliance with the
provisions of this Agreement and the Restated Certificate, the Shares and the
Conversion Shares will be validly issued, fully paid and nonassessable, and
will be free of any liens or encumbrances; PROVIDED, HOWEVER, that the Shares
and the Conversion Shares may be subject to restrictions on transfer under
state and/or federal securities laws as set forth herein or as otherwise
required by such laws at the time a transfer is proposed.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for
the authorization of this Agreement and the Related Agreements, the
performance of all obligations of the Company hereunder and thereunder at the
First Closing and the authorization, sale, issuance and delivery of the
Shares pursuant hereto and the Conversion Shares pursuant to the Restated
Certificate has been taken or will be taken prior to the First Closing. The
Agreement and the Related Agreements, when executed and delivered, will be
valid and binding obligations of the Company enforceable in accordance with
their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, (b) general principles of equity that
restrict the availability of equitable remedies and (c) to the extent that
the enforceability of the indemnification provisions in Section 3.9 of the
Investor Rights Agreement may be limited by applicable laws. The sale of the
Shares and the subsequent conversion of the Shares into Conversion Shares are
not and will not be subject to any preemptive rights or rights of first
refusal that have not been properly waived or complied with.
3.4 FINANCIAL STATEMENTS. The Company has delivered to each
Purchaser (a) its audited balance sheet, an audited profit and loss
statement, statement of cash flows and statement of shareholders' equity for
the twelve (12) month period ending on December 31, 1998, (b) its unaudited
balance sheet, unaudited profit and loss statement, unaudited statement of
cash flows and statement of shareholders' equity for the seven (7) month
period ending on July 31, 1999 (collectively, the "FINANCIAL STATEMENTS"),
copies of which are attached hereto as EXHIBIT H. The Financial Statements,
together with the notes thereto, are complete and correct in all material
respects and present fairly the financial condition, results of operations,
cash flows and shareholders' equity and position of the Company as of July
31, 1999; PROVIDED, HOWEVER, that the unaudited financial statements are
subject to normal recurring year-end audit adjustments (which are not
expected to be material) and do not contain all footnotes required under
generally accepted accounting principles.
3.5 LIABILITIES. The Company has no material liabilities whether
accrued, absolute, contingent, known or unknown or due or to become due not
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to December 31, 1998 which have
not been, either in any individual case or in the aggregate, materially
adverse and in any event, has no liabilities in the aggregate in excess of
$25,000.
3.
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3.6 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby
and agreements between the Company and its employees with respect to the sale
of the Company's common stock, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or to its knowledge by which it is bound which
may involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 in the aggregate (other than obligations of, or
payments to, the Company arising from purchase or sale agreements entered
into in the ordinary course of business), (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company
(other than licenses arising from the purchase of "off the shelf" or other
standard products or entered into in the ordinary course of business), (iii)
provisions restricting or affecting the development, manufacture or
distribution of the Company's products or services or the Company's ability
to solicit the Company's employees or otherwise restricting the Company's
ability to do business in any geographic area, or (iv) indemnification by the
Company with respect to infringements of proprietary rights (other than
indemnification obligations arising from purchase or sale agreements entered
into in the ordinary course of business).
(c) The Company has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than with respect to dividend
obligations, distributions, indebtedness and other obligations incurred in
the ordinary course of business) individually in excess of $25,000 or, in the
case of indebtedness and/or liabilities individually less than $25,000, in
excess of $50,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than
the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
3.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company other
than (a) for payment of current salary for services rendered, (b) reimbursement
for reasonable expenses incurred on behalf of the Company and (c) for other
standard employee benefits made generally available to all employees (including
stock option agreements outstanding under any stock option plan approved by the
Board of Directors of the Company). None of the officers, directors or
stockholders of the Company, or any members of their immediate families, are
indebted to the Company or have any direct or indirect ownership interest in any
firm or corporation with which the Company is affiliated or with which the
Company has a business relationship, or any firm or corporation which competes
with the Company, except that officers, directors and/or stockholders of the
Company may own up to five percent (5%) of the stock in publicly traded
companies which may compete with the Company. No officer, director or
stockholder, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Company (other than
such contracts as relate to any such person's ownership of capital stock or
other
4.
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securities of the Company). The Company is not a guarantor or indemnitor of
any indebtedness of or otherwise provides credit enhancement to any other
person, firm or corporation.
3.8 CHANGES. Since December 31, 1998, there has not been to the
Company's knowledge:
(a) Any change in the assets, liabilities, financial
condition or operations of the Company, other than changes in the ordinary
course of business, none of which individually or in the aggregate has had or
is expected to have a material adverse effect on such assets, liabilities,
financial condition or operations of the Company;
(b) Any resignation or termination of any key officers of
the Company; and the Company, to the best of its knowledge, does not know of
the impending resignation or termination of employment of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend, any other
distribution of any securities (other than in the ordinary course of
business) or the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, pledge, assignment or transfer of any
material tangible assets or patents, trademarks, copyrights, trade secrets or
other intangible assets of the Company;
(l) Any change in any material agreement to which the
Company is a party or by which it is bound which materially and adversely
affects the business, assets, liabilities, financial condition, operations or
prospects of the Company, including compensation agreements with the
Company's employees;
(m) Any payment, discharge, satisfaction or settlement of any
material claim or obligation of the Company, except in the ordinary course of
business and consistent with past practice;
5.
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(n) Any write-down of the value of any asset of the Company
or any write-off as uncollecible of any accounts or notes receivable or any
portion thereof except in the ordinary course of business;
(o) Any expenditure or commitment or addition to property,
plant or equipment of the Company except in amounts less than $250,000 in the
singular or in the aggregate;
(p) Any change in the independent public accountants of the
Company or any material change in the accounting methods or accounting
practices followed by the Company or any material change in depreciation or
amortization policies or rates;
(q) Any receipt of notice that there has been a loss of, or
material order cancellation by, a major customer, advertiser or sponsor of
the Company;
(r) Any change in the Company's accounting methods,
principles or practices and the Company has not made any new elections with
respect to Taxes (as defined herein) or any changes in the current elections
with respect to Taxes; or
(s) Any other event or condition of any character that,
either individually or cumulatively, has materially and adversely affected
the business, assets, liabilities, financial condition, operations or
prospects of the Company.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company does not
own fee title to any real property. The Company has good and marketable title
to its properties and assets, and good title to its leasehold estates, in
each case subject to no mortgage, pledge, lien, lease, encumbrance or charge,
other than (a) those resulting from taxes which have not yet become
delinquent, (b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company, and (c) those that have otherwise arisen in the
ordinary course of business. All facilities, machinery, equipment, fixtures,
vehicles and other properties owned, leased or used by the Company are in
good operating condition and repair and are reasonably fit and usable for the
purposes for which they are being used. The Company is in compliance with all
material terms of each lease to which it is a party or is otherwise bound.
3.10 PATENTS AND TRADEMARKS. To the best of its knowledge, the
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, uniform resource
locators, information and other proprietary rights and processes necessary
for the Company's business as now conducted and as proposed to be conducted
(the "INTELLECTUAL PROPERTY RIGHTS"), without any known infringement of the
rights of others. The Schedule of Exceptions contains a complete list of the
patents, pending patent applications, trademarks, services marks and the
uniform resource locators of the Company. There are no outstanding
assignments, options, licenses or agreements of any kind relating to the
foregoing nor is the Company bound by or a party to any assignments, options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information
and other proprietary rights and processes of any other person or entity
other than such licenses or agreements arising from the purchase of "off the
shelf" or standard products. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to
6.
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any judgment, decree or order of any court or administrative agency, that
would interfere with their duties to the Company or that would conflict with
the Company's business as proposed to be conducted. Neither the execution nor
delivery of this Agreement or the Related Agreements nor the carrying on of
the Company's business by the employees of the Company nor the conduct of the
Company's business as proposed will, to the Company's knowledge, (i) conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument under which
any employee is now obligated or (ii) conflict with, alter or impair any of
the Intellectual Property Rights. The Company does not believe it is or will
be necessary to utilize any inventions, trade secrets or proprietary
information of any of its employees made prior to their employment by the
Company, except for inventions, trade secrets or proprietary information that
have been duly and validly assigned to the Company. The Company has utilized
commercially reasonable efforts to (i) protect and enforce all Intellectual
Property Rights, except for those rights that, individually or in the
aggregate, are not material to the Company, (ii) protect through
nondisclosure agreements and otherwise all trade secrets and confidential
information of the Company and (iii) otherwise to secure and protect for the
Company's benefit all Intellectual Property Rights. The Company uses
reasonable efforts, consistent with industry practices of comparable
companies, to identify any use of any Intellectual Property Rights by third
parties that has infringed or infringes any Intellectual Property Rights, and
Section 3.10 of the Schedule of Exceptions discloses all material instances
know to the Company of any infringing uses, all steps that the Company has
taken or is taking to end such infringement, and how any such instances of
infringement have been resolved. The Company believes it can obtain on
commercially reasonable terms any additional Intellectual Property Rights
necessary for its business as proposed to be conducted.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation or default of any term of its Restated Certificate or Bylaws. The
Company is not in violation or default of any provision of any mortgage,
indenture, contract, agreement, instrument or contract to which it is party
or by which it is bound or of any judgment, decree, order, writ or, to its
knowledge, any statute, rule or regulation applicable to the Company, its
business or operations or any of its assets or properties. The execution,
delivery and performance of and compliance with this Agreement, and the
Related Agreements, and the issuance and sale of the Shares and of the
Conversion Shares pursuant to the Restated Certificate will not, with or
without the passage of time or giving of notice, result in any such material
violation, or be in conflict with or constitute a default under any such
term, or result in the creation of any mortgage, pledge, lien, encumbrance or
charge upon any of the properties or assets of the Company or the suspension,
revocation, impairment, forfeiture or nonrenewal of any permit license,
authorization or approval applicable to the Company, its business or
operations or any of its assets or properties.
3.12 LITIGATION. There is no action, suit, proceeding or investigation
pending or to the Company's knowledge currently threatened against the Company
(i) that questions the validity of this Agreement, the Related Agreements or the
right of the Company to enter into any of such agreements, or to consummate the
transactions contemplated hereby or thereby, or (ii) which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financially or otherwise, or any
change in the current equity ownership of the Company nor is the Company aware
that there is any basis for the foregoing. The foregoing includes, without
limitation, actions pending or threatened (or any basis therefor known to the
Company) involving the prior employment of any of the Company's employees, their
use in connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers, or their obligations
under any agreements with prior employers. Neither the Company nor any of its
properties, assets or businesses are subject to the provisions of any order,
writ, injunction,
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judgment or decree of any court or government agency or instrumentality.
There is no action, suit, proceeding or investigation by the Company
currently pending or which the Company intends to initiate.
3.13 TAX RETURNS AND PAYMENTS.
(a) The Company has timely filed all Tax Returns required
to be filed by it. These Tax Returns are true and correct in all material
respects. All Taxes shown to be due and payable on such Tax Returns, any
assessments imposed and all other taxes due and payable by the Company have
been timely paid or will be paid prior to the time they become delinquent.
All Taxes required to be withheld and paid over by the Company to any
relevant taxing authority in connection with payments to employees,
independent contractors, creditors, stockholders or to third parties have
been so withheld and paid over. The Company has not been advised (i) that any
of its returns, federal, state or other, have been or are being audited as of
the date hereof or (ii) of any deficiency in assessment or proposed judgment
to its federal, state or other taxes. The Company has no knowledge of any
liability of any tax to be imposed upon its properties or assets as of the
date of this Agreement that is not adequately provided for. The accruals and
reserves for Taxes (other than deferred Taxes) reflected on the unaudited
balance sheet as of July 31, 1999 are complete and adequate to cover any
liabilities for Taxes with respect to periods or portions of periods ending
on or before July 31, 1999. The accruals and reserves for Taxes (other than
deferred Taxes) established in the books and records of the Company are
complete and adequate to cover any liabilities for Taxes that are
attributable to the period beginning after July 31, 1999 and ending on the
First Closing Date. No Tax authority in a jurisdiction where the Company does
not file Tax Returns has made a claim, assertion or threat that the Company
is or may be subject to Tax in such jurisdiction. No audits or examinations
with respect to the Company are ongoing or have been threatened or proposed
by any taxing authority. No deficiencies for any Tax have been threatened,
proposed, asserted or assessed against the Company which have not been
satisfied. No waivers or extensions of statutes of limitations with respect
to Taxes have been given by the Company. Complete copies of all Tax Returns
of the Company that have been filed by the Company since its inception have
been delivered to or made available to each of the Purchasers if requested by
a Purchaser. The Company is not party to or liable under any tax sharing
arrangement. The Company has not filed a combined, consolidated or unitary
Tax Return with respect to any affiliated group of which the Company is not
the common parent. The Company has not made an election under Section 341(f)
of the Internal Revenue Code of 1986 (the "CODE"), as amended.
(b) For purposes of this Agreement, "TAX" (including, with
correlative meaning, the terms "TAXES") shall mean all federal, state, local
and foreign income, profits, franchise, gross receipts, environmental,
customs, duty, capital stock, communications servicers, severance, stamp,
payroll, sales, employment, unemployment, disability, use, property,
withholding, excise, production, value added, occupancy, and other taxes,
duties or assessments of any nature whatsoever, together with all interest,
penalties and additions imposed with respect to such amounts and any interest
in respect to such penalties and additions, and includes any liability for
Taxes of another person by contract, as a transferee of successor, under
Treasury Regulation 1.1502-6 or analogous state, local or foreign law
provision or otherwise; and "TAX RETURN" shall mean all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
3.14 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. No
employee has any agreement or contract, written or verbal, regarding his
employment. The Company is not a party to or bound by any currently effective
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employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the Company's knowledge, no employee of
the Company nor any consultant with whom the Company has contracted is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual
to be employed by or to contract with the Company, because of the nature of
the business to be conducted by the Company; and to the Company's knowledge
the continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company has not received any notice
alleging that any such violation has occurred. No employee of the Company has
been granted the right to continued employment by the Company or to any
material compensation following termination of employment with the Company.
The Company is not aware that any officer, key employee or any group of key
employees intends to terminate their employment with the Company nor does the
Company have a present intention to terminate the employment of any officer,
key employee or group of key employees. The Company has complied with all
applicable laws relating to the employment of labor, including laws relating
to wages and hours, equal opportunity and payment of social security and
other taxes.
3.15 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. To the best
of the Company's knowledge, it has done nothing to compromise the secrecy,
confidentiality or value of any of its trade secrets, know-how, inventions,
prototypes, designs, processes or technical data required to conduct its
business as now conducted or proposed to be conducted. The Company has taken
the past and will take in the future reasonable security measures to protect
the secrecy, confidentiality and value of all of its trade secrets, know-how,
inventions, prototypes, designs, processes and technical data important to
the conduct of its business. Each former and current employee, officer and
consultant of the Company has executed a Proprietary Information and
Inventions Agreement in the form of EXHIBIT I attached hereto. No current
employee, officer or consultant of the Company has excluded works or
inventions made prior to his or her employment with the Company from his or
her assignment of inventions pursuant to such employee's, officer's or
consultant's Proprietary Information and Inventions Agreement. The Company,
after reasonable investigation, is not aware that any of its employees,
officers or consultants is in violation of any item of the Proprietary
Information and Inventions Agreement that would have a materially adverse
effect on the Company, and the Company will use its best efforts to prevent
any such violation.
3.16 OBLIGATIONS OF MANAGEMENT. Each officer of the Company is
currently devoting one hundred percent (100%) of his business time to the
conduct of the business of the Company. The Company is not aware of any
officer or key employee of the Company planning to work less than full time
at the Company in the future.
3.17 REGISTRATION RIGHTS AND VOTING AGREEMENTS. Except as required
pursuant to the Investor Rights Agreement, the Company is presently not under
any obligation and has not granted any rights to register (as defined in
Section 2.1 of the Investor Rights Agreement) any of the Company's presently
outstanding securities or any of its securities that may hereafter be issued.
Except as required pursuant to the Voting Agreement, the Company has no
agreement, obligation or commitment with respect to the election of any
individual or individuals to the Board of Directors and, to the best of the
knowledge of the Company, there is no voting agreement or other agreement
among the stockholders with respect to the election of any individual or
individuals to the Board of Directors for any other purpose.
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3.18 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation
of any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
orders, permissions, consents, approvals or authorizations from any
governmental entity or any other person are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement and the issuance of the Shares or
the Conversion Shares, except such as has been duly and validly obtained or
filed, or with respect to any filings that must be made after the First
Closing, as will be filed in a timely manner. The Company has and is in full
compliance in all material respects with all the terms and conditions of all
franchises, permits, licenses and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which could
materially and adversely affect the business, properties, prospects or
financial condition of the Company and believes it can obtain, without undue
burden or expense, any similar authority for the conduct of its business as
planned to be conducted. The Company is not in default in any material
respect under any of such franchises, permits, licenses or other similar
authority.
3.19 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is
not in violation of any applicable federal, state or local statute, law,
ordinance or regulation relating to the environment or occupational health
and safety, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
3.20 OFFERING VALID. Assuming the accuracy of the representations
and warranties of the Purchasers contained in Section 4.2 hereof, the offer,
sale and issuance of the Shares and the issuance of the Conversion Shares
will be exempt from the registration requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT") and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws. Neither the Company nor any agent on its behalf has
solicited or will solicit any offers to sell or has offered to sell or will
offer to sell all or any part of the Shares to any person or persons so as to
bring the sale of such Shares by the Company within the registration
provisions of the Securities Act or any state securities laws.
3.21 FULL DISCLOSURE. The Private Placement Memorandum (the "PPM"),
this Agreement, the Exhibits hereto, the Related Agreements and all other
documents delivered by the Company to the Purchasers or their attorneys or
agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, do not contain any untrue statement of a
material fact nor, to the Company's knowledge, omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. Notwithstanding the foregoing, the PPM provided to each of the
Purchasers was prepared by the management of the Company in a good faith
effort to describe the Company's proposed business and products and the
markets therefore. The forward-looking statements made in the PPM appeared
reasonable to management as of the date thereof; however, there is no
assurance that these forward-looking statements will prove to be valid or
that the objectives set forth in the PPM will be achieved. To the Company's
knowledge, there are no facts regarding the Company which (individually or in
the aggregate) materially adversely affect the business, assets, liabilities,
financial condition, prospects or operations of the Company that have not
been set forth in the PPM, the Agreement, the Exhibits hereto, the Related
Agreements or in other documents delivered to Purchasers or their attorneys
or agents in connection herewith.
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3.22 QUALIFIED SMALL BUSINESS. The Company represents and warrants
to the Purchasers that, to the best of its knowledge, the Shares should
qualify as "QUALIFIED SMALL BUSINESS STOCK" as defined in Section 1202(c) of
the Internal Revenue Code of 1986, as amended (the "CODE"), as of the date
hereof.
3.23 MINUTE BOOKS. The minute books of the Company provided to the
Purchasers or their counsel contain a complete summary of all meetings of
directors and stockholders since the time of incorporation and correctly
reflect all issuances of stock or other equity rights in the Company.
3.24 INSURANCE. The Schedule of Exceptions contains an accurate
summary of the insurance policies currently maintained by the Company. The
Company has or will obtain promptly following the First Closing from a
company that is financially sound and reputable fire and casualty insurance
policies with coverage customary for companies similarly situated to the
Company. There are currently no claims pending by the Company under any
insurance policy currently in effect and covering the property, business or
employees of the Company, and all premiums due and payable with respect to
the policies maintained by the Company have been paid to date. All insurance
policies are in the name of the Company and are outstanding and in full force
and effect. Such insurance policies are customary for companies engaged in
the type of business conducted by the Company and at the same stage of
development as the Company. The Company has not received notice of
cancellation of termination of any such policy, nor has any such policy been
denied, revoked or rescinded nor has the Company borrowed against any such
policies. There are no claims for which an insurance carrier has denied or
threatened to deny coverage. The Company carries, or is covered by, insurance
with companies that are financially sound and reputable in such amounts with
such deductibles and against such risks and losses as are reasonable for the
business and assets of the Company.
3.25 SMALL BUSINESS CONCERN. The Company together with its
"affiliates" (as that term is defined in Section 121.103 of Title 13 of the
Code of Federal Regulations (the "FEDERAL REGULATIONS")), is a "SMALL
BUSINESS CONCERN" within the meaning of the Small Business Investment Act of
1958, as amended (the "SMALL BUSINESS ACT"), and the regulations promulgated
thereunder, including Section 121.301 of Title 13 of the Federal Regulations
(a "SMALL BUSINESS CONCERN"). The information delivered to each Purchaser
that is a licensed Small Business Investment Company (an "SBIC PURCHASER") on
SBA Forms 480, 652 and 1031 delivered in connection herewith is true and
correct.
3.26 YEAR 2000 COMPLIANCE. All of the Company's products and
services (including any products or services currently under development as
of the date hereof) will record, store, process and calculate and present
calendar dates falling on and after January 1, 2000, and will calculate any
information dependent on or relating to such dates in the same manner and
with the same functionality, data integrity and performance as the products
record, store, process, calculate and present calendar dates on or before
December 31, 1999, or calculate any information dependent on or relating to
such dates (collectively "YEAR 2000 COMPLIANT"). None of the Company's
material products will lose material functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
The Company has taken all reasonable actions to ensure that all of the
Company's internal computer systems, including without limitation, its
accounting systems, are Year 2000 Compliant. To the knowledge of the Company,
all vendors of products and services to the Company, and their respective
products, services and operations, will be in all material respects Year 2000
Compliant.
3.27 FOREIGN CORRUPT PRACTICES ACT. The Company and, to the
knowledge of the Company after due inquiry, its employees are in compliance
in all material respects with the U.S. Foreign Corrupt Practices Act, as
amended, including without limitation the books and records provisions
thereof.
11.
<PAGE>
3.28 DIRECTORS AND OFFICERS. To the knowledge of the Company, since
the formation of the Company, no director or officer of the Company has (a)
been arrested or convicted of any crime material to an evaluation of such
person's ability or integrity, including, without limitation, any violation
of any federal or state law which currently or has previously regulated the
types of business in which the Company is currently or has previously been
engaged, (b) filed a petition under federal bankruptcy or state insolvency
laws or (c) been a director or officer of a business entity which has filed a
petition under federal bankruptcy or state insolvency laws, or had a receiver
or similar officer appointed by a court to administer the business or
property of such entity.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company as
follows (it being agreed that such representations and warranties do not in
any way limit or effect the Purchasers' right to rely upon and enforce any
breach of the representations and warranties of the Company set forth in this
Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver
this Agreement and the Related Agreements and to carry out their provisions.
All action on Purchaser's part required for the lawful execution and delivery
of this Agreement and the Related Agreements has been or will be effectively
taken prior to the First Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application affecting enforcement of creditors' rights, (b)
general principles of equity that restrict the availability of equitable
remedies, and (c) to the extent that the enforceability of the
indemnification provisions of Section 3.9 of the Investor Rights Agreement
may be limited by applicable laws.
4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither
the Shares nor the Conversion Shares have been registered under the
Securities Act. Purchaser also understands that the Shares are being offered
and sold pursuant to an exemption from registration contained in the
Securities Act based in part upon Purchaser's representations contained in
the Agreement. Purchaser hereby represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has
substantial experience in evaluating and investing in private placement
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. Purchaser must bear the
economic risk of this investment indefinitely unless the Shares or the
Conversion Shares are registered pursuant to the Securities Act or an
exemption from registration is available. Purchaser understands that the
Company has no present intention of registering the Shares, the Conversion
Shares or any shares of its common stock. Purchaser also understands that
there is no assurance that any exemption from registration under the
Securities Act will be available and that, even if available, such exemption
may not allow Purchaser to transfer all or any portion of the Shares or the
Conversion Shares under the circumstances in the amounts or at the times
Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares and the Conversion Shares for Purchaser's own account for investment only
and not with a view towards their distribution.
12.
<PAGE>
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser
represents that by reason of its, or of its management's, business or
financial experience, Purchaser has the capacity to protect its own interests
in connection with the transactions contemplated in this Agreement and the
Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the
Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities
Act.
(e) COMPANY INFORMATION. Purchaser has received and read
the Financial Statements and the PPM and has had an opportunity to discuss
the Company's business, management and financial affairs with directors,
officers and management of the Company and has had the opportunity to review
the Company's operations and facilities. Purchaser has also had the
opportunity to ask questions of and receive answers from, the Company and its
management regarding the terms and conditions of this investment.
(f) RULE 144. Purchaser acknowledges and agrees that the
Shares and, if issued, the Conversion Shares must be held indefinitely unless
they are subsequently registered under the Securities Act or an exemption
from such registration is available. Purchaser has been advised or is aware
of the provisions of Rule 144 promulgated under the Securities Act, which
permits limited resale of shares purchased in a private placement subject to
the satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the Company, the
resale occurring not less than one year after a party has purchased and paid
for the security to be sold, the sale being through an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934, as amended) and the number
of shares being sold during any three-month period not exceeding specified
limitations.
(g) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on EXHIBIT A hereto; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located
at the address or addresses of the Purchaser set forth on EXHIBIT A hereto.
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees
that the Shares and, if issued, the Conversion Shares are subject to
restrictions on transfer as set forth in the Investor Rights Agreement.
SECTION 5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE FIRST CLOSING.
Purchasers' obligations to purchase the Shares at the First Closing are
subject to the satisfaction, at or prior to the First Closing, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects as of the
First Closing Date with the same force and effect as if they had been made as
of the First Closing Date, and the Company shall have performed all
obligations and conditions herein required to be performed or observed by it
on or prior to the First Closing.
13.
<PAGE>
(b) PERFORMANCE OF OBLIGATIONS. The Company shall have
performed and complied with all agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied
with by it on or before the First Closing.
(c) LEGAL INVESTMENT. On the First Closing Date, the sale
and issuance of the Shares and the proposed issuance of the Conversion Shares
shall be legally permitted by all laws and regulations to which Purchasers
and the Company are subject.
(d) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement and the
Related Agreements (except for such as may be properly obtained subsequent to
the First Closing).
(e) FILING OF RESTATED CERTIFICATE. The Restated
Certificate shall have been filed with the Secretary of State of the State of
Delaware.
(f) CORPORATE DOCUMENTS. The Company shall have delivered
to Purchasers or their counsel, copies of all corporate documents of the
Company as Purchasers shall reasonably request.
(g) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Shares shall have been duly authorized and
reserved for issuance upon such conversion.
(h) COMPLIANCE CERTIFICATE. The Company shall have
delivered to Purchasers a Compliance Certificate, executed by the President
of the Company, dated the date of the First Closing, to the effect that the
conditions specified in subsections (a), (b), (d), (e) and (g) of this
Section 5.1 have been satisfied.
(i) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as EXHIBIT D shall have been
executed and delivered by the parties thereto.
(j) CO-SALE AGREEMENT. The Co-Sale Agreement substantially
in the form attached hereto as EXHIBIT E shall have been executed and
delivered by the parties thereto.
(k) VOTING AGREEMENT. The Voting Agreement substantially in
the form attached hereto as EXHIBIT F shall have been executed and delivered
by the parties thereto.
(l) BOARD OF DIRECTORS. Upon the First Closing, the
authorized size of the Board of Directors of the Company shall initially be
seven (7) members and the Board shall consist of Robert L. Stevens, Garrett
Gruener, Stuart Gannes, Alex Knight, Andrew Anker, Ronald Cooper and Brian
Graff.
(m) LEGAL OPINION. The Purchasers shall have received from
legal counsel to the Company an opinion addressed to them, dated as of the
First Closing Date, in substantially the form attached hereto as EXHIBIT J.
(n) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the First
Closing hereby and all documents and instruments incident to such
transactions shall be reasonably satisfactory in substance and form to the
14.
<PAGE>
Purchasers and their special counsel, and the Purchasers and their special
counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
(o) INTERNET DEVELOPMENT, MARKETING AND DISTRIBUTION
AGREEMENT. The Internet Development, Marketing and Distribution Agreement
substantially in the form attached hereto as EXHIBIT K shall have been
executed and delivered by the parties thereto and in connection therewith the
Company shall issue GE Capital Equity Investments, Inc. a warrant to purchase
209,000 shares of Series D Preferred Stock upon the execution of such
aforementioned agreement. In addition, GE Capital Equity Investments, Inc.
shall be issued a warrant to purchase 117,000 shares of Series D Preferred
Stock.
(p) PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. All
key employees shall have executed a Proprietary Information and Inventions
Agreement that is reasonably acceptable to Investors' counsel.
(q) DUE DILIGENCE. All matters investigated by the
Purchasers in the course of their due diligence shall be satisfactory to each
of the Purchasers, their special counsels and their accountants.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares at the First Closing is subject to
the satisfaction, on or prior to the First Closing, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties made by those Purchasers acquiring Shares in
Section 4 hereof shall be true and correct in all material respects at the
date of the First Closing, with the same force and effect as if they had been
made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have
performed and complied in all material respects with all agreements and
conditions herein required to be performed or complied with by such
Purchasers on or before the First Closing.
(c) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as EXHIBIT D shall have been
executed and delivered by the Purchasers.
(d) CO-SALE AGREEMENT. The Co-Sale Agreement substantially
in the form attached hereto as EXHIBIT E shall have been executed and
delivered by the parties thereto.
(e) VOTING AGREEMENT. The Voting Agreement substantially in
the form attached hereto as EXHIBIT F shall have been executed and delivered
by the parties thereto.
(f) INTERNET DEVELOPMENT, MARKETING AND DISTRIBUTION
AGREEMENT. The Internet Development, Marketing and Distribution Agreement
substantially in the form attached hereto as EXHIBIT K shall have been
executed and delivered by the parties thereto.
(g) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement and the
Related Agreements (except for such as may be properly obtained subsequent to
the First Closing).
15.
<PAGE>
SECTION 6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of New York as such laws are applied to agreements
between New York residents entered into and performed entirely in New York.
Each party hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of the state and federal courts located in the State
of New York for any actions, suits or proceedings arising out of or relating
to this Agreement or any of the Related Agreements (as defined in the
Purchase Agreement) and the transactions contemplated hereby or thereby. Each
party hereto agrees not to commence any action, suit or proceeding relating
thereto except in such courts. The parties hereto irrevocably and
unconditionally waive any objection to the laying of venue in any action,
suit or proceeding arising out of this Agreement or any of the Related
Agreements or the transactions contemplated hereby or thereby, in such state
or federal courts aforesaid and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY
WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY OF THE
RELATED AGREEMENTS.
6.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser
and the First Closing of the transactions contemplated hereby. All statements
as to factual matters contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant hereto in connection with
the transactions contemplated hereby shall be deemed to be representations
and warranties by the Company hereunder solely as of the date of such
certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares and the Conversion Shares from
time to time.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Related Agreements and the PPM and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein
and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and holders of at least a majority of the Shares
(treated as if converted and including any Conversion Shares into which the
Shares have been converted that have not been sold to the public).
16.
<PAGE>
(b) The obligations of the Company and the rights of the
holders of the Shares and the Conversion Shares under the Agreement may be
waived only with the written consent of the holders of at least a majority of
the Shares (treated as if converted and including any Conversion Shares into
which the Shares have been converted that have not been sold to the public).
(c) Any amendment, modification or waiver effected in
accordance with Section 6.6(a) or Section 6.6(b) with the consent of the
requisite parties 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), each future holder and the
Company (even if such holder did not consent to such amendment, modification
or waiver).
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Restated Certificate, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default
or noncompliance, or any acquiescence therein, or of or in any similar
breach, default or noncompliance thereafter occurring. It is further agreed
that any waiver, permit, consent or approval of any kind or character on any
Purchaser's part of any breach, default or noncompliance under this
Agreement, the Related Agreements or under the Restated Certificate or any
waiver on such party's part of any provisions or conditions of the Agreement,
the Related Agreements, or the Restated Certificate must be in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, the Related Agreements, the
Restated Certificate, by law, or otherwise afforded to any party, shall be
cumulative and not alternative.
6.8 WAIVER OF CONFLICTS. Each party to this Agreement (except for GE
Capital Equity Investments, Inc.) acknowledges that legal counsel for the
Company, Cooley Godward LLP ("COOLEY GODWARD"), has in the past and may
continue in the future to perform legal services for one or more of the
Purchasers or their affiliates in matters unrelated to the transactions
contemplated by this Agreement, including, but not limited to, the
representation of the Purchasers in matters of a similar nature to the
transactions contemplated herein. Each party to this Agreement hereby (a)
acknowledges that they have had an opportunity to ask for and have obtained
information relevant to such representation, including disclosure of the
reasonably foreseeable adverse consequences of such representation, (b)
acknowledges that with respect to the transactions contemplated herein,
Cooley Godward has represented the Company and not any individual Purchaser
or any individual stockholder, director or employee of the Company and (c)
gives its informed consent to Cooley Godward's representation of the Company
in the transactions contemplated by this Agreement and Cooley Godward's
representation of one or more of the Purchasers or their affiliates in
matters unrelated to such transactions.
6.9 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day; (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to
Purchaser at the address set forth on EXHIBIT A attached hereto or at such
other address as the Company or Purchaser may designate by ten days advance
written notice to the other parties hereto.
17.
<PAGE>
6.10 TRANSFER TAXES. All transfer, transfer gains, documentary,
sales, use, stamp, registration and other similar Taxes and fees (including
costs and expenses relating to such Taxes) (collectively, "TRANSFER TAXES")
incurred in connection with the consummation of the transactions contemplated
by this Agreement, shall be borne by the Company. The Company shall, at its
own expense, prepare and timely file, in accordance with all applicable laws
and regulations, all necessary Tax Returns and other documentation with
respect to such Transfer Taxes. The Purchasers shall reasonably cooperate
with the Company in the preparation and filing of any such Tax Returns and
other documentation.
6.11 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance
of this Agreement. The Company shall, at the First Closing, reimburse the
reasonable fees of and expenses of Fried, Frank, Harris, Shriver and
Jacobson, special counsel for GE Capital Equity Investments, Inc. not to
exceed $20,000.
6.12 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party
in such dispute shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or
with respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
6.13 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
6.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.15 BROKER'S FEES. Each party hereto represents and warrants that
no agent, broker, investment banker, person or firm acting on behalf of or
under the authority of such party hereto is or will be entitled to any
broker's or finder's fee or any other commission directly or indirectly in
connection with the transactions contemplated herein. Each party hereto
further agrees to indemnify each other party for any claims, losses or
expenses incurred by such other party as a result of the representation in
this Section 6.15 being untrue.
6.16 PRESS RELEASES/USE OF GENERAL ELECTRIC NAME. The Company shall
not issue any press release or make any disclosure or public announcement
relating primarily to the subject matter of this Agreement or any of the
Related Agreements or the Internet Development, Marketing and Distribution
Agreement without the prior written approval of GE Capital Equity Investment,
Inc. Without limiting the generality of the foregoing, the Company shall not
in any manner publicly use or refer to the name of GE Appliances, GE Capital
Equity Investments, Inc., General Electric Company, General Electric Capital
Corporation or any other their affiliates in any press release, disclosure or
public announcement without the prior written approval of the party so named.
Notwithstanding the foregoing, the Company shall be permitted to disclose
this Agreement, any of the Related Agreements or the Internet Development,
Marketing and Distribution Agreement to the extent required in any filing
required by the Company pursuant to the Securities Act of 1933, as amended,
the Securities and Exchange Act of 1934, as amended, or any other state or
federal statute.
6.17 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company and
its officers and directors, in making its investment or decision to invest in
the Company. Each Purchaser agrees that no Purchaser nor the
18.
<PAGE>
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Shares and Conversion Shares.
6.18 ALTERNATIVE DISPUTE RESOLUTION. Notwithstanding anything to the
contrary herein, GE Capital Equity Investments, Inc. shall have the option to
invoke and apply the provisions of Article XIII "Dispute Resolution" under
the Internet Development, Marketing and Distribution Agreement should any
dispute, controversy, claim or disagreement arise from or relating to or in
connection with this Agreement or any other Related Agreement.
6.19 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
[THIS SPACE INTENTIONALLY LEFT BLANK]
19.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the SERIES D
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASERS:
IMPROVENET, INC. ___________________________
1286 ODDSTAD DRIVE (PRINT NAME OF PURCHASER)
REDWOOD CITY, CA 94063
By: /s/ Ron Cooper By: /s/ All Series D Investors
-------------------------------------------- --------------------------
Ronald Cooper, President and Chief Executive
Officer Title:
---------------------
GE CAPITAL EQUITY INVESTMENTS,
INC.
By:
-------------------------
Title:
----------------------
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
SIGNATURE PAGE
<PAGE>
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
SHARES OF SERIES D AGGREGATE
NAME AND ADDRESS PREFERRED PURCHASE PRICE
---------------------------------------------------------- ----------------------------- --------------------------
<S> <C> <C>
GE Capital Equity Investments, Inc. 1,298,701 $9,999,997.70
120 Long Ridge Road
Stamford, CT 06927
Access Technology Partners 22,642 $174,343.40
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Access Technology Partners Brokers Fund, L.P. 453 $3,488.10
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Alta California Partners, L.P. 253,938 $1,955,322.60
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Alta Embarcadero Partners, LLC 5,802 $44,675.40
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ARCH Venture Fund III, L.P. 215,192 $1,656,978.40
8735 Higgins Road, Suite 225
Chicago, IL 60631
August Capital II, L.P. 205,137 $1,579,554.90
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
H&Q ImproveNet Investors, LLC 2,376 $18,295.20
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Hambrecht & Quist California 1,416 $10,903.20
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Hambrecht & Quist Employee Venture Fund, L.P. II 1,416 $10,903.20
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
EXHIBIT A-1
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
Kellett Partners, L.P. 13,334 $102,671.80
299 Galleria Parkway, Suite 1800
Atlanta, GA 30339
Clear Fir Partners 1,482 $11,411.40
4303 54th Avenue, N.E.
Seattle, WA 98105
Blackshirts Joint Venture 7,978 $61,430.60
2000 First Avenue, Suite 1001
Seattle, WA 98121
Alex Knight 2,597 $19,996.90
1116 Harvard Avenue East
Seattle, WA 98102
MGN Opportunity LLC 22,793 $175,506.10
801 Second Avenue
13th Floor
Seattle, WA 98104
Zero Stage Capital VI Limited Partnership 45,586 $351,012.20
101 Main Street, 17th Floor
Cambridge, MA 02142-1519
TOTAL 2,100,843 $16,176,491.10
============================= ===========================
</TABLE>
EXHIBIT A-2
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
<PAGE>
===============================================================================
IMPROVENET, INC.
FIRST SERIES E PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
DATED NOVEMBER 23, 1999
===============================================================================
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<S> <C>
Schedule of Purchasers........................................................Exhibit A
Form of Warrant Agreement.....................................................Exhibit B
Second Restated Certificate of Incorporation..................................Exhibit C
Schedule of Exceptions........................................................Exhibit D
Third Amended and Restated
Investor Rights Agreement..................................................Exhibit E
Third Amended and Restated Right
of First Refusal and Co-Sale Agreement.....................................Exhibit F
Third Amended and Restated Voting Agreement...................................Exhibit G
List of Stockholders, Optionholders
and Warrantholders.........................................................Exhibit H
Financial Statements..........................................................Exhibit I
Proprietary Information and Inventions Agreement..............................Exhibit J
Form of Legal Opinion ........................................................Exhibit K
</TABLE>
1.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1.AGREEMENT TO SELL AND PURCHASE..........................................................................1
1.1 Authorization of Shares and Warrants............................................................1
1.2 Sale and Purchase...............................................................................1
SECTION 2.CLOSING, DELIVERY AND PAYMENT...........................................................................2
2.1 Closing.........................................................................................2
2.2 Delivery........................................................................................2
2.3 Subsequent Sales of Shares......................................................................2
SECTION 3.REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................................2
3.1 Organization, Good Standing and Qualification...................................................2
3.2 Capitalization; Voting Rights...................................................................2
3.3 Authorization; Binding Obligations..............................................................3
3.4 Financial Statements............................................................................4
3.5 Liabilities.....................................................................................4
3.6 Agreements; Action..............................................................................4
3.7 Obligations to Related Parties..................................................................5
3.8 Changes.........................................................................................5
3.9 Title to Properties and Assets; Liens, etc......................................................6
3.10 Patents and Trademarks..........................................................................7
3.11 Compliance with Other Instruments...............................................................7
3.12 Litigation......................................................................................8
3.13 Tax Returns and Payments........................................................................8
3.14 Employees.......................................................................................9
3.15 Proprietary Information and Inventions Agreements...............................................9
3.16 Obligations of Management......................................................................10
3.17 Registration Rights and Voting Agreements......................................................10
3.18 Compliance with Laws; Permits..................................................................10
3.19 Environmental and Safety Laws..................................................................10
3.20 Offering Valid.................................................................................10
3.21 Full Disclosure................................................................................11
3.22 Qualified Small Business.......................................................................11
i.
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TABLE OF CONTENTS
(CONTINUED)
PAGE
3.23 Minute Books...................................................................................11
3.24 Insurance......................................................................................11
3.25 Small Business Concern.........................................................................11
3.26 Year 2000 Compliance...........................................................................12
3.27 Foreign Corrupt Practices Act..................................................................12
3.28 Directors and Officers.........................................................................12
SECTION 4.REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.......................................................12
4.1 Requisite Power and Authority..................................................................12
4.2 Investment Representations.....................................................................13
4.3 Transfer Restrictions..........................................................................14
SECTION 5.CONDITIONS TO CLOSING..................................................................................14
5.1 Conditions to Purchasers' Obligations at the First Closing.....................................14
5.2 Conditions to Obligations of the Company.......................................................15
SECTION 6.MISCELLANEOUS..........................................................................................16
6.1 Governing Law..................................................................................16
6.2 Survival.......................................................................................16
6.3 Successors and Assigns.........................................................................16
6.4 Entire Agreement...............................................................................17
6.5 Severability...................................................................................17
6.6 Amendment and Waiver...........................................................................17
6.7 Delays or Omissions............................................................................17
6.8 Waiver of Conflicts............................................................................17
6.9 Notices........................................................................................18
6.10 Transfer Taxes.................................................................................18
6.11 Expenses.......................................................................................18
6.12 Attorneys' Fees................................................................................18
6.13 Titles and Subtitles...........................................................................18
6.14 Counterparts...................................................................................18
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
6.15 Broker's Fees..................................................................................18
6.16 Press Releases/Use of Owens Corning Name.......................................................19
6.17 Exculpation Among Purchasers...................................................................19
6.18 Pronouns.......................................................................................19
</TABLE>
iii.
<PAGE>
IMPROVENET, INC.
FIRST SERIES E PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
THIS FIRST SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
(the "AGREEMENT") is entered into as of November 23, 1999, by and among
IMPROVENET, INC., a Delaware corporation (the "COMPANY") and each of those
persons and entities, severally and not jointly, whose names are set forth on
the Schedule of Purchasers attached hereto as EXHIBIT A (which persons and
entities are hereinafter collectively referred to as "PURCHASERS" and each
individually as a "PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of units
consisting of an aggregate of (i) seven hundred forty thousand seven hundred
forty one (740,741) of its First Series E Preferred Stock (the "SHARES") and
(ii) warrants in the form of EXHIBIT B to purchase up to one hundred fifty
thousand (150,000) shares of its Common Stock (the "Warrants");
WHEREAS, Purchasers desire to purchase the Shares and the Warrants
on the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares and the
Warrants to the Purchasers on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES AND WARRANTS. On or prior to the First
Closing (as defined in Section 2 below), the Company shall have authorized
(a) the sale and issuance to Purchasers of units consisting of the Shares and
the Warrants, (b) the issuance of shares of Common Stock to be issued
pursuant to the exercise of the Warrants (the "Warrant Shares") and (c) the
issuance of such shares of common stock to be issued upon conversion of the
Shares (the "CONVERSION SHARES") and the Warrant Shares. The Shares, the
Warrant Shares and the Conversion Shares shall have the rights, preferences,
privileges and restrictions set forth in the Third Amended and Restated
Certificate of Incorporation of the Company in the form attached hereto as
EXHIBIT C (the "RESTATED CERTIFICATE"). The warrants shall be in the form and
have the rights set forth in the form of Warrant attached hereto as EXHIBIT B.
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof,
at the Closing the Company hereby agrees to issue and sell to each Purchaser,
severally and not jointly, and each Purchaser agrees to purchase from the
Company, severally and not jointly, units consisting of the number of Shares
and Warrants set forth opposite such Purchaser's name on EXHIBIT A at an
aggregate purchase price for each Purchaser set forth opposite such
Purchaser's name.
1.
<PAGE>
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares and
Warrants under this Agreement (the "FIRST CLOSING") shall take place at such
time and place as the Company and the Purchaser may mutually agree (such date
is hereinafter referred to as the "FIRST CLOSING DATE"); provided that if the
first Closing has not occurred on or prior to the 60th day following the date
hereof this Agreement shall be of no further force or effect.
2.2 DELIVERY. At the First Closing, subject to the terms and
conditions hereof, the Company will deliver to the Purchasers certificates
representing the number of Shares and warrant certificates or agreements
representing the Warrants to be purchased at the First Closing by each
Purchaser, against payment of the purchase price therefor by check, wire
transfer made payable to the order of the Company, cancellation of
indebtedness or any combination of the foregoing.
2.3 SUBSEQUENT SALES OF SHARES. At any time on or before the 90th
day following the First Closing, the Company may sell up to the balance of
the authorized shares of First Series E Preferred Stock and Warrants not sold
at the First Closing to such persons as may be approved by the Board of
Directors of the Company. All such sales shall be made on the terms and
conditions set forth in this Agreement, including, without limitation, the
representations and warranties by such Purchasers as set forth in Section 4.
Any Shares of First Series E Preferred Stock and Warrants sold pursuant to
this Section 2.3 shall be deemed to be "SHARES" and "WARRANTS", respectively,
for all purposes under this Agreement and any purchasers thereof shall be
deemed to be "PURCHASERS" for all purposes under this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as specifically set forth under the corresponding section
number of the Schedule of Exceptions attached hereto as EXHIBIT D, the
Company hereby represents and warrants to each Purchaser as of the First
Closing as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite corporate power
and authority to own and operate its properties and assets, to execute and
deliver this Agreement, the Investor Rights Agreement, the Co-Sale Agreement
and the Voting Agreement (collectively, the "RELATED AGREEMENTS"), to issue
and sell the Shares and the Warrants and to issue the Conversion Shares and
the Warrant Shares and to carry out the provisions of this Agreement, the
Related Agreements and the Restated Certificate and to carry on its business
as presently conducted and as presently proposed to be conducted. The Company
is duly qualified and is authorized to do business and is in good standing as
a foreign corporation in all jurisdictions in which the nature of its
activities and of its properties (both owned and leased) makes such
qualification necessary. The Company does not have any investment in,
control, either directly or indirectly, nor own any equity securities of any
other corporation, limited partnership or similar entity. The Company is not
a participant in any joint venture, partnership or similar arrangement. The
Company has delivered to the Purchasers true and complete copies of its
Bylaws and Restated Certificate as currently in effect.
3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of the
Company, immediately prior to the First Closing, will consist of (a) thirty four
million (34,000,000) shares of common stock, of which (i) one million six
hundred eighty one thousand three hundred nineteen (1,681,319) shares are issued
and outstanding, (ii) one hundred ninety nine thousand three hundred
2.
<PAGE>
fourteen (199,314) shares are reserved for future issuance to employees
pursuant to the Company's Amended and Restated 1996 Stock Option Plan, (iii)
two million one hundred ninety three thousand four hundred six (2,193,106)
shares are subject to outstanding options pursuant to the Amended and
Restated 1996 Stock Option Plan and (iv) ten thousand (10,000) shares are
subject to outstanding warrants to purchase common stock, and (b) twelve
million four hundred eighty-two thousand nine hundred thirty-five
(12,482,935) authorized shares of preferred stock, of which (i) one million
three hundred one thousand four hundred (1,301,400) are designated Series A
Preferred Stock, one million two hundred seven thousand (1,207,000) of which
are issued and outstanding and ninety-four thousand four hundred (94,400) of
which are reserved for issuance pursuant to outstanding warrants to purchase
Series A Preferred Stock, (ii) one million nine hundred eighty-one thousand
five hundred thirty-five (1,981,535) are designated Series B Preferred Stock,
one million nine hundred thirty-four thousand five hundred twenty-six
(1,934,526) of which are issued and outstanding and forty-seven thousand nine
(47,009) of which are reserved for issuance pursuant to outstanding warrants
to purchase Series B Preferred Stock, (iii) three million seven hundred
thousand (3,700,000) are designated Series C Preferred Stock, three million
five hundred forty three thousand one hundred ninety (3,543,190) of which are
issued and outstanding and forty seven thousand one hundred sixty seven
(47,167) of which are reserved for issuance pursuant to an outstanding
warrant to purchase Series C Preferred Stock, (iv) two million five hundred
thousand (2,500,000) are designated Series D Preferred Stock, two million one
hundred thousand eight hundred forty three (2,100,843) of which are issued
and outstanding and three hundred twenty six thousand (326,000) of which are
reserved for issuance to outstanding warrants to purchase Series D Preferred
Stock and (v) three million (3,000,000) are designated First Series E
Preferred Stock, none of which are issued and outstanding as of the date
hereof. All issued and outstanding shares of the Company's common stock and
preferred stock (I) have been duly authorized and validly issued to the
persons listed on EXHIBIT H hereto, (II) are fully paid and nonassessable,
and (III) were issued in compliance with all applicable state and federal
laws concerning the issuance of securities. The rights, preferences,
privileges and restrictions of the Shares are as stated in the Restated
Certificate. The Conversion Shares and the Warrant Shares have been duly and
validly reserved for issuance. Other than as set forth on EXHIBIT H, and
except as may be granted pursuant to the Related Agreements, there are no
outstanding options, warrants, rights (including conversion or preemptive
rights and rights of first refusal), proxy or stockholder agreements, voting
agreements or agreements of any kind for the purchase or acquisition from the
Company of any of its securities. EXHIBIT H reflects a complete and accurate
list of all the Company's outstanding shares, warrants, convertible or
exchangeable securities and options as of the time immediately after the
First Closing and EXHIBIT H reflects any dilution and exercise of preemptive
rights triggered by the transactions contemplated hereby. When issued in
compliance with the provisions of this Agreement and the Restated
Certificate, the Shares, the Warrants, the Conversion Shares and the Warrant
Shares will be validly issued, fully paid and nonassessable, and will be free
of any liens or encumbrances; PROVIDED, HOWEVER, that the Shares, the
Warrants, the Conversion Shares and the Warrant Shares may be subject to
restrictions on transfer under state and/or federal securities laws as set
forth herein or as otherwise required by such laws at the time a transfer is
proposed.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for the
authorization of this Agreement and the Related Agreements, the performance of
all obligations of the Company hereunder and thereunder at the First Closing and
the authorization, sale, issuance and delivery of the Shares, the Warrants and
the Warrant Shares pursuant hereto and the Conversion Shares pursuant to the
Restated Certificate has been taken or will be taken prior to the First Closing.
The Agreement and the Related Agreements, when executed and delivered, will be
valid and binding obligations of the Company enforceable in accordance with
their terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights, (b) general principles of equity that
3.
<PAGE>
restrict the availability of equitable remedies and (c) to the extent that
the enforceability of the indemnification provisions in Section 3.9 of the
Investor Rights Agreement may be limited by applicable laws. The sale of the
Shares, the Warrants, the Warrant Shares and the subsequent conversion of the
Shares and the Warrant Shares into Conversion Shares are not and will not be
subject to any preemptive rights or rights of first refusal that have not
been properly waived or complied with.
3.4 FINANCIAL STATEMENTS. The Company has delivered to each
Purchaser (a) its audited balance sheet, an audited profit and loss
statement, statement of cash flows and statement of shareholders' equity for
the twelve (12) month period ending on December 31, 1998, (b) its unaudited
balance sheet, unaudited profit and loss statement, unaudited statement of
cash flows and statement of shareholders' equity for the nine (9) month
period ending on September 30, 1999 (collectively, the "FINANCIAL
STATEMENTS"), copies of which are attached hereto as EXHIBIT I. The Financial
Statements, together with the notes thereto, are complete and correct in all
material respects and present fairly the financial condition, results of
operations, cash flows and shareholders' equity and position of the Company
as of September 30, 1999; PROVIDED, HOWEVER, that the unaudited financial
statements are subject to normal recurring year-end audit adjustments (which
are not expected to be material) and do not contain all footnotes required
under generally accepted accounting principles.
3.5 LIABILITIES. The Company has no material liabilities whether
accrued, absolute, contingent, known or unknown or due or to become due not
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to September 30, 1999 which have
not been, either in any individual case or in the aggregate, materially
adverse. In any event, the Company has no liabilities in the aggregate in
excess of $25,000.
3.6 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby and
agreements between the Company and its employees with respect to the sale of
the Company's common stock, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or to its knowledge by which it is bound which
may involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 in the aggregate (other than obligations of, or
payments to, the Company arising from purchase or sale agreements entered
into in the ordinary course of business), (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company
(other than licenses arising from the purchase of "off the shelf" or other
standard products or entered into in the ordinary course of business), (iii)
provisions restricting or affecting the development, manufacture or
distribution of the Company's products or services or the Company's ability
to solicit the Company's employees or otherwise restricting the Company's
ability to do business in any geographic area, or (iv) indemnification by the
Company with respect to infringements of proprietary rights (other than
indemnification obligations arising from purchase or sale agreements entered
into in the ordinary course of business).
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or series
of its capital stock, (ii) incurred any indebtedness for money borrowed or any
other liabilities (other than with respect to dividend obligations,
distributions, indebtedness and other obligations incurred in the ordinary
course of business) individually
4.
<PAGE>
in excess of $25,000 or, in the case of indebtedness and/or liabilities
individually less than $25,000, in excess of $50,000 in the aggregate, (iii)
made any loans or advances to any person, other than ordinary advances for
travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in the ordinary course
of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
3.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company
other than (a) for payment of current salary for services rendered, (b)
reimbursement for reasonable expenses incurred on behalf of the Company and
(c) for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company). None of the
officers, directors or stockholders of the Company, or any members of their
immediate families, are indebted to the Company or have any direct or
indirect ownership interest in any firm or corporation with which the Company
is affiliated or with which the Company has a business relationship, or any
firm or corporation which competes with the Company, except that officers,
directors and/or stockholders of the Company may own up to five percent (5%)
of the stock in publicly traded companies which may compete with the Company.
No officer, director or stockholder, or any member of their immediate
families, is, directly or indirectly, interested in any material contract
with the Company (other than such contracts as relate to any such person's
ownership of capital stock or other securities of the Company). The Company
is not a guarantor or indemnitor of any indebtedness of or does not otherwise
provide credit enhancement to any other person, firm or corporation.
3.8 CHANGES. Since September 30, 1999, there has not been to the
Company's knowledge:
(a) Any change in the assets, liabilities, financial condition
or operations of the Company, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or is
expected to have a material adverse effect on such assets, liabilities,
financial condition or operations of the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
5.
<PAGE>
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend by, or any other
distribution of any securities (other than in the ordinary course of
business) or the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, pledge, assignment or transfer of any material
tangible assets or patents, trademarks, copyrights, trade secrets or other
intangible assets of the Company;
(l) Any change in any material agreement to which the Company is
a party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects
of the Company, including, without limitation, compensation agreements with
the Company's employees;
(m) Any payment, discharge, satisfaction or settlement of any
material claim or obligation of the Company, except in the ordinary course of
business and consistent with past practice;
(n) Any write-down of the value of any asset of the Company or
any write-off as uncollectible of any accounts or notes receivable or any
portion thereof except in the ordinary course of business;
(o) Any expenditure or commitment or addition to property, plant
or equipment of the Company except in amounts less than $250,000 in the
singular or in the aggregate;
(p) Any change in the independent public accountants of the
Company or any material change in the accounting methods or accounting
practices followed by the Company or any material change in depreciation or
amortization policies or rates;
(q) Any receipt of notice that there has been a loss of, or
material order cancellation by, a major customer, advertiser or sponsor of
the Company;
(r) Any change in the Company's accounting methods, principles
or practices, any new elections with respect to Taxes (as defined herein) or
any changes in the current elections with respect to Taxes; or
(s) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects
of the Company.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company does not
own fee title to any real property. The Company has good and marketable title to
its properties and assets, and good title to its leasehold estates, in each case
subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than
(a) those resulting from taxes which have not yet become delinquent, (b) minor
liens and
2.
<PAGE>
encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company, and (c)
those that have otherwise arisen in the ordinary course of business. All
facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company are in good operating condition and
repair and are reasonably fit and usable for the purposes for which they are
being used. The Company is in compliance with all material terms of each
lease to which it is a party or is otherwise bound.
3.10 PATENTS AND TRADEMARKS. To the best of its knowledge, the
Company owns or possesses sufficient legal rights to all patents, trademarks,
service marks, trade names, copyrights, trade secrets, uniform resource
locators, information and other proprietary rights and processes necessary
for the Company's business as now conducted and as proposed to be conducted
(the "INTELLECTUAL PROPERTY RIGHTS"), without any known infringement of the
rights of others. The Schedule of Exceptions contains a complete list of the
patents, pending patent applications, trademarks, services marks and the
uniform resource locators of the Company. There are no outstanding
assignments, options, licenses or agreements of any kind relating to the
foregoing nor is the Company bound by or a party to any assignments, options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information
and other proprietary rights and processes of any other person or entity
other than such licenses or agreements arising from the purchase of "off the
shelf" or standard products. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order
of any court or administrative agency, that would interfere with their duties
to the Company or that would conflict with the Company's business as proposed
to be conducted. Neither the execution nor delivery of this Agreement or the
Related Agreements nor the carrying on of the Company's business by the
employees of the Company nor the conduct of the Company's business as
proposed will, to the Company's knowledge, (i) conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default
under any contract, covenant or instrument under which any employee is now
obligated or (ii) conflict with, alter or impair any of the Intellectual
Property Rights. The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been duly and
validly assigned to the Company. The Company has utilized commercially
reasonable efforts to (i) protect and enforce all Intellectual Property
Rights, except for those rights that, individually or in the aggregate, are
not material to the Company, (ii) protect through nondisclosure agreements
and otherwise all trade secrets and confidential information of the Company
and (iii) otherwise to secure and protect for the Company's benefit all
Intellectual Property Rights. The Company uses reasonable efforts, consistent
with industry practices of comparable companies, to identify any use of any
Intellectual Property Rights by third parties that has infringed or infringes
any Intellectual Property Rights, and Section 3.10 of the Schedule of
Exceptions discloses all material instances know to the Company of any
infringing uses, all steps that the Company has taken or is taking to end
such infringement, and how any such instances of infringement have been
resolved. The Company believes it can obtain on commercially reasonable terms
any additional Intellectual Property Rights necessary for its business as
proposed to be conducted.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Restated Certificate or Bylaws. The Company is not
in violation or default of any provision of any mortgage, indenture, contract,
agreement, instrument or contract to which it is party or by which it is bound
or of any judgment, decree, order, writ or, to its knowledge, any statute, rule
or
7.
<PAGE>
regulation applicable to the Company, its business or operations or any of
its assets or properties. The execution, delivery and performance of and
compliance with this Agreement, the Warrants and the Related Agreements, and
the issuance and sale of the Shares, the Conversion Shares and the Warrant
Shares pursuant to the Restated Certificate will not, with or without the
passage of time or giving of notice, result in any such material violation,
or be in conflict with or constitute a default under any such term, or result
in the creation of any mortgage, pledge, lien, encumbrance or charge upon any
of the properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
3.12 LITIGATION. There is no action, suit, proceeding or
investigation pending or to the Company's knowledge currently threatened
against the Company (i) that questions the validity of this Agreement, the
Related Agreements or the right of the Company to enter into any of such
agreements, or to consummate the transactions contemplated hereby or thereby,
or (ii) which might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or prospects of the
Company, financially or otherwise, or any change in the current equity
ownership of the Company nor is the Company aware that there is any basis for
the foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary
to any of their former employers, or their obligations under any agreements
with prior employers. Neither the Company nor any of its properties, assets
or businesses are subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
There is no action, suit, proceeding or investigation by the Company
currently pending or which the Company intends to initiate.
3.13 TAX RETURNS AND PAYMENTS.
(a) The Company has timely filed all Tax Returns required to be
filed by it. These Tax Returns are true and correct in all material respects.
All Taxes shown to be due and payable on such Tax Returns, any assessments
imposed and all other taxes due and payable by the Company have been timely paid
or will be paid prior to the time they become delinquent. All Taxes required to
be withheld and paid over by the Company to any relevant taxing authority in
connection with payments to employees, independent contractors, creditors,
stockholders or to third parties have been so withheld and paid over. The
Company has not been advised (i) that any of its returns, federal, state or
other, have been or are being audited as of the date hereof or (ii) of any
deficiency in assessment or proposed judgment to its federal, state or other
taxes. The Company has no knowledge of any liability of any tax to be imposed
upon its properties or assets as of the date of this Agreement that is not
adequately provided for. The accruals and reserves for Taxes (other than
deferred Taxes) reflected on the unaudited balance sheet as of September 30,
1999 are complete and adequate to cover any liabilities for Taxes with respect
to periods or portions of periods ending on or before September 30, 1999. The
accruals and reserves for Taxes (other than deferred Taxes) established in the
books and records of the Company are complete and adequate to cover any
liabilities for Taxes that are attributable to the period beginning after
September 30, 1999 and ending on the First Closing Date. No Tax authority in a
jurisdiction where the Company does not file Tax Returns has made a claim,
assertion or threat that the Company is or may be subject to Tax in such
jurisdiction. No audits or examinations with respect to the Company are ongoing
or have been threatened or proposed by any taxing authority. No deficiencies for
any Tax have been threatened, proposed, asserted or assessed against the Company
which have not been satisfied. No waivers or extensions of statutes of
limitations with respect to Taxes have been given by the Company. Complete
copies of all Tax Returns of the Company that have been filed by the Company
since its inception have
8.
<PAGE>
been delivered to or made available to each of the Purchasers if requested by
a Purchaser. The Company is not party to or liable under any tax sharing
arrangement. The Company has not filed a combined, consolidated or unitary
Tax Return with respect to any affiliated group of which the Company is not
the common parent. The Company has not made an election under Section 341(f)
of the Internal Revenue Code of 1986 (the "CODE"), as amended.
(b) For purposes of this Agreement, "TAX" (including, with
correlative meaning, the terms "TAXES") shall mean all federal, state, local
and foreign income, profits, franchise, gross receipts, environmental,
customs, duty, capital stock, communications servicers, severance, stamp,
payroll, sales, employment, unemployment, disability, use, property,
withholding, excise, production, value added, occupancy, and other taxes,
duties or assessments of any nature whatsoever, together with all interest,
penalties and additions imposed with respect to such amounts and any interest
in respect to such penalties and additions, and includes any liability for
Taxes of another person by contract, as a transferee of successor, under
Treasury Regulation 1.1502-6 or analogous state, local or foreign law
provision or otherwise; and "TAX RETURN" shall mean all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
3.14 EMPLOYEES. The Company has no collective bargaining agreements
with any of its employees. There is no labor union organizing activity
pending or, to the Company's knowledge, threatened with respect to the
Company. No employee has any agreement or contract, written or verbal,
regarding his employment other than a Proprietary Information and Inventions
Agreement. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation arrangement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee
compensation plan or agreement. To the Company's knowledge, no employee of
the Company nor any consultant with whom the Company has contracted is in
violation of any term of any employment contract, proprietary information
agreement or any other agreement relating to the right of any such individual
to be employed by or to contract with the Company, because of the nature of
the business to be conducted by the Company; and to the Company's knowledge
the continued employment by the Company of its present employees, and the
performance of the Company's contracts with its independent contractors, will
not result in any such violation. The Company has not received any notice
alleging that any such violation has occurred. No employee of the Company has
been granted the right to continued employment by the Company or to any
material compensation following termination of employment with the Company.
The Company is not aware that any officer, key employee or any group of key
employees intends to terminate their employment with the Company nor does the
Company have a present intention to terminate the employment of any officer,
key employee or group of key employees. The Company has complied with all
applicable laws relating to the employment of labor, including laws relating
to wages and hours, equal opportunity and payment of social security and
other taxes.
3.15 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. To the best of
the Company's knowledge, it has done nothing to compromise the secrecy,
confidentiality or value of any of its trade secrets, know-how, inventions,
prototypes, designs, processes or technical data required to conduct its
business as now conducted or proposed to be conducted. The Company has taken in
the past and will take in the future reasonable security measures to protect the
secrecy, confidentiality and value of all of its trade secrets, know-how,
inventions, prototypes, designs, processes and technical data important to the
conduct of its business. Each former and current employee, officer and
consultant of the Company has executed a Proprietary Information and Inventions
Agreement in the form of EXHIBIT J attached hereto. No current employee, officer
or consultant of the Company has excluded works or inventions made prior to his
or her employment with the Company from his or her assignment of inventions
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pursuant to such employee's, officer's or consultant's Proprietary
Information and Inventions Agreement. The Company, after reasonable
investigation, is not aware that any of its employees, officers or
consultants is in violation of any item of the Proprietary Information and
Inventions Agreement that would have a materially adverse effect on the
Company, and the Company will use its best efforts to prevent any such
violation.
3.16 OBLIGATIONS OF MANAGEMENT. Each officer and key employee of the
Company is currently devoting one hundred percent (100%) of his business time
to the conduct of the business of the Company. The Company is not aware of
any officer or key employee of the Company planning to work less than full
time at the Company in the future.
3.17 REGISTRATION RIGHTS AND VOTING AGREEMENTS. Except as required
pursuant to the Investor Rights Agreement, the Company is presently not under
any obligation and has not granted any rights to register (as defined in
Section 2.1 of the Investor Rights Agreement) any of the Company's presently
outstanding securities or any of its securities that may hereafter be issued.
Except as required pursuant to the Voting Agreement, the Company has no
agreement, obligation or commitment with respect to the election of any
individual or individuals to the Board of Directors and, to the best of the
knowledge of the Company, there is no voting agreement or other agreement
among the stockholders with respect to the election of any individual or
individuals to the Board of Directors for any other purpose.
3.18 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation
of any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
orders, permissions, consents, approvals or authorizations from any
governmental entity or any other person are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement, the Warrants and the issuance of
the Shares, the Conversion Shares or the Warrant Shares, except such as has
been duly and validly obtained or filed, or with respect to any filings that
must be made after the First Closing, as will be filed in a timely manner.
The Company has and is in full compliance in all material respects with all
the terms and conditions of all franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects or financial condition of the Company and believes it
can obtain, without undue burden or expense, any similar authority for the
conduct of its business as planned to be conducted. The Company is not in
default in any material respect under any of such franchises, permits,
licenses or other similar authority.
3.19 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is
not in violation of any applicable federal, state or local statute, law,
ordinance or regulation relating to the environment or occupational health
and safety, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
3.20 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale
and issuance of the Shares and the Warrants, the sale and issuance of the
Warrant Shares upon exercise of the Warrants and the issuance of the Conversion
Shares will be exempt from the registration requirements of the Securities Act
of 1933, as amended (the "SECURITIES ACT") and will have been registered or
qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all
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applicable state securities laws. Neither the Company nor any agent on its
behalf has solicited or will solicit any offers to sell or has offered to
sell or will offer to sell all or any part of the Shares to any person or
persons so as to bring the sale of such Shares, the Warrants or the Warrant
Shares by the Company within the registration provisions of the Securities
Act or any state securities laws.
3.21 FULL DISCLOSURE. The Private Placement Memorandum (the "PPM"),
this Agreement, the Exhibits hereto, the Related Agreements and all other
documents delivered by the Company to the Purchasers or their attorneys or
agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, do not contain any untrue statement of a
material fact nor, to the Company's knowledge, omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. Notwithstanding the foregoing, the PPM provided to each of the
Purchasers was prepared by the management of the Company in a good faith
effort to describe the Company's proposed business and products and the
markets therefor. The forward-looking statements made in the PPM appeared
reasonable to management as of the date thereof; however, there is no
assurance that these forward-looking statements will prove to be valid or
that the objectives set forth in the PPM will be achieved. To the Company's
knowledge, there are no facts regarding the Company which (individually or in
the aggregate) materially adversely affect the business, assets, liabilities,
financial condition, prospects or operations of the Company that have not
been set forth in the PPM, the Agreement, the Exhibits hereto, the Related
Agreements or in other documents delivered to Purchasers or their attorneys
or agents in connection herewith.
3.22 QUALIFIED SMALL BUSINESS. The Company represents and warrants
to the Purchasers that, to the best of its knowledge, the Shares should
qualify as "QUALIFIED SMALL BUSINESS STOCK" as defined in Section 1202(c) of
the Internal Revenue Code of 1986, as amended (the "CODE"), as of the date
hereof.
3.23 MINUTE BOOKS. The minute books of the Company provided to the
Purchasers or their counsel contain a complete summary of all meetings of
directors and stockholders since the time of incorporation and correctly
reflect all issuances of stock or other equity rights in the Company.
3.24 INSURANCE. The Schedule of Exceptions contains an accurate
summary of the insurance policies currently maintained by the Company. The
Company has obtained from a company that is financially sound and reputable
fire and casualty insurance policies with coverage customary for companies
similarly situated to the Company. There are currently no claims pending by
the Company under any insurance policy currently in effect and covering the
property, business or employees of the Company, and all premiums due and
payable with respect to the policies maintained by the Company have been paid
to date. All insurance policies are in the name of the Company and are
outstanding and in full force and effect. Such insurance policies are
customary for companies engaged in the type of business conducted by the
Company and at the same stage of development as the Company. The Company has
not received notice of cancellation of termination of any such policy, nor
has any such policy been denied, revoked or rescinded nor has the Company
borrowed against any such policies. There are no claims for which an
insurance carrier has denied or threatened to deny coverage. The Company
carries, or is covered by, insurance with companies that are financially
sound and reputable in such amounts with such deductibles and against such
risks and losses as are reasonable for the business and assets of the Company.
3.25 SMALL BUSINESS CONCERN. The Company together with its "affiliates"
(as that term is defined in Section 121.103 of Title 13 of the Code of Federal
Regulations (the "FEDERAL REGULATIONS")), is a "SMALL BUSINESS CONCERN" within
the meaning of the Small Business Investment Act of 1958, as amended (the "SMALL
BUSINESS ACT"), and the regulations promulgated thereunder, including Section
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121.301 of Title 13 of the Federal Regulations (a "SMALL BUSINESS CONCERN").
The information delivered to each Purchaser that is a licensed Small Business
Investment Company (an "SBIC PURCHASER") on SBA Forms 480, 652 and 1031
delivered in connection herewith is true and correct.
3.26 YEAR 2000 COMPLIANCE. All of the Company's products and
services (including any products or services currently under development as
of the date hereof) will record, store, process and calculate and present
calendar dates falling on and after January 1, 2000, and will calculate any
information dependent on or relating to such dates in the same manner and
with the same functionality, data integrity and performance as the products
record, store, process, calculate and present calendar dates on or before
December 31, 1999, or calculate any information dependent on or relating to
such dates (collectively "YEAR 2000 COMPLIANT"). None of the Company's
material products will lose material functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
The Company has taken all reasonable actions to ensure that all of the
Company's internal computer systems, including without limitation, its
accounting systems, are Year 2000 Compliant. To the knowledge of the Company,
all vendors of products and services to the Company, and their respective
products, services and operations, will be in all material respects Year 2000
Compliant.
3.27 FOREIGN CORRUPT PRACTICES ACT. The Company and, to the
knowledge of the Company after due inquiry, its employees are in compliance
in all material respects with the U.S. Foreign Corrupt Practices Act, as
amended, including without limitation the books and records provisions
thereof.
3.28 DIRECTORS AND OFFICERS. To the knowledge of the Company, since
the formation of the Company, no director or officer of the Company has (a)
been arrested or convicted of any crime material to an evaluation of such
person's ability or integrity, including, without limitation, any violation
of any federal or state law which currently or has previously regulated the
types of business in which the Company is currently or has previously been
engaged, (b) filed a petition under federal bankruptcy or state insolvency
laws or (c) been a director or officer of a business entity which has filed a
petition under federal bankruptcy or state insolvency laws, or had a receiver
or similar officer appointed by a court to administer the business or
property of such entity.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company as
follows (it being agreed that such representations and warranties do not in
any way limit or effect the Purchasers' right to rely upon and enforce any
breach of the representations and warranties of the Company set forth in this
Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver
this Agreement and the Related Agreements and to carry out their provisions.
All action on Purchaser's part required for the lawful execution and delivery
of this Agreement and the Related Agreements has been or will be effectively
taken prior to the First Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application affecting enforcement of creditors' rights, (b)
general principles of equity that restrict the availability of equitable
remedies, and (c) to the extent that the enforceability of the
indemnification provisions of Section 3.9 of the Investor Rights Agreement
may be limited by applicable laws.
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4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither
the Shares, the Warrants, the Warrant Shares nor the Conversion Shares have
been registered under the Securities Act. Purchaser also understands that the
Shares and the Warrants are being offered and sold pursuant to an exemption
from registration contained in the Securities Act based in part upon
Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement 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. Purchaser must bear the economic risk
of this investment indefinitely unless the Shares, the Warrants, the Warrant
Shares or the Conversion Shares are registered pursuant to the Securities Act
or an exemption from registration is available. Purchaser understands that
the Company has no present intention of registering the Shares, the Warrants,
the Warrants Shares, the Conversion Shares or any shares of its common stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any
portion of the Shares, the Warrants, the Warrant Shares or the Conversion
Shares under the circumstances in the amounts or at the times Purchaser might
propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares, the Warrants, the Warrant Shares and the Conversion Shares for
Purchaser's own account for investment only and not with a view towards their
distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business or financial
experience, Purchaser has the capacity to protect its own interests in
connection with the transactions contemplated in this Agreement and the
Related Agreements. Further, Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the
Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities
Act.
(e) COMPANY INFORMATION. Purchaser has received and read the
Financial Statements and the PPM and has had an opportunity to discuss the
Company's business, management and financial affairs with directors, officers
and management of the Company and has had the opportunity to review the
Company's operations and facilities. Purchaser has also had the opportunity
to ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.
(f) RULE 144. Purchaser acknowledges and agrees that the Shares,
the Warrants and, if issued, the Conversion Shares and the Warrant Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Purchaser
has been advised or is aware of the provisions of Rule 144 promulgated under
the Securities Act, which permits limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions,
including, among other things: the availability of certain current public
information about the Company, the resale occurring not less than one year
after a party has purchased and paid for the security to be sold, the sale
being through an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934, as
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amended) and the number of shares being sold during any three-month period
not exceeding specified limitations.
(g) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on EXHIBIT A hereto; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located
at the address or addresses of the Purchaser set forth on EXHIBIT A hereto.
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees
that the Shares and the Warrants and, if issued, the Conversion Shares and
the Warrant Shares are subject to restrictions on transfer as set forth in
the Investor Rights Agreement.
SECTION 5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE FIRST CLOSING.
Purchasers' obligations to purchase the Shares and the Warrants at the First
Closing are subject to the satisfaction, at or prior to the First Closing, of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects as of the
First Closing Date with the same force and effect as if they had been made as
of the First Closing Date, and the Company shall have performed all
obligations and conditions herein required to be performed or observed by it
on or prior to the First Closing.
(b) PERFORMANCE OF OBLIGATIONS. The Company shall have performed
and complied with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the First Closing.
(c) LEGAL INVESTMENT. On the First Closing Date, the sale and
issuance of the Shares and the Warrants and the proposed issuance of the
Conversion Shares and the Warrant Shares shall be legally permitted by all
laws and regulations to which Purchasers and the Company are subject.
(d) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement and the
Related Agreements (except for such as may be properly obtained subsequent to
the First Closing).
(e) FILING OF RESTATED CERTIFICATE. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware.
(f) CORPORATE DOCUMENTS. The Company shall have delivered to
Purchasers or their counsel, copies of all corporate documents of the Company
as Purchasers shall reasonably request.
(g) RESERVATION OF CONVERSION SHARES AND WARRANT SHARES. The
Conversion Shares issuable upon conversion of the Shares and the Warrants
Shares is issuable upon exercise of the Warrants shall have been duly
authorized and reserved for issuance upon such conversion.
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(h) COMPLIANCE CERTIFICATE. The Company shall have delivered to
Purchasers a Compliance Certificate, executed by the President of the
Company, dated the date of the First Closing, to the effect that the
conditions specified in subsections (a), (b), (d), (e) and (g) of this
Section 5.1 have been satisfied.
(i) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as EXHIBIT E shall have been
executed and delivered by the parties thereto.
(j) CO-SALE AGREEMENT. The Co-Sale Agreement substantially in
the form attached hereto as EXHIBIT F shall have been executed and delivered
by the parties thereto.
(k) VOTING AGREEMENT. The Voting Agreement substantially in the
form attached hereto as EXHIBIT G shall have been executed and delivered by
the parties thereto.
(l) BOARD OF DIRECTORS. Upon the First Closing, the authorized
size of the Board of Directors of the Company shall initially be eight (8)
members and the Board shall consist of Robert L. Stevens, Garrett Gruener,
Stuart Gannes, Alex Knight, Andrew Anker, Ronald Cooper, Brian Graff and
designee of the Purchasers.
(m) LEGAL OPINION. The Purchasers shall have received from legal
counsel to the Company an opinion addressed to them, dated as of the First
Closing Date, in substantially the form attached hereto as EXHIBIT K.
(n) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the First
Closing hereby and all documents and instruments incident to such
transactions shall be reasonably satisfactory in substance and form to the
Purchasers and their special counsel, and the Purchasers and their special
counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
(o) PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. All key
employees shall have executed a Proprietary Information and Inventions
Agreement that is reasonably acceptable to Investors' counsel.
(p) DUE DILIGENCE. All matters investigated by the Purchasers in
the course of their due diligence shall be satisfactory to each of the
Purchasers, their special counsels and their accountants.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's
obligation to issue and sell the Shares and the Warrants at the First Closing
is subject to the satisfaction, on or prior to the First Closing, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties made by those Purchasers acquiring Shares and Warrants in Section
4 hereof shall be true and correct in all material respects at the date of
the First Closing, with the same force and effect as if they had been made on
and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have
performed and complied in all material respects with all agreements and
conditions herein required to be performed or complied with by such
Purchasers on or before the First Closing.
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(c) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as EXHIBIT E shall have been
executed and delivered by the Purchasers.
(d) CO-SALE AGREEMENT. The Co-Sale Agreement substantially in
the form attached hereto as EXHIBIT F shall have been executed and delivered
by the parties thereto.
(e) VOTING AGREEMENT. The Voting Agreement substantially in the
form attached hereto as EXHIBIT G shall have been executed and delivered by
the parties thereto.
(f) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement and the
Related Agreements (except for such as may be properly obtained subsequent to
the First Closing).
SECTION 6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of New York as such laws are applied to agreements
between New York residents entered into and performed entirely in New York.
Each party hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of the state and federal courts located in the State
of New York for any actions, suits or proceedings arising out of or relating
to this Agreement or any of the Related Agreements (as defined in the
Purchase Agreement) and the transactions contemplated hereby or thereby. Each
party hereto agrees not to commence any action, suit or proceeding relating
thereto except in such courts. The parties hereto irrevocably and
unconditionally waive any objection to the laying of venue in any action,
suit or proceeding arising out of this Agreement or any of the Related
Agreements or the transactions contemplated hereby or thereby, in such state
or federal courts aforesaid and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY
WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY OF THE
RELATED AGREEMENTS.
6.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser
and the First Closing of the transactions contemplated hereby. All statements
as to factual matters contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant hereto in connection with
the transactions contemplated hereby shall be deemed to be representations
and warranties by the Company hereunder solely as of the date of such
certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares, the Warrants, the Warrant Shares
and the Conversion Shares from time to time.
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6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Related Agreements and the PPM and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations,
warranties, covenants and agreements except as specifically set forth herein
and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and holders of at least a majority of the
Shares and Warrants (treated as if converted and including any Conversion
Shares and Warrant Shares into which the Shares and Warrants have been
converted or exercised that have not been sold to the public).
(b) The obligations of the Company and the rights of the holders
of the Shares and the Conversion Shares under the Agreement may be waived
only with the written consent of the holders of at least a majority of the
Shares (treated as if converted and including any Conversion Shares into
which the Shares have been converted that have not been sold to the public).
(c) Any amendment, modification or waiver effected in accordance
with Section 6.6(a) or Section 6.6(b) with the consent of the requisite
parties 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), each future holder and the Company (even if such
holder did not consent to such amendment, modification or waiver).
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Restated Certificate, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default
or noncompliance, or any acquiescence therein, or of or in any similar
breach, default or noncompliance thereafter occurring. It is further agreed
that any waiver, permit, consent or approval of any kind or character on any
Purchaser's part of any breach, default or noncompliance under this
Agreement, the Related Agreements or under the Restated Certificate or any
waiver on such party's part of any provisions or conditions of the Agreement,
the Related Agreements, or the Restated Certificate must be in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, the Related Agreements, the
Restated Certificate, by law, or otherwise afforded to any party, shall be
cumulative and not alternative.
6.8 WAIVER OF CONFLICTS. Each party to this Agreement acknowledges that
legal counsel for the Company, Cooley Godward LLP ("COOLEY GODWARD"), has in the
past and may continue in the future to perform legal services for one or more of
the Purchasers or their affiliates in matters unrelated to the transactions
contemplated by this Agreement, including, but not limited to, the
representation of the Purchasers in matters of a similar nature to the
transactions contemplated herein. Each party to this Agreement hereby (a)
acknowledges that they have had an opportunity to ask for and have obtained
information relevant to such representation, including disclosure of the
reasonably foreseeable adverse consequences of such representation, (b)
acknowledges that with respect to the transactions contemplated
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herein, Cooley Godward has represented the Company and not any individual
Purchaser or any individual stockholder, director or employee of the Company
and (c) gives its informed consent to Cooley Godward's representation of the
Company in the transactions contemplated by this Agreement and Cooley
Godward's representation of one or more of the Purchasers or their affiliates
in matters unrelated to such transactions.
6.9 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day; (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
Company at the address as set forth on the signature page hereof and to
Purchaser at the address set forth on EXHIBIT A attached hereto or at such
other address as the Company or Purchaser may designate by ten days advance
written notice to the other parties hereto.
6.10 TRANSFER TAXES. All transfer, transfer gains, documentary,
sales, use, stamp, registration and other similar Taxes and fees (including
costs and expenses relating to such Taxes) (collectively, "TRANSFER TAXES")
incurred in connection with the consummation of the transactions contemplated
by this Agreement, shall be borne by the Company. The Company shall, at its
own expense, prepare and timely file, in accordance with all applicable laws
and regulations, all necessary Tax Returns and other documentation with
respect to such Transfer Taxes. The Purchasers shall reasonably cooperate
with the Company in the preparation and filing of any such Tax Returns and
other documentation.
6.11 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance
of this Agreement. The Company shall, at the First Closing, reimburse the
reasonable fees of and expenses of special counsel to the Purchasers not to
exceed $30,000 pro rata in proportion to amounts set forth opposite such
Purchaser's name on EXHIBIT A attached hereto including the Purchasers on
Exhibit A of that certain Second Series E Preferred Stock Purchase Agreement;
PROVIDED, HOWEVER, that in the case of Owens Corning, such reimbursement
shall not be less than $10,000.
6.12 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Agreement should result in litigation, the prevailing party
in such dispute shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party under or
with respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
6.13 TITLES AND SUBTITLES. The titles of the sections and
subsections of the Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
6.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.15 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify
18.
<PAGE>
each other party for any claims, losses or expenses incurred by such other
party as a result of the representation in this Section 6.15 being untrue.
6.16 PRESS RELEASES/USE OF OWENS CORNING NAME. The Company shall not
issue any press release or make any disclosure or public announcement
relating to the subject matter of this Agreement or any of the Related
Agreements without the prior written approval of Owens Corning. Without
limiting the generality of the foregoing, the Company shall not in any manner
publicly use or refer to the name of Owens Corning or any its affiliates in
any press release, disclosure or public announcement without the prior
written approval of the party so named. Notwithstanding the foregoing, the
Company shall be permitted to disclose this Agreement or any of the Related
Agreements to the extent required in any filing required by the Company
pursuant to the Securities Act of 1933, as amended, the Securities and
Exchange Act of 1934, as amended, or any other state or federal statute.
6.17 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that
it is not relying upon any person, firm, or corporation, other than the
Company and its officers and directors, in making its investment or decision
to invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Shares and Conversion Shares.
6.18 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
[THIS SPACE INTENTIONALLY LEFT BLANK]
19.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the FIRST
SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT as of the date set
forth in the first paragraph hereof.
COMPANY: OWENS CORNING:
IMPROVENET, INC. ------------------------------------
720 BAY ROAD, SUITE 200
REDWOOD CITY, CA 94063
By: /s/ Ron Cooper By: /s/ All First Series E Investors
------------------------------------ --------------------------------
Ronald Cooper, President and Chief
Executive Officer Title:
-----------------------------
FIRST SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
SIGNATURE PAGE
<PAGE>
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
SHARES OF FIRST SERIES E WARRANTS TO PURCHASE AGGREGATE
NAME AND ADDRESS PREFERRED COMMON SHARES OF PURCHASE PRICE
STOCK
------------------------------------- -------------------------- ------------------------------- --------------------------
<S> <C> <C> <C>
Owens Corning 740,741 150,000 $10,000,003.50
One Owens Corning Parkway
Toledo, OH 43659
TOTAL 740,741 150,000 $10,000,003.50
========================== ================================= ==========================
</TABLE>
EXHIBIT A-1
FIRST SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPROVENET, INC.
SECOND SERIES E PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
DATED NOVEMBER 23, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
INDEX OF EXHIBITS
Schedule of Purchasers . . . . . . . . . . . . . . . . . Exhibit A
Form of Warrant Agreement. . . . . . . . . . . . . . . . Exhibit B
Second Restated Certificate of Incorporation . . . . . . Exhibit C
Schedule of Exceptions . . . . . . . . . . . . . . . . . Exhibit D
Third Amended and Restated
Investor Rights Agreement . . . . . . . . . . . . . . Exhibit E
Third Amended and Restated Right
of First Refusal and Co-Sale Agreement. . . . . . . . Exhibit F
Third Amended and Restated Voting Agreement. . . . . . . Exhibit G
List of Stockholders, Optionholders
and Warrantholders. . . . . . . . . . . . . . . . . . Exhibit H
Financial Statements . . . . . . . . . . . . . . . . . . Exhibit I
Proprietary Information and Inventions Agreement . . . . Exhibit J
Form of Legal Opinion . . . . . . . . . . . . . . . . . Exhibit K
Press Release. . . . . . . . . . . . . . . . . . . . . . Exhibit L
i.
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1.AGREEMENT TO SELL AND PURCHASE ................................... 1
1.1 Authorization of Shares and Warrants ............................. 1
1.2 Sale and Purchase ................................................ 1
SECTION 2.CLOSING, DELIVERY AND PAYMENT .................................... 2
2.1 Closing .......................................................... 2
2.2 Delivery ......................................................... 2
2.3 Subsequent Sales of Shares ....................................... 2
SECTION 3.REPRESENTATIONS AND WARRANTIES OF THE COMPANY .................... 2
3.1 Organization, Good Standing and Qualification .................... 2
3.2 Capitalization; Voting Rights .................................... 2
3.3 Authorization; Binding Obligations ............................... 3
3.4 Financial Statements ............................................. 4
3.5 Liabilities ...................................................... 4
3.6 Agreements; Action ............................................... 4
3.7 Obligations to Related Parties ................................... 5
3.8 Changes .......................................................... 5
3.9 Title to Properties and Assets; Liens, etc ....................... 6
3.10 Patents and Trademarks ........................................... 7
3.11 Compliance with Other Instruments ................................ 7
3.12 Litigation ....................................................... 8
3.13 Tax Returns and Payments ......................................... 8
3.14 Employees ........................................................ 9
3.15 Proprietary Information and Inventions Agreements ................ 9
3.16 Obligations of Management ........................................ 10
3.17 Registration Rights and Voting Agreements ........................ 10
3.18 Compliance with Laws; Permits .................................... 10
3.19 Environmental and Safety Laws .................................... 10
3.20 Offering Valid ................................................... 10
3.21 Full Disclosure .................................................. 11
3.22 Qualified Small Business ......................................... 11
i.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
3.23 Minute Books ..................................................... 11
3.24 Insurance ........................................................ 11
3.25 Small Business Concern ........................................... 11
3.26 Year 2000 Compliance ............................................. 12
3.27 Foreign Corrupt Practices Act .................................... 12
3.28 Directors and Officers ........................................... 12
SECTION 4.REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS ................. 12
4.1 Requisite Power and Authority .................................... 12
4.2 Investment Representations ....................................... 13
4.3 Transfer Restrictions ............................................ 14
SECTION 5.CONDITIONS TO CLOSING ............................................ 14
5.1 Conditions to Purchasers' Obligations at the First Closing ....... 14
5.2 Conditions to Obligations of the Company ......................... 15
SECTION 6.MISCELLANEOUS .................................................... 16
6.1 Governing Law .................................................... 16
6.2 Survival ......................................................... 16
6.3 Successors and Assigns ........................................... 16
6.4 Entire Agreement ................................................. 16
6.5 Severability ..................................................... 17
6.6 Amendment and Waiver ............................................. 17
6.7 Delays or Omissions .............................................. 17
6.8 Waiver of Conflicts .............................................. 17
6.9 Notices .......................................................... 18
6.10 Transfer Taxes ................................................... 18
6.11 Expenses ......................................................... 18
6.12 Attorneys' Fees .................................................. 18
6.13 Titles and Subtitles ............................................. 18
6.14 Counterparts ..................................................... 18
ii.
<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
6.15 Broker's Fees .................................................... 18
6.16 Press Releases/Use of Parties' Name .............................. 19
6.17 Exculpation Among Purchasers ..................................... 19
6.18 Pronouns ......................................................... 19
iii.
<PAGE>
IMPROVENET, INC.
SECOND SERIES E PREFERRED STOCK AND WARRANT
PURCHASE AGREEMENT
THIS SECOND SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the
"AGREEMENT") is entered into as of December 7, 1999, by and among IMPROVENET,
INC., a Delaware corporation (the "COMPANY") and each of those persons and
entities, severally and not jointly, whose names are set forth on the
Schedule of Purchasers attached hereto as EXHIBIT A (which persons and
entities are hereinafter collectively referred to as "PURCHASERS" and each
individually as a "PURCHASER").
RECITALS
WHEREAS, the Company has authorized the sale and issuance of an
aggregate of (i) two million two hundred fifty-nine thousand two hundred
fifty-nine (2,259,259) of its Series E Preferred Stock (the "SHARES") and
(ii) warrants in the form of EXHIBIT B to purchase up to ninety five (95,000)
shares of its Common Stock (the "Warrants");
WHEREAS, Purchasers desire to purchase the Shares and the Warrants on
the terms and conditions set forth herein; and
WHEREAS, the Company desires to issue and sell the Shares and the
Warrants to the Purchasers on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
SECTION 1. AGREEMENT TO SELL AND PURCHASE.
1.1 AUTHORIZATION OF SHARES AND WARRANTS. On or prior to the First
Closing (as defined in Section 2 below), the Company shall have authorized
(a) the sale and issuance to Purchasers of the Shares and the Warrants, (b)
the issuance of shares of Common Stock to be issued pursuant to the exercise
of the Warrants (the "Warrant Shares") and (c) the issuance of such shares of
common stock to be issued upon conversion of the Shares (the "CONVERSION
SHARES") and the Warrant Shares. The Shares, the Warrant Shares and the
Conversion Shares shall have the rights, preferences, privileges and
restrictions set forth in the Third Amended and Restated Certificate of
Incorporation of the Company in the form attached hereto as EXHIBIT C (the
"RESTATED CERTIFICATE"). The warrants shall be in the form and have the
rights set forth in the form of Warrant attached hereto as EXHIBIT B.
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing the Company hereby agrees to issue and sell to each Purchaser,
severally and not jointly, and each Purchaser agrees to purchase from the
Company, severally and not jointly, the number of Shares and Warrants set
forth opposite such Purchaser's name on EXHIBIT A at an aggregate purchase
price for each Purchaser set forth opposite such Purchaser's name.
1.
<PAGE>
SECTION 2. CLOSING, DELIVERY AND PAYMENT.
2.1 CLOSING. The closing of the sale and purchase of the Shares and
Warrants under this Agreement (the "FIRST CLOSING") shall take place on the
date hereof at the offices of Cooley Godward LLP, 3000 Sand Hill Road,
Building 3, Suite 230, Menlo Park, California or at such other time and place
as the Company and the Purchaser may mutually agree (such date is hereinafter
referred to as the "FIRST CLOSING DATE").
2.2 DELIVERY. At the First Closing, subject to the terms and conditions
hereof, the Company will deliver to the Purchasers certificates representing
the number of Shares and warrant certificates or agreements representing the
Warrants to be purchased at the First Closing by each Purchaser, against
payment of the purchase price therefor by check, wire transfer made payable
to the order of the Company, cancellation of indebtedness or any combination
of the foregoing.
2.3 SUBSEQUENT SALES OF SHARES. At any time on or before the 90th day
following the First Closing, the Company may sell up to the balance of the
authorized shares of Series E Preferred Stock and Warrants not sold at the
First Closing to such persons as may be approved by the Board of Directors of
the Company. All such sales shall be made on the terms and conditions set
forth in this Agreement, including, without limitation, the representations
and warranties by such Purchasers as set forth in Section 4. Any Shares of
Series E Preferred Stock and Warrants sold pursuant to this Section 2.3 shall
be deemed to be "SHARES" and "WARRANTS", respectively, for all purposes under
this Agreement and any purchasers thereof shall be deemed to be "PURCHASERS"
for all purposes under this Agreement.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as specifically set forth under the corresponding section number
of the Schedule of Exceptions attached hereto as EXHIBIT D, the Company
hereby represents and warrants to each Purchaser as of the First Closing as
follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company has all requisite corporate power
and authority to own and operate its properties and assets, to execute and
deliver this Agreement, the Investor Rights Agreement, the Co-Sale Agreement
and the Voting Agreement (collectively, the "RELATED AGREEMENTS"), to issue
and sell the Shares and the Warrants and to issue the Conversion Shares and
the Warrant Shares and to carry out the provisions of this Agreement, the
Related Agreements and the Restated Certificate and to carry on its business
as presently conducted and as presently proposed to be conducted. The
Company is duly qualified and is authorized to do business and is in good
standing as a foreign corporation in all jurisdictions in which the nature of
its activities and of its properties (both owned and leased) makes such
qualification necessary. The Company does not have any investment in,
control, either directly or indirectly, nor own any equity securities of any
other corporation, limited partnership or similar entity. The Company is not
a participant in any joint venture, partnership or similar arrangement. The
Company has delivered to the Purchasers true and complete copies of its
Bylaws and Restated Certificate as currently in effect.
3.2 CAPITALIZATION; VOTING RIGHTS. The authorized capital stock of the
Company, immediately prior to the First Closing, will consist of (a) thirty
four million (34,000,000) shares of common stock, of which (i) one million
six hundred eighty one thousand three hundred nineteen (1,684,319) shares are
issued and outstanding, (ii) one hundred ninety nine thousand three hundred
fourteen (199,314) shares are reserved for future issuance to employees
pursuant to the Company's
2.
<PAGE>
Amended and Restated 1996 Stock Option Plan, (iii) two million one hundred
ninety three thousand four hundred six (2,193,406) shares are subject to
outstanding options pursuant to the Amended and Restated 1996 Stock Option
Plan and (iv) ten thousand (10,000) shares are subject to outstanding
warrants to purchase common stock, and (b) twelve million four hundred
eighty-two thousand nine hundred thirty-five (12,482,935) authorized shares
of preferred stock, of which (i) one million three hundred one thousand four
hundred (1,301,400) are designated Series A Preferred Stock, one million two
hundred seven thousand (1,207,000) of which are issued and outstanding and
ninety-four thousand four hundred (94,400) of which are reserved for issuance
pursuant to outstanding warrants to purchase Series A Preferred Stock, (ii)
one million nine hundred eighty-one thousand five hundred thirty-five
(1,981,535) are designated Series B Preferred Stock, one million nine hundred
thirty-four thousand five hundred twenty-six (1,934,526) of which are issued
and outstanding and forty-seven thousand nine (47,009) of which are reserved
for issuance pursuant to outstanding warrants to purchase Series B Preferred
Stock, (iii) three million seven hundred thousand (3,700,000) are designated
Series C Preferred Stock, three million five hundred forty three thousand one
hundred ninety (3,543,190) of which are issued and outstanding and forty
seven thousand one hundred sixty seven (47,167) of which are reserved for
issuance pursuant to an outstanding warrant to purchase Series C Preferred
Stock, (iv) two million five hundred thousand (2,500,000) are designated
Series D Preferred Stock, two million one hundred thousand eight hundred
forty three (2,100,843) of which are issued and outstanding and three hundred
twenty six thousand (326,000) of which are reserved for issuance to
outstanding warrants to purchase Series D Preferred Stock and (v) three
million (3,000,000) are designated Series E Preferred Stock, none of which
are issued and outstanding as of the date hereof. All issued and outstanding
shares of the Company's common stock and preferred stock (I) have been duly
authorized and validly issued to the persons listed on EXHIBIT H hereto, (II)
are fully paid and nonassessable, and (III) were issued in compliance with
all applicable state and federal laws concerning the issuance of securities.
The rights, preferences, privileges and restrictions of the Shares are as
stated in the Restated Certificate. The Conversion Shares and the Warrant
Shares have been duly and validly reserved for issuance. Other than as set
forth on EXHIBIT H, and except as may be granted pursuant to the Related
Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, voting agreements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. EXHIBIT H
reflects a complete and accurate list of all the Company's outstanding
shares, warrants, convertible or exchangeable securities and options as of
the time immediately after the First Closing and EXHIBIT H reflects any
dilution and exercise of preemptive rights triggered by the transactions
contemplated hereby. When issued in compliance with the provisions of this
Agreement and the Restated Certificate, the Shares, the Warrants, the
Conversion Shares and the Warrant Shares will be validly issued, fully paid
and nonassessable, and will be free of any liens or encumbrances; PROVIDED,
HOWEVER, that the Shares, the Warrants, the Conversion Shares and the Warrant
Shares may be subject to restrictions on transfer under state and/or federal
securities laws as set forth herein or as otherwise required by such laws at
the time a transfer is proposed.
3.3 AUTHORIZATION; BINDING OBLIGATIONS. All corporate action on the
part of the Company, its officers, directors and stockholders necessary for
the authorization of this Agreement and the Related Agreements, the
performance of all obligations of the Company hereunder and thereunder at the
First Closing and the authorization, sale, issuance and delivery of the
Shares, the Warrants and the Warrant Shares pursuant hereto and the
Conversion Shares pursuant to the Restated Certificate has been taken or will
be taken prior to the First Closing. The Agreement and the Related
Agreements, when executed and delivered, will be valid and binding
obligations of the Company enforceable in accordance with their terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights, (b) general principles of equity that restrict the
availability of equitable remedies and (c) to the extent that the
enforceability of the
3.
<PAGE>
indemnification provisions in Section 3.9 of the Investor Rights Agreement
may be limited by applicable laws. The sale of the Shares, the Warrants, the
Warrant Shares and the subsequent conversion of the Shares and the Warrant
Shares into Conversion Shares are not and will not be subject to any
preemptive rights or rights of first refusal that have not been properly
waived or complied with.
3.4 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser
(a) its audited balance sheet, an audited profit and loss statement,
statement of cash flows and statement of shareholders' equity for the twelve
(12) month period ending on December 31, 1998, (b) its unaudited balance
sheet, unaudited profit and loss statement, unaudited statement of cash flows
and statement of shareholders' equity for the nine (9) month period ending on
September 30, 1999 (collectively, the "FINANCIAL STATEMENTS"), copies of
which are attached hereto as EXHIBIT I. The Financial Statements, together
with the notes thereto, are complete and correct in all material respects and
present fairly the financial condition, results of operations, cash flows and
shareholders' equity and position of the Company as of September 30, 1999;
PROVIDED, HOWEVER, that the unaudited financial statements are subject to
normal recurring year-end audit adjustments (which are not expected to be
material) and do not contain all footnotes required under generally accepted
accounting principles.
3.5 LIABILITIES. The Company has no material liabilities whether
accrued, absolute, contingent, known or unknown or due or to become due not
disclosed in the Financial Statements, except current liabilities incurred in
the ordinary course of business subsequent to September 30, 1999 which have
not been, either in any individual case or in the aggregate, materially
adverse. In any event, the Company has no liabilities in the aggregate in
excess of $25,000.
3.6 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby and
agreements between the Company and its employees with respect to the sale of
the Company's common stock, there are no agreements, understandings or
proposed transactions between the Company and any of its officers, directors,
affiliates or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to
which the Company is a party or to its knowledge by which it is bound which
may involve (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $25,000 in the aggregate (other than obligations of, or
payments to, the Company arising from purchase or sale agreements entered
into in the ordinary course of business), (ii) the license of any patent,
copyright, trade secret or other proprietary right to or from the Company
(other than licenses arising from the purchase of "off the shelf" or other
standard products or entered into in the ordinary course of business), (iii)
provisions restricting or affecting the development, manufacture or
distribution of the Company's products or services or the Company's ability
to solicit the Company's employees or otherwise restricting the Company's
ability to do business in any geographic area, or (iv) indemnification by the
Company with respect to infringements of proprietary rights (other than
indemnification obligations arising from purchase or sale agreements entered
into in the ordinary course of business).
(c) The Company has not (i) declared or paid any dividends, or
authorized or made any distribution upon or with respect to any class or
series of its capital stock, (ii) incurred any indebtedness for money
borrowed or any other liabilities (other than with respect to dividend
obligations, distributions, indebtedness and other obligations incurred in
the ordinary course of business) individually in excess of $25,000 or, in the
case of indebtedness and/or liabilities individually less than $25,000, in
4.
<PAGE>
excess of $50,000 in the aggregate, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of its assets or rights, other than
the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including
persons or entities the Company has reason to believe are affiliated
therewith) shall be aggregated for the purpose of meeting the individual
minimum dollar amounts of such subsections.
3.7 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, stockholders, or employees of the Company
other than (a) for payment of current salary for services rendered, (b)
reimbursement for reasonable expenses incurred on behalf of the Company and
(c) for other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company). None of the
officers, directors or stockholders of the Company, or any members of their
immediate families, are indebted to the Company or have any direct or
indirect ownership interest in any firm or corporation with which the Company
is affiliated or with which the Company has a business relationship, or any
firm or corporation which competes with the Company, except that officers,
directors and/or stockholders of the Company may own up to five percent (5%)
of the stock in publicly traded companies which may compete with the Company.
No officer, director or stockholder, or any member of their immediate
families, is, directly or indirectly, interested in any material contract
with the Company (other than such contracts as relate to any such person's
ownership of capital stock or other securities of the Company). The Company
is not a guarantor or indemnitor of any indebtedness of or does not otherwise
provide credit enhancement to any other person, firm or corporation.
3.8 CHANGES. Since September 30, 1999, there has not been to the
Company's knowledge:
(a) Any change in the assets, liabilities, financial condition or
operations of the Company, other than changes in the ordinary course of
business, none of which individually or in the aggregate has had or is
expected to have a material adverse effect on such assets, liabilities,
financial condition or operations of the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a material
debt owed to it;
(f) Any direct or indirect loans made by the Company to any
stockholder, employee, officer or director of the Company, other than
advances made in the ordinary course of business;
5.
<PAGE>
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or stockholder;
(h) Any declaration or payment of any dividend by, or any other
distribution of any securities (other than in the ordinary course of
business) or the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for
current liabilities incurred in the ordinary course of business;
(k) Any sale, pledge, assignment or transfer of any material
tangible assets or patents, trademarks, copyrights, trade secrets or other
intangible assets of the Company;
(l) Any change in any material agreement to which the Company is a
party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects
of the Company, including, without limitation, compensation agreements with
the Company's employees;
(m) Any payment, discharge, satisfaction or settlement of any
material claim or obligation of the Company, except in the ordinary course of
business and consistent with past practice;
(n) Any write-down of the value of any asset of the Company or any
write-off as uncollectible of any accounts or notes receivable or any portion
thereof except in the ordinary course of business;
(o) Any expenditure or commitment or addition to property, plant
or equipment of the Company except in amounts less than $250,000 in the
singular or in the aggregate;
(p) Any change in the independent public accountants of the
Company or any material change in the accounting methods or accounting
practices followed by the Company or any material change in depreciation or
amortization policies or rates;
(q) Any receipt of notice that there has been a loss of, or
material order cancellation by, a major customer, advertiser or sponsor of
the Company;
(r) Any change in the Company's accounting methods, principles or
practices, any new elections with respect to Taxes (as defined herein) or any
changes in the current elections with respect to Taxes; or
(s) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects
of the Company.
3.9 TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company does not
own fee title to any real property. The Company has good and marketable
title to its properties and assets, and good title to its leasehold estates,
in each case subject to no mortgage, pledge, lien, lease, encumbrance or
charge, other than (a) those resulting from taxes which have not yet become
delinquent, (b) minor liens and
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encumbrances which do not materially detract from the value of the property
subject thereto or materially impair the operations of the Company, and (c)
those that have otherwise arisen in the ordinary course of business. All
facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company are in good operating condition and
repair and are reasonably fit and usable for the purposes for which they are
being used. The Company is in compliance with all material terms of each
lease to which it is a party or is otherwise bound.
3.10 PATENTS AND TRADEMARKS. To the best of its knowledge, the Company
owns or possesses sufficient legal rights to all patents, trademarks, service
marks, trade names, copyrights, trade secrets, uniform resource locators,
information and other proprietary rights and processes necessary for the
Company's business as now conducted and as proposed to be conducted (the
"INTELLECTUAL PROPERTY RIGHTS"), without any known infringement of the rights
of others. The Schedule of Exceptions contains a complete list of the
patents, pending patent applications, trademarks, services marks and the
uniform resource locators of the Company. There are no outstanding
assignments, options, licenses or agreements of any kind relating to the
foregoing nor is the Company bound by or a party to any assignments, options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information
and other proprietary rights and processes of any other person or entity
other than such licenses or agreements arising from the purchase of "off the
shelf" or standard products. The Company has not received any communications
alleging that the Company has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks, service marks, trade
names, copyrights or trade secrets or other proprietary rights of any other
person or entity. The Company is not aware that any of its employees is
obligated under any contract (including licenses, covenants or commitments of
any nature) or other agreement, or subject to any judgment, decree or order
of any court or administrative agency, that would interfere with their duties
to the Company or that would conflict with the Company's business as proposed
to be conducted. Neither the execution nor delivery of this Agreement or the
Related Agreements nor the carrying on of the Company's business by the
employees of the Company nor the conduct of the Company's business as
proposed will, to the Company's knowledge, (i) conflict with or result in a
breach of the terms, conditions or provisions of or constitute a default
under any contract, covenant or instrument under which any employee is now
obligated or (ii) conflict with, alter or impair any of the Intellectual
Property Rights. The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company, except for
inventions, trade secrets or proprietary information that have been duly and
validly assigned to the Company. The Company has utilized commercially
reasonable efforts to (i) protect and enforce all Intellectual Property
Rights, except for those rights that, individually or in the aggregate, are
not material to the Company, (ii) protect through nondisclosure agreements
and otherwise all trade secrets and confidential information of the Company
and (iii) otherwise to secure and protect for the Company's benefit all
Intellectual Property Rights. The Company uses reasonable efforts, consistent
with industry practices of comparable companies, to identify any use of any
Intellectual Property Rights by third parties that has infringed or infringes
any Intellectual Property Rights, and Section 3.10 of the Schedule of
Exceptions discloses all material instances know to the Company of any
infringing uses, all steps that the Company has taken or is taking to end
such infringement, and how any such instances of infringement have been
resolved. The Company believes it can obtain on commercially reasonable
terms any additional Intellectual Property Rights necessary for its business
as proposed to be conducted.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Restated Certificate or Bylaws. The Company is
not in violation or default of any provision of any mortgage, indenture,
contract, agreement, instrument or contract to which it is party or by which
it is bound or of any judgment, decree, order, writ or, to its knowledge, any
statute, rule or
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regulation applicable to the Company, its business or operations or any of
its assets or properties. The execution, delivery and performance of and
compliance with this Agreement, the Warrants and the Related Agreements, and
the issuance and sale of the Shares, the Conversion Shares and the Warrant
Shares pursuant to the Restated Certificate will not, with or without the
passage of time or giving of notice, result in any such material violation,
or be in conflict with or constitute a default under any such term, or result
in the creation of any mortgage, pledge, lien, encumbrance or charge upon any
of the properties or assets of the Company or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
3.12 LITIGATION. There is no action, suit, proceeding or investigation
pending or to the Company's knowledge currently threatened against the
Company (i) that questions the validity of this Agreement, the Related
Agreements or the right of the Company to enter into any of such agreements,
or to consummate the transactions contemplated hereby or thereby, or (ii)
which might result, either individually or in the aggregate, in any material
adverse change in the assets, condition, affairs or prospects of the Company,
financially or otherwise, or any change in the current equity ownership of
the Company nor is the Company aware that there is any basis for the
foregoing. The foregoing includes, without limitation, actions pending or
threatened (or any basis therefor known to the Company) involving the prior
employment of any of the Company's employees, their use in connection with
the Company's business of any information or techniques allegedly proprietary
to any of their former employers, or their obligations under any agreements
with prior employers. Neither the Company nor any of its properties, assets
or businesses are subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality.
There is no action, suit, proceeding or investigation by the Company
currently pending or which the Company intends to initiate.
3.13 TAX RETURNS AND PAYMENTS.
(a) The Company has timely filed all Tax Returns required to be
filed by it. These Tax Returns are true and correct in all material
respects. All Taxes shown to be due and payable on such Tax Returns, any
assessments imposed and all other taxes due and payable by the Company have
been timely paid or will be paid prior to the time they become delinquent.
All Taxes required to be withheld and paid over by the Company to any
relevant taxing authority in connection with payments to employees,
independent contractors, creditors, stockholders or to third parties have
been so withheld and paid over. The Company has not been advised (i) that
any of its returns, federal, state or other, have been or are being audited
as of the date hereof or (ii) of any deficiency in assessment or proposed
judgment to its federal, state or other taxes. The Company has no knowledge
of any liability of any tax to be imposed upon its properties or assets as of
the date of this Agreement that is not adequately provided for. The accruals
and reserves for Taxes (other than deferred Taxes) reflected on the unaudited
balance sheet as of September 30, 1999 are complete and adequate to cover any
liabilities for Taxes with respect to periods or portions of periods ending
on or before September 30, 1999. The accruals and reserves for Taxes (other
than deferred Taxes) established in the books and records of the Company are
complete and adequate to cover any liabilities for Taxes that are
attributable to the period beginning after September 30, 1999 and ending on
the First Closing Date. No Tax authority in a jurisdiction where the Company
does not file Tax Returns has made a claim, assertion or threat that the
Company is or may be subject to Tax in such jurisdiction. No audits or
examinations with respect to the Company are ongoing or have been threatened
or proposed by any taxing authority. No deficiencies for any Tax have been
threatened, proposed, asserted or assessed against the Company which have not
been satisfied. No waivers or extension of statutes of limitations with
respect to Taxes have been given by the Company. Complete copies of all Tax
Returns of the Company that have been filed by the Company since its
inception have
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been delivered to or made available to each of the Purchasers if requested by
a Purchaser. The Company is not party to or liable under any tax sharing
arrangement. The Company has not filed a combined, consolidated or unitary
Tax Return with respect to any affiliated group of which the Company is not
the common parent. The Company has not made an election under Section 341(f)
of the Internal Revenue Code of 1986 (the "CODE"), as amended.
(b) For purposes of this Agreement, "TAX" (including, with
correlative meaning, the terms "TAXES") shall mean all federal, state, local
and foreign income, profits, franchise, gross receipts, environmental,
customs, duty, capital stock, communications servicers, severance, stamp,
payroll, sales, employment, unemployment, disability, use, property,
withholding, excise, production, value added, occupancy, and other taxes,
duties or assessments of any nature whatsoever, together with all interest,
penalties and additions imposed with respect to such amounts and any interest
in respect to such penalties and additions, and includes any liability for
Taxes of another person by contract, as a transferee of successor, under
Treasury Regulation 1.1502-6 or analogous state, local or foreign law
provision or otherwise; and "TAX RETURN" shall mean all returns and reports
(including elections, declarations, disclosures, schedules, estimates and
information returns) required to be supplied to a Tax authority relating to
Taxes.
3.14 EMPLOYEES. The Company has no collective bargaining agreements with
any of its employees. There is no labor union organizing activity pending
or, to the Company's knowledge, threatened with respect to the Company. No
employee has any agreement or contract, written or verbal, regarding his
employment other than a Proprietary Information and Inventions Agreement.
The Company is not a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan,
profit sharing plan, retirement agreement or other employee compensation plan
or agreement. To the Company's knowledge, no employee of the Company nor any
consultant with whom the Company has contracted is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by or
to contract with the Company, because of the nature of the business to be
conducted by the Company; and to the Company's knowledge the continued
employment by the Company of its present employees, and the performance of
the Company's contracts with its independent contractors, will not result in
any such violation. The Company has not received any notice alleging that
any such violation has occurred. No employee of the Company has been granted
the right to continued employment by the Company or to any material
compensation following termination of employment with the Company. The
Company is not aware that any officer, key employee or any group of key
employees intends to terminate their employment with the Company nor does the
Company have a present intention to terminate the employment of any officer,
key employee or group of key employees. The Company has complied with all
applicable laws relating to the employment of labor, including laws relating
to wages and hours, equal opportunity and payment of social security and
other taxes.
3.15 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. To the best of
the Company's knowledge, it has done nothing to compromise the secrecy,
confidentiality or value of any of its trade secrets, know-how, inventions,
prototypes, designs, processes or technical data required to conduct its
business as now conducted or proposed to be conducted. The Company has taken
in the past and will take in the future reasonable security measures to
protect the secrecy, confidentiality and value of all of its trade secrets,
know-how, inventions, prototypes, designs, processes and technical data
important to the conduct of its business. Each former and current employee,
officer and consultant of the Company has executed a Proprietary Information
and Inventions Agreement in the form of EXHIBIT J attached hereto. No
current employee, officer or consultant of the Company has excluded works or
inventions made prior to his or her employment with the Company from his or
her assignment of inventions
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pursuant to such employee's, officer's or consultant's Proprietary
Information and Inventions Agreement. The Company, after reasonable
investigation, is not aware that any of its employees, officers or
consultants is in violation of any item of the Proprietary Information and
Inventions Agreement that would have a materially adverse effect on the
Company, and the Company will use its best efforts to prevent any such
violation.
3.16 OBLIGATIONS OF MANAGEMENT. Each officer and key employee of the
Company is currently devoting one hundred percent (100%) of his business time
to the conduct of the business of the Company. The Company is not aware of
any officer or key employee of the Company planning to work less than full
time at the Company in the future.
3.17 REGISTRATION RIGHTS AND VOTING AGREEMENTS. Except as required
pursuant to the Investor Rights Agreement, the Company is presently not under
any obligation and has not granted any rights to register (as defined in
Section 2.1 of the Investor Rights Agreement) any of the Company's presently
outstanding securities or any of its securities that may hereafter be issued.
Except as required pursuant to the Voting Agreement, the Company has no
agreement, obligation or commitment with respect to the election of any
individual or individuals to the Board of Directors and, to the best of the
knowledge of the Company, there is no voting agreement or other agreement
among the stockholders with respect to the election of any individual or
individuals to the Board of Directors for any other purpose.
3.18 COMPLIANCE WITH LAWS; PERMITS. The Company is not in violation of
any applicable statute, rule, regulation, order or restriction of any
domestic or foreign government or any instrumentality or agency thereof in
respect of the conduct of its business or the ownership of its properties
which violation would materially and adversely affect the business, assets,
liabilities, financial condition, operations or prospects of the Company. No
orders, permissions, consents, approvals or authorizations from any
governmental entity or any other person are required to be obtained and no
registrations or declarations are required to be filed in connection with the
execution and delivery of this Agreement, the Warrants and the issuance of
the Shares, the Conversion Shares or the Warrant Shares, except such as has
been duly and validly obtained or filed, or with respect to any filings that
must be made after the First Closing, as will be filed in a timely manner.
The Company has and is in full compliance in all material respects with all
the terms and conditions of all franchises, permits, licenses and any similar
authority necessary for the conduct of its business as now being conducted by
it, the lack of which could materially and adversely affect the business,
properties, prospects or financial condition of the Company and believes it
can obtain, without undue burden or expense, any similar authority for the
conduct of its business as planned to be conducted. The Company is not in
default in any material respect under any of such franchises, permits,
licenses or other similar authority.
3.19 ENVIRONMENTAL AND SAFETY LAWS. To its knowledge, the Company is not
in violation of any applicable federal, state or local statute, law,
ordinance or regulation relating to the environment or occupational health
and safety, and to its knowledge, no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
3.20 OFFERING VALID. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Section 4.2 hereof, the offer, sale
and issuance of the Shares and the Warrants, the sale and issuance of the
Warrant Shares upon exercise of the Warrants and the issuance of the
Conversion Shares will be exempt from the registration requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT") and will have been
registered or qualified (or are exempt from registration and qualification)
under the registration, permit or qualification requirements of all
10.
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applicable state securities laws. Neither the Company nor any agent on its
behalf has solicited or will solicit any offers to sell or has offered to
sell or will offer to sell all or any part of the Shares to any person or
persons so as to bring the sale of such Shares, the Warrants or the Warrant
Shares by the Company within the registration provisions of the Securities
Act or any state securities laws.
3.21 FULL DISCLOSURE. The Private Placement Memorandum (the "PPM"),
this Agreement, the Exhibits hereto, the Related Agreements and all other
documents delivered by the Company to the Purchasers or their attorneys or
agents in connection herewith or therewith or with the transactions
contemplated hereby or thereby, do not contain any untrue statement of a
material fact nor, to the Company's knowledge, omit to state a material fact
necessary in order to make the statements contained herein or therein not
misleading. Notwithstanding the foregoing, the PPM provided to each of the
Purchasers was prepared by the management of the Company in a good faith
effort to describe the Company's proposed business and products and the
markets therefor. The forward-looking statements made in the PPM appeared
reasonable to management as of the date thereof; however, there is no
assurance that these forward-looking statements will prove to be valid or
that the objectives set forth in the PPM will be achieved. To the Company's
knowledge, there are no facts regarding the Company which (individually or in
the aggregate) materially adversely affect the business, assets, liabilities,
financial condition, prospects or operations of the Company that have not
been set forth in the PPM, the Agreement, the Exhibits hereto, the Related
Agreements or in other documents delivered to Purchasers or their attorneys
or agents in connection herewith.
3.22 QUALIFIED SMALL BUSINESS. The Company represents and warrants to
the Purchasers that, to the best of its knowledge, the Shares should qualify
as "QUALIFIED SMALL BUSINESS STOCK" as defined in Section 1202(c) of the
Internal Revenue Code of 1986, as amended (the "CODE"), as of the date hereof.
3.23 MINUTE BOOKS. The minute books of the Company provided to the
Purchasers or their counsel contain a complete summary of all meetings of
directors and stockholders since the time of incorporation and correctly
reflect all issuances of stock or other equity rights in the Company.
3.24 INSURANCE. The Schedule of Exceptions contains an accurate summary
of the insurance policies currently maintained by the Company. The Company
has obtained from a company that is financially sound and reputable fire and
casualty insurance policies with coverage customary for companies similarly
situated to the Company. There are currently no claims pending by the
Company under any insurance policy currently in effect and covering the
property, business or employees of the Company, and all premiums due and
payable with respect to the policies maintained by the Company have been paid
to date. All insurance policies are in the name of the Company and are
outstanding and in full force and effect. Such insurance policies are
customary for companies engaged in the type of business conducted by the
Company and at the same stage of development as the Company. The Company has
not received notice of cancellation of termination of any such policy, nor
has any such policy been denied, revoked or rescinded nor has the Company
borrowed against any such policies. There are no claims for which an
insurance carrier has denied or threatened to deny coverage. The Company
carries, or is covered by, insurance with companies that are financially
sound and reputable in such amounts with such deductibles and against such
risks and losses as are reasonable for the business and assets of the Company.
3.25 SMALL BUSINESS CONCERN. The Company together with its "affiliates"
(as that term is defined in Section 121.103 of Title 13 of the Code of
Federal Regulations (the "FEDERAL REGULATIONS")), is a "SMALL BUSINESS
CONCERN" within the meaning of the Small Business Investment Act of 1958, as
amended (the "SMALL BUSINESS ACT"), and the regulations promulgated
thereunder, including Section
11.
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121.301 of Title 13 of the Federal Regulations (a "SMALL BUSINESS CONCERN").
The information delivered to each Purchaser that is a licensed Small Business
Investment Company (an "SBIC PURCHASER") on SBA Forms 480, 652 and 1031
delivered in connection herewith is true and correct.
3.26 YEAR 2000 COMPLIANCE. All of the Company's products and services
(including any products or services currently under development as of the
date hereof) will record, store, process and calculate and present calendar
dates falling on and after January 1, 2000, and will calculate any
information dependent on or relating to such dates in the same manner and
with the same functionality, data integrity and performance as the products
record, store, process, calculate and present calendar dates on or before
December 31, 1999, or calculate any information dependent on or relating to
such dates (collectively "YEAR 2000 COMPLIANT"). None of the Company's
material products will lose material functionality with respect to the
introduction of records containing dates falling on or after January 1, 2000.
The Company has taken all reasonable actions to ensure that all of the
Company's internal computer systems, including without limitation, its
accounting systems, are Year 2000 Compliant. To the knowledge of the
Company, all vendors of products and services to the Company, and their
respective products, services and operations, will be in all material
respects Year 2000 Compliant.
3.27 FOREIGN CORRUPT PRACTICES ACT. The Company and, to the knowledge
of the Company after due inquiry, its employees are in compliance in all
material respects with the U.S. Foreign Corrupt Practices Act, as amended,
including without limitation the books and records provisions thereof.
3.28 DIRECTORS AND OFFICERS. To the knowledge of the Company, since
the formation of the Company, no director or officer of the Company has (a)
been arrested or convicted of any crime material to an evaluation of such
person's ability or integrity, including, without limitation, any violation
of any federal or state law which currently or has previously regulated the
types of business in which the Company is currently or has previously been
engaged, (b) filed a petition under federal bankruptcy or state insolvency
laws or (c) been a director or officer of a business entity which has filed a
petition under federal bankruptcy or state insolvency laws, or had a receiver
or similar officer appointed by a court to administer the business or
property of such entity.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser hereby represents and warrants to the Company as follows
(it being agreed that such representations and warranties do not in any way
limit or effect the Purchasers' right to rely upon and enforce any breach of
the representations and warranties of the Company set forth in this
Agreement):
4.1 REQUISITE POWER AND AUTHORITY. Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver
this Agreement and the Related Agreements and to carry out their provisions.
All action on Purchaser's part required for the lawful execution and delivery
of this Agreement and the Related Agreements has been or will be effectively
taken prior to the First Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
Purchaser, enforceable in accordance with their terms, except (a) as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
laws of general application affecting enforcement of creditors' rights, (b)
general principles of equity that restrict the availability of equitable
remedies, and (c) to the extent that the enforceability of the
indemnification provisions of Section 3.9 of the Investor Rights Agreement
may be limited by applicable laws.
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4.2 INVESTMENT REPRESENTATIONS. Purchaser understands that neither the
Shares, the Warrants, the Warrant Shares nor the Conversion Shares have been
registered under the Securities Act. Purchaser also understands that the
Shares and the Warrants are being offered and sold pursuant to an exemption
from registration contained in the Securities Act based in part upon
Purchaser's representations contained in the Agreement. Purchaser hereby
represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement 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. Purchaser must bear the economic risk
of this investment indefinitely unless the Shares, the Warrants, the Warrant
Shares or the Conversion Shares are registered pursuant to the Securities Act
or an exemption from registration is available. Purchaser understands that
the Company has no present intention of registering the Shares, the Warrants,
the Warrants Shares, the Conversion Shares or any shares of its common stock.
Purchaser also understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any
portion of the Shares, the Warrants, the Warrant Shares or the Conversion
Shares under the circumstances in the amounts or at the times Purchaser might
propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares, the Warrants, the Warrant Shares and the Conversion Shares for
Purchaser's own account for investment only and not with a view towards their
distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents that
by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with
the transactions contemplated in this Agreement and the Related Agreements.
Further, Purchaser is aware of no publication of any advertisement in
connection with the transactions contemplated in the Agreement.
(d) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities
Act.
(e) COMPANY INFORMATION. Purchaser has received and read the
Financial Statements and the PPM and has had an opportunity to discuss the
Company's business, management and financial affairs with directors, officers
and management of the Company and has had the opportunity to review the
Company's operations and facilities. Purchaser has also had the opportunity
to ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.
(f) RULE 144. Purchaser acknowledges and agrees that the Shares,
the Warrants and, if issued, the Conversion Shares and the Warrant Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available.
Purchaser has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act, which permits limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things: the availability of certain
current public information about the Company, the resale occurring not less
than one year after a party has purchased and paid for the security to be
sold, the sale being through an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934, as
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amended) and the number of shares being sold during any three-month period
not exceeding specified limitations.
(g) RESIDENCE. If the Purchaser is an individual, then the
Purchaser resides in the state or province identified in the address of the
Purchaser set forth on EXHIBIT A hereto; if the Purchaser is a partnership,
corporation, limited liability company or other entity, then the office or
offices of the Purchaser in which its investment decision was made is located
at the address or addresses of the Purchaser set forth on EXHIBIT A hereto.
4.3 TRANSFER RESTRICTIONS. Each Purchaser acknowledges and agrees that
the Shares and the Warrants and, if issued, the Conversion Shares and the
Warrant Shares are subject to restrictions on transfer as set forth in the
Investor Rights Agreement.
SECTION 5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT THE FIRST CLOSING.
Purchasers' obligations to purchase the Shares and the Warrants at the First
Closing are subject to the satisfaction, at or prior to the First Closing, of
the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in
Section 3 hereof shall be true and correct in all material respects as of the
First Closing Date with the same force and effect as if they had been made as
of the First Closing Date, and the Company shall have performed all
obligations and conditions herein required to be performed or observed by it
on or prior to the First Closing.
(b) PERFORMANCE OF OBLIGATIONS. The Company shall have performed
and complied with all agreements, obligations and conditions contained in
this Agreement that are required to be performed or complied with by it on or
before the First Closing.
(c) LEGAL INVESTMENT. On the First Closing Date, the sale and
issuance of the Shares and the Warrants and the proposed issuance of the
Conversion Shares and the Warrant Shares shall be legally permitted by all
laws and regulations to which Purchasers and the Company are subject.
(d) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement and the
Related Agreements (except for such as may be properly obtained subsequent to
the First Closing).
(e) FILING OF RESTATED CERTIFICATE. The Restated Certificate
shall have been filed with the Secretary of State of the State of Delaware.
(f) CORPORATE DOCUMENTS. The Company shall have delivered to
Purchasers or their counsel, copies of all corporate documents of the Company
as Purchasers shall reasonably request.
(g) RESERVATION OF CONVERSION SHARES AND WARRANT SHARES. The
Conversion Shares issuable upon conversion of the Shares and the Warrants
Shares is issuable upon exercise of the Warrants shall have been duly
authorized and reserved for issuance upon such conversion.
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(h) COMPLIANCE CERTIFICATE. The Company shall have delivered to
Purchasers a Compliance Certificate, executed by the President of the
Company, dated the date of the First Closing, to the effect that the
conditions specified in subsections (a), (b), (d), (e) and (g) of this
Section 5.1 have been satisfied.
(i) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as EXHIBIT E shall have been
executed and delivered by the parties thereto.
(j) CO-SALE AGREEMENT. The Co-Sale Agreement substantially in the
form attached hereto as EXHIBIT F shall have been executed and delivered by
the parties thereto.
(k) VOTING AGREEMENT. The Voting Agreement substantially in the
form attached hereto as EXHIBIT G shall have been executed and delivered by
the parties thereto.
(l) BOARD OF DIRECTORS. Upon the First Closing, the authorized
size of the Board of Directors of the Company shall initially be eight (8)
members and the Board shall consist of Robert L. Stevens, Garrett Gruener,
Stuart Gannes, Alex Knight, Andrew Anker, Ronald Cooper, Brian Graff and a
designee of Owens Corning.
(m) LEGAL OPINION. The Purchasers shall have received from legal
counsel to the Company an opinion addressed to them, dated as of the First
Closing Date, in substantially the form attached hereto as EXHIBIT K.
(n) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the First
Closing hereby and all documents and instruments incident to such
transactions shall be reasonably satisfactory in substance and form to the
Purchasers and their special counsel, and the Purchasers and their special
counsel shall have received all such counterpart originals or certified or
other copies of such documents as they may reasonably request.
(o) PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. All key
employees shall have executed a Proprietary Information and Inventions
Agreement that is reasonably acceptable to Investors' counsel.
(p) DUE DILIGENCE. All matters investigated by the Purchasers in
the course of their due diligence shall be satisfactory to each of the
Purchasers, their special counsels and their accountants.
5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The Company's obligation
to issue and sell the Shares and the Warrants at the First Closing is subject
to the satisfaction, on or prior to the First Closing, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties made by those Purchasers acquiring Shares and Warrants in Section
4 hereof shall be true and correct in all material respects at the date of
the First Closing, with the same force and effect as if they had been made on
and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Such Purchasers shall have
performed and complied in all material respects with all agreements and
conditions herein required to be performed or complied with by such
Purchasers on or before the First Closing.
15.
<PAGE>
(c) INVESTOR RIGHTS AGREEMENT. An Investor Rights Agreement
substantially in the form attached hereto as EXHIBIT E shall have been
executed and delivered by the Purchasers.
(d) CO-SALE AGREEMENT. The Co-Sale Agreement substantially in the
form attached hereto as EXHIBIT F shall have been executed and delivered by
the parties thereto.
(e) VOTING AGREEMENT. The Voting Agreement substantially in the
form attached hereto as EXHIBIT G shall have been executed and delivered by
the parties thereto.
(f) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate
for consummation of the transactions contemplated by the Agreement and the
Related Agreements (except for such as may be properly obtained subsequent to
the First Closing).
SECTION 6. MISCELLANEOUS.
6.1 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of New York as such laws are applied to agreements
between New York residents entered into and performed entirely in New York.
Each party hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of the state and federal courts located in the State
of New York for any actions, suits or proceedings arising out of or relating
to this Agreement or any of the Related Agreements (as defined in the
Purchase Agreement) and the transactions contemplated hereby or thereby.
Each party hereto agrees not to commence any action, suit or proceeding
relating thereto except in such courts. The parties hereto irrevocably and
unconditionally waive any objection to the laying of venue in any action,
suit or proceeding arising out of this Agreement or any of the Related
Agreements or the transactions contemplated hereby or thereby, in such state
or federal courts aforesaid and hereby further irrevocably and
unconditionally waive and agree not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been
brought in an inconvenient forum.
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO
WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY
WAY ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY OF THE
RELATED AGREEMENTS.
6.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by any Purchaser and the
First Closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by
or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate
or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares, the Warrants, the Warrant Shares
and the Conversion Shares from time to time.
6.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the Related Agreements and the PPM and the other documents delivered
pursuant hereto constitute the full and entire
16.
<PAGE>
understanding and agreement between the parties with regard to the subjects
hereof and no party shall be liable or bound to any other in any manner by
any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.6 AMENDMENT AND WAIVER.
(a) This Agreement may be amended or modified only upon the
written consent of the Company and holders of at least a majority of the
Shares and Warrants (treated as if converted and including any Conversion
Shares and Warrant Shares into which the Shares and Warrants have been
converted or exercised that have not been sold to the public).
(b) The obligations of the Company and the rights of the holders
of the Shares and the Conversion Shares under the Agreement may be waived
only with the written consent of the holders of at least a majority of the
Shares (treated as if converted and including any Conversion Shares into
which the Shares have been converted that have not been sold to the public).
(c) Any amendment, modification or waiver effected in accordance
with Section 6.6(a) or Section 6.6(b) with the consent of the requisite
parties 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), each future holder and the Company (even if such
holder did not consent to such amendment, modification or waiver).
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement, the Related
Agreements or the Restated Certificate, shall impair any such right, power or
remedy, nor shall it be construed to be a waiver of any such breach, default
or noncompliance, or any acquiescence therein, or of or in any similar
breach, default or noncompliance thereafter occurring. It is further agreed
that any waiver, permit, consent or approval of any kind or character on any
Purchaser's part of any breach, default or noncompliance under this
Agreement, the Related Agreements or under the Restated Certificate or any
waiver on such party's part of any provisions or conditions of the Agreement,
the Related Agreements, or the Restated Certificate must be in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, the Related Agreements, the
Restated Certificate, by law, or otherwise afforded to any party, shall be
cumulative and not alternative.
6.8 WAIVER OF CONFLICTS. Each party to this Agreement acknowledges that
legal counsel for the Company, Cooley Godward LLP ("COOLEY GODWARD"), has in
the past and may continue in the future to perform legal services for one or
more of the Purchasers or their affiliates in matters unrelated to the
transactions contemplated by this Agreement, including, but not limited to,
the representation of the Purchasers in matters of a similar nature to the
transactions contemplated herein. Each party to this Agreement hereby (a)
acknowledges that they have had an opportunity to ask for and have obtained
information relevant to such representation, including disclosure of the
reasonably foreseeable adverse consequences of such representation, (b)
acknowledges that with respect to the transactions contemplated herein,
Cooley Godward has represented the Company and not any individual Purchaser
or any individual stockholder, director or employee of the Company and (c)
gives its informed consent to
17.
<PAGE>
Cooley Godward's representation of the Company in the transactions
contemplated by this Agreement and Cooley Godward's representation of one or
more of the Purchasers or their affiliates in matters unrelated to such
transactions.
6.9 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to
the party to be notified; (b) when sent by confirmed telex or facsimile if
sent during normal business hours of the recipient, if not, then on the next
business day; (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to
the Company at the address as set forth on the signature page hereof and to
Purchaser at the address set forth on EXHIBIT A attached hereto or at such
other address as the Company or Purchaser may designate by ten days advance
written notice to the other parties hereto.
6.10 TRANSFER TAXES. All transfer, transfer gains, documentary, sales,
use, stamp, registration and other similar Taxes and fees (including costs
and expenses relating to such Taxes) (collectively, "TRANSFER TAXES")
incurred in connection with the consummation of the transactions contemplated
by this Agreement, shall be borne by the Company. The Company shall, at its
own expense, prepare and timely file, in accordance with all applicable laws
and regulations, all necessary Tax Returns and other documentation with
respect to such Transfer Taxes. The Purchasers shall reasonably cooperate
with the Company in the preparation and filing of any such Tax Returns and
other documentation.
6.11 EXPENSES. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance
of this Agreement. The Company shall, at the First Closing, reimburse the
reasonable fees of and expenses of special counsel to the Purchasers not to
exceed $30,000 pro rata in proportion to amounts set forth opposite such
Purchaser's name on EXHIBIT A attached hereto including the Purchasers on
Exhibit A of that certain First Series E Preferred Stock Purchase Agreement
dated as of November 5, 1999; PROVIDED, HOWEVER, that in the case of Owens
Corning, such reimbursement shall not be less than $10,000.
6.12 ATTORNEYS' FEES. In the event that any dispute among the parties to
this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
6.13 TITLES AND SUBTITLES. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.14 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
6.15 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection
with the transactions contemplated herein. Each party hereto further agrees
to indemnify each other party for any claims, losses or expenses incurred by
such other party as a result of the representation in this Section 6.15 being
untrue.
18.
<PAGE>
6.16 PRESS RELEASES/USE OF PARTIES' NAME. The Company shall not issue
any press release or make any disclosure or public announcement relating to
the subject matter of this Agreement or any of the Related Agreements without
the prior written approval of each of The Dow Chemical Company, DuPont Corian
GE Capital Equity Investments, Inc. or Armstrong World Industries; PROVIDED,
HOWEVER, that no such consent shall be necessary in the case of any
disclosure or public announcement substantially in the form of Exhibit L
attached hereto. Without limiting the generality of the foregoing, the
Company shall not in any manner publicly use or refer to the name of The Dow
Chemical Company, DuPont Corian, or Armstrong World Industries or any their
affiliates in any press release, disclosure or public announcement without
the prior written approval of the party so named. Notwithstanding the
foregoing, the Company shall be permitted to disclose this Agreement or any
of the Related Agreements to the extent required in any filing required by
the Company pursuant to the Securities Act of 1933, as amended, the
Securities and Exchange Act of 1934, as amended, or any other state or
federal statute.
6.17 EXCULPATION AMONG PURCHASERS. Each Purchaser acknowledges that it
is not relying upon any person, firm, or corporation, other than the Company
and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable for any action heretofore or
hereafter taken or omitted to be taken by any of them in connection with the
Shares and Conversion Shares.
6.18 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as to the identity of the parties hereto may require.
[THIS SPACE INTENTIONALLY LEFT BLANK]
19.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the SECOND SERIES E
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT as of the date set forth in
the first paragraph hereof.
COMPANY: PURCHASER:
------------------------------------
IMPROVENET, INC.
720 BAY ROAD, SUITE 200
REDWOOD CITY, CA 94063
By: /s/ Ron Cooper By: /s/ All Second Series E Investors
--------------------------- ---------------------------------
Ronald Cooper, President and
Chief Executive Officer Title:
-----------------------------
SECOND SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
SIGNATURE PAGE
<PAGE>
EXHIBIT A
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
SHARES OF WARRANTS TO PURCHASE SHARES AGGREGATE
NAME AND ADDRESS SERIES E PREFERRED OF COMMON STOCK PURCHASE PRICE
- --------------------------------------------- --------------------------- ------------------------------- ------------------------
<S> <C> <C> <C>
The Dow Chemical Company 222,222 35,000 $2,999,997.00
2030 Dow Center
Midland, MI 48674
Attn.: Dennis Merens
E.I. du Pont de Nemours and Company 222,222 35,000 $2,999,997.00
1007 Market Street
Wilmington, DE 19898
Attn: Global Financial Manager
Armstrong.com Holding Co. 222,222 25,000 $2,999,997.00
2500 Columbia Avenue
Lancaster, PA 17604
Attn: Marko Alvarez
ARCH Venture Fund III, L.P. 74,074 0 $999,999.00
8735 Higgins Road
Suite 225
Chicago, IL 60631
Clear Fir Partners, L.P. 3,704 0 $50,004.00
4303 54th Avenue, N.E.
Seattle, WA 98105
Gary Sledge 370 0 $4,995.00
299 Galleria Parkway
Suite 1800
Atlanta, GA 30339
Kellett Partners, L.P. 32,963 0 $445,000.50
299 Galleria Parkway
Suite 1800
Atlanta, GA 30339
Alex Knight 1,850 0 $24,975.00
1116 Harvard Avenue East
Seattle, WA 98102
EXHIBIT A
SECOND SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE>
<CAPTION>
SHARES OF WARRANTS TO PURCHASE SHARES AGGREGATE
NAME AND ADDRESS SERIES E PREFERRED OF COMMON STOCK PURCHASE PRICE
- --------------------------------------------- --------------------------- ------------------------------- ------------------------
<S> <C> <C> <C>
Staenberg Private Capital, LLC 6,700 0 $90,450.00
2000 First Avenue
Suite 1001
Seattle, WA 98121
Attn.: John Staenberg
MGN Opportunity Group LLC 21,919 0 $295,906.50
801 Second Avenue
13th Floor
Seattle, WA 98104
Zero Stage Capital VI, L.P. 48,148 0 $649,998.00
101 Main Street
17th Floor
Cambridge, MA 02142
zerostage.com
Attn.: Bickley Stevens
QBB Mgmt I, L.L.C. 74,074 0 $999,999.00
11 Madison Avenue
New York, NY 10010
Attn: John Carroll
TOTAL 930,468 95,000 $12,561,318.00
--------------------------- ------------------------------- ------------------------
--------------------------- ------------------------------- ------------------------
</TABLE>
EXHIBIT A-2
SECOND SERIES E PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
<PAGE>
WARRANT PURCHASE AGREEMENT
THIS WARRANT PURCHASE AGREEMENT (the "Agreement") is made and entered
into as of December __, 1999, by and between IMPROVENET, INC., a Delaware
corporation (the "Company"), and the persons and entities named on the Schedule
of Purchasers attached hereto as EXHIBIT A (individually, a "Purchaser" and
collectively, the "Purchasers").
The Company desires to sell and the Purchasers each desire to purchase,
severally and not jointly, a warrant (the "First Common Warrant") to purchase
_______ shares of the Company's Common Stock (the "First Common Warrant Shares")
at a price per share of $0.01, pursuant to a warrant substantially in the form
attached hereto as EXHIBIT B and a warrant (the "Second Common Warrant") to
purchase _________ shares of the Company's Common Stock (the "Second Common
Warrant Shares") at a price per share of $13.50 pursuant to a warrant
substantially in the form attached hereto as EXHIBIT C on the terms and
conditions set forth herein. The First Common Warrant and the Second Common
Warrant shall be referred to herein as the "Warrants" and the Common Warrant
Shares and the Second Common Warrant Shares shall be referred to herein as the
"Warrant Shares".
In consideration of the mutual promises contained herein, the parties
hereto agree as follows:
1. PURCHASE OF WARRANT.
(a) Subject to the terms and conditions of this Agreement, the
Purchaser agrees to purchase the Warrants from the Company and the Company
agrees to sell and issue the Warrant to the Purchaser for an aggregate purchase
price of $___________.
(b) The purchase and sale of the Warrants shall take place at the
offices of ImproveNet, Inc., at 720 Bay Road, Suite 200, Redwood City, CA
94063, or at such other time and place as to which the Company and Purchaser
shall agree. At the Closing, the Company shall deliver the Warrants to the
Purchaser as prepayment of amounts to be owed to each Purchaser.
2. ACCESS TO INFORMATION. The Purchaser acknowledges that it has had
access to all material information concerning the Company which it has
requested. The Purchaser also acknowledges that it has had the opportunity to,
and has to its satisfaction, questioned the officers of the Company with respect
to such Purchaser's investment hereunder.
3. REPRESENTATION OF PURCHASER. The Purchaser represents that it
understands that the Warrants and the Warrant Shares are speculative
investments, that it is aware of the Company's business affairs and financial
condition, and that it has acquired sufficient information about the Company to
reach an informed and knowledgeable decision to acquire the Warrants. The
Purchaser is purchasing the Warrants and any Warrant Shares issued upon exercise
thereof for investment for its own account only and not with a view to, or for
resale in connection with, any
<PAGE>
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act"), or applicable state securities laws. The
Purchaser further represents that it understands that the Warrants and
Warrant Shares have not been registered under the Securities Act or
applicable state securities laws by reason of specific exemptions therefrom,
which exemptions depend upon, among other things, the bona fide nature of
Purchaser's investment intent as expressed herein. The Purchaser represents
that the Warrants and any Warrant Shares purchased upon exercise thereof must
be held indefinitely unless such securities are subsequently registered under
the Securities Act and all applicable state securities laws and regulations
or an exemption from such registration or qualification is available, and
that the Company is under no obligation to register or qualify such
securities except as set forth in the Warrants between the Company and the
Purchaser.
4. QUALIFICATION OF SECURITIES. 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 thereof 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.
5. LEGENDS. The Purchaser acknowledges and understands that the
instruments evidencing the Warrants and any certificates evidencing the Warrant
Shares shall bear the legends as specified in the Warrants in the form attached
hereto as EXHIBIT B (and any other legends required under state or federal
securities laws in the opinion of legal counsel for the Company).
6. GENERAL PROVISIONS.
(a) This Agreement represents the entire agreement between the
Company and Purchaser regarding the subject matter hereof, supersedes all
prior agreements and understandings, and may only be amended in writing
signed by the Company and the Purchaser.
(b) This Agreement shall bind and benefit the successors,
assigns, heirs, executors and administrators of the parties. The rights of
the Purchaser under this Agreement may not be assigned without the written
consent of the Company.
(c) This Agreement shall be governed in all respects by the laws
of the State of California.
(d) The Agreement may be executed in counterparts, each of which
shall be an original, but all of which together shall constitute an
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first set forth above.
IMPROVENET, INC. PURCHASER
a Delaware corporation
By:____________________________ By:____________________________
Name:__________________________ Name:__________________________
Title:_________________________ Title:_________________________
<PAGE>
IMPROVENET, INC.
FOURTH AMENDED AND RESTATED
VOTING AGREEMENT
THIS FOURTH AMENDED AND RESTATED VOTING AGREEMENT (the "AGREEMENT") is made
and entered into this 23rd day of November, 1999, by and among IMPROVENET, INC.,
a Delaware corporation (the "COMPANY"), those certain existing holders of the
Company's common stock listed on EXHIBIT A hereto (the "HOLDERS"), those certain
existing holders of the Company's common stock and common stock equivalents
listed on EXHIBIT B hereto (the "STOCK HOLDERS"), the holders of Series A
Preferred Stock (the "SERIES A INVESTORS"), the holders of Series B Preferred
Stock (the "SERIES B INVESTORS"), the holders of Series C Preferred Stock (the
"SERIES C INVESTORS"), the holders of Series D Preferred Stock (the "SERIES D
INVESTORS") and the purchasers of Series E Preferred Stock (the "SERIES E
INVESTORS") (collectively referred to as the "INVESTORS") listed on EXHIBIT C
hereto.
WITNESSETH
WHEREAS, the Holders are the beneficial owners of shares of the common
stock of the Company as set forth opposite their respective names on EXHIBIT A;
WHEREAS, the Stock Holders are the beneficial owners of shares of the
common stock of the Company or options to purchase Common Stock of the Company
as set forth opposite their respective names on EXHIBIT B hereto;
WHEREAS, the Series A Investors, the Series B Investors, the Series C
Investors, and the Series D Investors signed a Third Amended and Restated Voting
Agreement dated September 10, 1999 (the "PRIOR AGREEMENT") by and between the
Company, the Series A Investors, the Series B Investors, the Series C Investors,
the Series D Investors, the Holders and the Stock Holders;
WHEREAS, the parties to such Prior Agreement desire to terminate the Prior
Agreement and to accept the rights and covenants hereto in lieu of the
obligations required of them under the Prior Agreement;
WHEREAS, the Company proposes to sell shares of its Series E Preferred
Stock to the Series E Investors pursuant to the First Series E Preferred Stock
and Warrant Purchase Agreement and the Second Series E Preferred Stock Purchase
Agreement (the "PURCHASE AGREEMENTS") of even date herewith (the "FINANCING");
and
WHEREAS, in connection with the consummation of the Financing, the Holders,
the Stock Holders and the Investors have agreed to provide for the future voting
of their shares of the Company's capital stock as set forth below.
NOW, THEREFORE, in consideration of the premises and for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1.
<PAGE>
ARTICLE I
1. TERMINATION OF PRIOR AGREEMENT.
1.1 The Prior Agreement is hereby terminated in its entirety and restated
herein. Such termination and restatement is effective upon execution of this
Agreement by the holders of at least a majority of the Investor Shares (as the
term is defined under the Prior Agreement) outstanding on the date of this
Agreement and by the holders of at least a majority of the Holder Shares and the
Stock Holders (as the terms are defined under the Prior Agreement) outstanding
on the date of this Agreement. Upon such execution, the rights and covenants
contained in the Prior Agreement shall have no further force or effect. The
rights and covenants contained in this Agreement set forth the sole and entire
agreement among the Company, the Holders, the Stock Holders and the Investors on
the subject matter hereof and supercede any and all rights granted or covenants
made under prior agreements.
ARTICLE II
2. VOTING.
2.1 (a) The Holders each agree to vote all shares of voting capital stock
of the Company registered in their respective names or beneficially owned by
them as of the date hereof, and any and all other securities of the Company
legally or beneficially acquired by each of the Holders after the date hereof,
(hereinafter collectively referred to as the "HOLDER SHARES") subject to, and in
accordance with, the provisions of this Agreement.
(b) The Stock Holders each agree to vote all shares of voting capital
stock of the Company registered in their respective names or beneficially owned
by them as of the date hereof, and any and all other securities of the Company
legally or beneficially acquired by each of the Stock Holders after the date
hereof, (hereinafter collectively referred to as the "STOCK HOLDER SHARES")
subject to, and in accordance with, the provisions of this Agreement.
(c) The Investors each agree to vote all shares of voting capital
stock of the Company (including without limitation, all shares of common stock
issued upon conversion of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock or Series E Preferred
Stock) registered in their respective names or beneficially owned by them as of
the date hereof, and any and all other securities of the Company legally or
beneficially acquired by each of the Investors after the date hereof,
(hereinafter collectively referred to as the "INVESTOR SHARES") subject to, and
in accordance with, the provisions of this Agreement.
2.2 ELECTION OF DIRECTORS. The Board of Directors of the Company shall
consist of no greater than nine (9) members and no less than seven (7) members.
Such limitations shall expire upon the effective date of the first underwritten
registration of the securities of the Company pursuant to the Securities Act of
1933, as amended.
2.3 ELECTION OF THE AT LARGE DIRECTOR.
(a) If at least one director of the Company is to be elected by the
consent of the holders of the Common Stock Majority (as hereinafter defined) and
the Preferred Stock Majority (as hereinafter defined) (such director is
hereinafter referred to as the "AT LARGE DIRECTOR"), at the election of the At
Large Director, whether at any regular or special meeting of the Company's
stockholders, or in
2.
<PAGE>
lieu of such meeting, by written consent or otherwise, each Holder shall vote
all of such person's Holder Shares, and each Investor shall vote all of such
person's Investor Shares for the election as a director a nominee that is
mutually acceptable to a majority in interest of the holders of common stock
("COMMON STOCK MAJORITY") and a majority in interest of the holders of
preferred stock ("PREFERRED STOCK MAJORITY"). Such person shall initially be
Stuart Gannes. Any vote taken to remove any director elected pursuant to
this Section 2.3, or to fill any vacancy created by the resignation of a
director elected pursuant to this Section 2.3, shall also be subject to the
provisions of this Section 2.3(a).
(b) If the Common Stock Majority and the Preferred Stock Majority
cannot mutually agree upon the nominee to fill the At Large Director seat at any
meeting to elect the At Large Director, the Holders and Investors agree to vote
their respective shares in favor of adjourning such meeting without voting for
the At Large Director until a mutually acceptable nominee is obtained.
(c) If for any reason a At Large Director candidate that is not
mutually acceptable to the Common Stock Majority and Preferred Stock Majority is
elected, then the Holders and Investors agree to immediately either (i) hold a
special meeting of the Company's stockholders or (ii) pursuant to written
consent if lawful, to vote their respective shares for the purpose of removing
the director so elected. Likewise, the Board of Directors agrees that it will
not fill any vacancy of an At Large Director seat without the written consent of
the Common Stock Majority and Preferred Stock Majority.
2.4 ELECTION OF THE SERIES A BOARD SEAT. So long as the Series A Investors
pursuant to Article IV, Section 3(a) of the Third Amended and Restated
Certificate of Incorporation of the Company (or any successor provision thereof)
have the authority to elect one (1) member of the Company's Board of Directors,
the Series A Investors agree to vote their Investor Shares so as to elect as
such member a designee of Alta Partners (or its successors or assigns). Any
vote taken to remove any director elected pursuant to this Section 2.4, or to
fill any vacancy created by resignation of a director elected pursuant to this
Section 2.4, shall also be subject to the provisions of this Section 2.4.
2.5 ELECTION OF THE SERIES B PREFERRED BOARD SEAT. So long as the Series
B Investors pursuant to Article IV, Section 3(a) of the Third Amended and
Restated Certificate of Incorporation of the Company (or any successor provision
thereof) have the authority to elect one (1) member of the Company's Board of
Directors, the Series B Investors agree to vote their Investor Shares so as to
elect as such member a designee of Arch Venture Fund III, L.P. (or its
successors or assigns). Any vote taken to remove any director elected pursuant
to this Section 2.5, or to fill any vacancy created by resignation of a director
elected pursuant to this Section 2.5, shall also be subject to the provisions of
this Section 2.5.
2.6 ELECTION OF THE SERIES C PREFERRED BOARD SEAT. So long as the Series
C Investors pursuant to Article IV, Section 3(a) of the Third Amended and
Restated Certificate of Incorporation of the Company (or any successor provision
thereof) have the authority to elect one (1) member of the Company's Board of
Directors (the "SERIES C DIRECTOR"), the Series C Investors agree to vote their
Investor Shares so as to elect as such member a designee of entities affiliated
with August Capital II, L.P. or its successors or assigns (collectively
"AUGUST"). Any vote taken to remove any director elected pursuant to this
Section 2.6, or to fill any vacancy created by resignation of a director elected
pursuant to this Section 2.6, shall also be subject to the provisions of this
Section 2.6; provided that the Series C Director may be removed only with the
consent of August.
2.7 ELECTION OF THE SERIES D PREFERRED BOARD SEAT. So long as the Series
D Investors pursuant to Article IV, Section 3(a) of the Third Amended and
Restated Certificate of Incorporation of the Company (or any successor provision
thereof) have the authority to elect one (1) member of the
3.
<PAGE>
Company's Board of Directors (the "SERIES D DIRECTOR"), the Series D
Investors agree to vote their Investor Shares so as to elect as such member a
designee of entities affiliated with GE Capital Equity Investments, Inc. ("GE
CAPITAL") or its successors or assigns. Any vote taken to remove any
director elected pursuant to this Section 2.7, or to fill any vacancy created
by resignation of a director elected pursuant to this Section 2.7, shall also
be subject to the provisions of this Section 2.7.
2.8 ELECTION OF THE SERIES E PREFERRED BOARD SEAT. So long as the Series
E Investors pursuant to Article IV, Section 3(a) of the Third Amended and
Restated Certificate of Incorporation of the Company (or any successor provision
thereof) have the authority to elect one (1) member of the Company's Board of
Directors (the "SERIES E DIRECTOR"), the Series E Investors agree to vote their
Investor Shares so as to elect as such member a designee of entities affiliated
with Owens Corning or its successors or assigns. Any vote taken to remove any
director elected pursuant to this Section 2.8, or to fill any vacancy created by
resignation of a director elected pursuant to this Section 2.8, shall also be
subject to the provisions of this Section 2.8.
2.9 NOMINATION OF OWENS CORNING BOARD SEAT. So long as Owens Corning owns
at least 500,000 shares of Series E Preferred Stock or 500,000 shares of Common
Stock issuable upon conversion of the Series E Preferred Stock, the Company
shall nominate one (1) designee of Owens Corning for election to the Company's
Board of Directors; provided, however, that the Company shall have no
obligations under this Section 2.9 prior to an underwritten public offering that
results in the conversion of the Series E Preferred Stock, and provided,
further, that this Section 2.9 shall expire and be of no further force or effect
upon the expiration or termination of that certain Internet Based Services
Agreement dated November ___, 1999.
2.10 ELECTION OF THE CHAIRMAN OF THE BOARD AND THE CHIEF EXECUTIVE OFFICER.
For so long as more than one director of the Company is to be elected by the
holders of the common stock and preferred stock voting together as a single
class on an as-converted basis pursuant to Article IV, Section 3(a) of the Third
Amended and Restated Certificate of Incorporation of the Company (or any
successor provision thereof), the Holders and Investors agree to vote their
Holders Shares and Investors Shares, respectively, to elect the Chairman of the
Board and the Chief Executive Officer of the Company to fill at least two of the
seats governed by such provision. Any vote taken to remove any director elected
pursuant to this Section 2.10, or to fill any vacancy created by resignation of
a director elected pursuant to this Section 2.10, shall also be subject to the
provisions of this Section 2.10.
2.11 (a) In the event that holders of more than seventy five percent (75%)
of the Outstanding Common Stock Equivalents (as hereinafter defined) (the
"REQUISITE PARTIES") approve a sale of the Company or all or substantially all
of the Company's assets (an "APPROVED SALE") whether by means of a merger,
consolidation, or sale of stock or assets, or otherwise (each, a "SALE OF THE
COMPANY"), all Holders, Stock Holders and Investors shall consent to, vote for
and raise no objections against the Approved Sale, and if the Approved Sale is
structured as (i) a merger or consolidation of the Company, or a sale of all or
substantially all of the Company's assets, each Holder, Stock Holder and
Investor shall waive any dissenters' rights, appraisal rights or similar rights
in connection with such merger, consolidation or asset sale, or (ii) a sale of
the stock of the Company, the Holders, Stock Holders and the Investors shall
agree to sell their Holder Shares, Stock Holder Shares and Investor Shares,
respectively, on the terms and conditions approved by the Requisite Parties,
provided such terms do not provide that the Holders, Stock Holders or Investors
would receive less than the amount that would be distributed to such Holders,
Stock Holders or Investors in the event the proceeds of the sale of the Company
were distributed in accordance with the Company's Third Amended and Restated
Certificate of Incorporation. The Holders, Stock Holders and Investors shall
take all necessary and desirable actions
4.
<PAGE>
approved by the Requisite Parties, in connection with the consummation of the
Approved Sale, including the execution of such agreements and such
instruments and other actions reasonably necessary to (A) provide the
representations, warranties, indemnities, covenants, conditions, non-compete
agreements, escrow agreements and other provisions and agreements relating to
such Approved Sale; provided, however that all holders of any Series of the
capital stock of the Company are treated similarly Aand (B) effectuate the
allocation and distribution of the aggregate consideration upon the Approved
Sale.
(b) "OUTSTANDING COMMON STOCK EQUIVALENTS" as used in this Section
2.11 shall mean (i) the number of shares of common stock actually outstanding,
(ii) the number of shares of common stock into which the then outstanding
Investor Shares could be converted if fully converted on the day immediately
preceding the given date, and (iii) the number of shares of common stock which
could be obtained through the exercise or conversion of all other rights,
options, warrants, and convertible securities outstanding on the day immediately
preceding the given date.
2.12 Concurrently with the execution of this Agreement, there shall be
imprinted or otherwise placed, on all certificates representing the Holder
Shares, Stock Holder Shares and the Investor Shares the following restrictive
legend (the "LEGEND"):
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A VOTING AGREEMENT, WHICH PLACES CERTAIN
RESTRICTIONS ON THE VOTING OF THE SHARES REPRESENTED HEREBY. ANY
PERSON ACCEPTING ANY INTEREST IN SUCH SHARES SHALL BE DEEMED TO
AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SUCH
AGREEMENT. A COPY OF SUCH VOTING AGREEMENT WILL BE FURNISHED TO
THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON WRITTEN
REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS.
2.13 The Company agrees that, during the term of this Agreement, it will
not remove, and will not permit to be removed (upon registration of transfer,
reissuance of otherwise), the Legend from any such certificate and will place or
cause to be placed the Legend on any new certificate issued to represent Holder
Shares, Stock Holder Shares or Investor Shares theretofore represented by a
certificate carrying the Legend.
2.14 The provisions of this Agreement shall be binding upon the successors
in interest to any of the Holder Shares, Stock Holder Shares or Investor Shares.
The Company shall not permit the transfer of any of the Holder Shares, Stock
Holder Shares or Investor Shares on its books or issue a new certificate
representing any of the Holder Shares, Stock Holder Shares or Investor Shares
unless and until the person to whom such security is to be transferred shall
have executed a written agreement, pursuant to which such person becomes a party
to this Agreement or otherwise agrees to be bound by all the provisions hereof
as if such person were a Holder, Stock Holder or an Investor, as applicable.
2.15 Except as provided by this Agreement, each Holder, Stock Holder and
Investor shall exercise the full rights of a stockholder of the Company with
respect to the Holder Shares, Stock Holder Shares (if such person is a
stockholder) and the Investor Shares, respectively.
5.
<PAGE>
ARTICLE III
3. TERMINATION.
3.1 This Agreement shall continue in full force and effect from the date
hereof through the earliest of the following dates, on which it shall terminate
in its entirety:
(a) the date of the closing of a firmly underwritten public offering
of the Company's Common Stock pursuant to a registration statement filed with,
and declared effective under the Securities Act of 1933, as amended, covering
the offer and the sale of common stock for the account of the Company in which
all outstanding preferred stock has converted into common stock of the Company;
(b) the date as of which the parties hereto terminate this Agreement
by written consent of the holders of a majority of the Investor Shares and a
majority of the Holder Shares and the Stock Holder Shares (voting together as a
single class); or
(c) March 17, 2008.
(d) Notwithstanding the foregoing, Section 2.9 hereof shall terminate
only upon the written consent of the Company and Owens Corning.
ARTICLE IV
4. MISCELLANEOUS.
4.1 The parties hereto hereby declare that it is impossible to measure in
money the damages which will accrue to a party hereto or to their heirs,
personal representatives, or assigns by reason of a failure to perform any of
the obligations under this Agreement and agree that the terms of this Agreement
shall be specifically enforceable. If any party hereto or his heirs, personal
representatives, or assigns institutes any action or proceeding to specifically
enforce the provisions hereof, any person against whom such action or proceeding
is brought hereby waives the claim or defense therein that such party or such
personal representative has an adequate remedy at law, and such person shall not
offer in any such action or proceeding the claim or defense that such remedy at
law exists.
4.2 This Agreement, and the rights of the parties hereto, shall be
governed by and construed in accordance with the laws of the State of New York.
Each party hereto hereby irrevocably and unconditionally submits to the
exclusive jurisdiction of the state and federal courts located in the State of
New York for any actions, suits or proceedings arising out of or relating to
this Agreement or any of the Related Agreements (as defined in the Purchase
Agreements) and the transactions contemplated hereby or thereby. Each party
hereto agrees not to commence any action, suit or proceeding relating thereto
except in such courts. The parties hereto irrevocably and unconditionally waive
any objection to the laying of venue in any action, suit or proceeding arising
out of this Agreement or any of the Related Agreements or the transactions
contemplated hereby or thereby, in such state or federal courts aforesaid and
hereby further irrevocably and unconditionally waive and agree not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum.
THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH
THEY ARE PARTIES INVOLVING, DIRECTLY OR
6.
<PAGE>
INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO OR CONNECTED
WITH THIS AGREEMENT OR ANY OF THE RELATED AGREEMENTS.
4.3 This Agreement may be amended and any term hereof may be waived only
by an instrument in writing signed by each of (i) the Company, (ii) holders of a
majority of the Investor Shares, (iii) holders of a majority of the Holder
Shares and the Stock Holder Shares (with the Holder Shares and the Stockholder
Shares voting together as a single class on an as- converted basis) provided,
however, that the provisions of Section 2.4 shall not be amended or waived
without the written consent of Alta Partners; the provisions of Section 2.5
shall not be amended or waived without the written consent of Arch Venture Fund
III, L.P.; the provisions of Section 2.6 shall not be amended or waived without
the written consent of August; the provisions of Section 2.7 shall not be
amended or waived without the written consent of GE Capital; and the provisions
of Section 2.8 and 2.9 shall not been amended or waived without the written
consent of Owens Corning.
4.4 If any provision of this Agreement is held to be invalid or
unenforceable, the validity and enforceability of the remaining provisions of
this Agreement shall not be affected thereby.
4.5 This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective heirs, successors, assigns, administrators,
executors and other legal representatives.
4.6 This Agreement may be executed in one or more counterparts, each of
which will be deemed an original but all of which together shall constitute one
and the same agreement.
4.7 No waivers of any breach of this Agreement extended by any party
hereto to any other party shall be construed as a waiver of any rights or
remedies of any other party hereto or with respect to any subsequent breach.
4.8 Notwithstanding anything to the contrary contained herein, if the
Company shall issue additional shares of its Series E Preferred Stock pursuant
to the Purchase Agreements, any purchaser of such shares of Series E Preferred
Stock may become a party to this Agreement by executing and delivering an
additional counterpart signature page to this Agreement and shall be deemed a
Series E Investor and an Investor hereunder, respectively.
4.9 In the event that any suit or action is instituted to enforce any
provision in this Agreement, the prevailing party shall be entitled to all costs
and expenses of maintaining such suit or action, including reasonable attorneys'
fees.
4.10 Neither the Company, the Holders, the Stock Holders, the Investors,
nor any officer, director, stockholder, partner, employee or agent of such
party, makes any representation or warranty as to the fitness or competence of
the nominee of any party hereunder to serve on the Company's Board of Directors
by virtue of such party's execution of this Agreement or by the act of such
party in voting for such nominee pursuant to this Agreement.
4.11 Should the provisions of this Agreement be construed to constitute the
granting of proxies, such proxies shall be deemed coupled with an interest and
are irrevocable for the term of this Agreement.
7.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this FOURTH AMENDED
AND RESTATED VOTING AGREEMENT as of the date first above written.
COMPANY: INVESTOR(S):
IMPROVENET, INC. -----------------------------------------
(PRINT NAME OF INVESTOR)
/s/ Ron Cooper
- ---------------------------- By: /s/ All Preferred Stock Investors
Ronald Cooper, President and ---------------------------------------
Chief Executive Officer
Title:
--------------------------------------
HOLDERS:
- ----------------------------------
(PRINT NAME OF HOLDER)
- ----------------------------------
STOCKHOLDERS:
- ----------------------------------
(PRINT NAME OF STOCKHOLDER)
- ----------------------------------
SIGNATURE PAGE
FOURTH AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
EXHIBIT A
LIST OF HOLDERS
<TABLE>
<CAPTION>
HOLDERS HOLDER SHARES
<S> <C>
Robert L. Stevens 200,000
Jan M. Sherman 244,500
Robert L. Stevens and Karen L. Stevens, Trustees under 297,338
Revocable Trust Agreement dated 8/9/78, as amended FBO
Robert L. Stevens and Karen L. Stevens
Robert L. Stevens, Trustee of the Robert L. Stevens 1999 15,000
Annuity Trust
Karen Stevens, Trustee of the Karen Stevens 1999 Annuity 15,000
Trust
Jason Stevens 5,000
Kevin Stevens 5,000
</TABLE>
EXHIBIT B-1
FOURTH AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
EXHIBIT B
LIST OF STOCK HOLDERS
<TABLE>
<CAPTION>
NUMBER OF COMMON
SHAREHOLDERS STOCK EQUIVALENTS
<S> <C>
Antun Bendis 30,205
The Kenyon Trust Agreement Dated 9/9/93 70,740
Thomas L. Blair 60,000
David S. Smith and Louise H. Smith, Trustees for the 60,293
David S. and Louise H. Family 1980 Trust dated 5/4/84
Weil Family Trust 46,110
Thomas W. Brugger 40,000
Gerald J. Flannelly 40,000
William W. Smith 35,408
Thomas E. Fortmann 35,800
Paine Webber as Custodian for Martin E. Hellman IRA 25,000
Rollover
Stephen L. and Joanne Jacobs, Trustees of the Jacobs 20,000
Living Trust Dated 9/23/93
Frederick C. Woerner 12,000
Boone Family Trust Dated 8/8/86 10,000
John Paul Hanna 10,000
Karen Stevens, Trustee of the Karen Stevens 1999 Annuity 15,000
Trust
Robert L. Stevens, Trustee of the Robert L. Stevens 1999 15,000
Annuity Trust
Robert L. Stevens and Karen L. Stevens, Trustees under 297,338
Revocable Trust Agreement dated 8/9/78, as amended FBO
Robert L. Stevens and Karen L. Stevens
Robert L. Stevens 200,000
Jan Sherman 244,500
Kathy Anne Woodruff 2,188
Danielle D. Zarosi 1,667
William Crosby 22,617
Janna Zachary 2,291
Dennis Galloway 37,500
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF COMMON
OPTIONHOLDERS STOCK EQUIVALENTS
<S> <C>
Robert L. Stevens 71,250
William Crosby 27,383
Janna Zachary 2,709
Dennis R. Galloway 77,500
Antun Bendis 29,795
Ronald Cooper 577,102
WARRANT HOLDERS
Stephen L. and Joanne Jacobs, Trustees of the Jacobs 5,000
Living Trust Dated 3/23/93
</TABLE>
3
<PAGE>
EXHIBIT C
LIST OF INVESTORS
NAME AND ADDRESS
- ----------------------------------------------------------------------------
Allstate Insurance Company
2775 Sanders Road, Suite A3
Northbrook, IL 60062
Attn: Michael Curran
Alta California Partners, L.P.
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
Alta Embarcadero Partners, LLC
One Embarcadero Center, Suite 4050
San Francisco, CA 94111
ARCH Venture Fund III, L.P.
8735 Higgins Road
Suite 225
Chicago, IL 60631
August Capital II, L.P.
2480 Sand Hill Road, Suite 101
Menlo Park, CA 94025
Anthony Glaves
1030 Parkinson
Palo Alto, CA 94301
William Egan
Burr, Egan, Deleage & Co.
One Post Office Square, #3800
Boston, MA 02109
Charles H. Finnie
Volpe Brown Whelan & Company, LLC
One Maritime Plaza
San Francisco, CA 94111
GC&H Investments
Cooley Godward LLP
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
Alex Knight
1116 Harvard Avenue East
Seattle, WA 98102
Harold Kawaguchi
EXHIBIT C-1
FOURTH AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
NAME AND ADDRESS
- ----------------------------------------------------------------------------
626 38th Avenue
Seattle, WA 98122
Madrona Investment Group, LLC
1000 Second Avenue, Suite 3700
Seattle, WA 98104
David S. Smith and Louise H. Smith, Trustees for the David H. Smith
and Louise H. Smith Family Trust Dated 5/4/84
Post Office Box 475
Graton, CA 95444
Lynn Brown Kargman and William M. Kargman
221 Mount Auburn Street
Cambridge, MA 02138
Thomas W. Brugger
805 Bay View Way
Redwood City, CA 94062
Stuart Gannes
945 Elsinore Drive
Palo Alto, CA 94303
Zero Stage Capital VI, L.P.
101 Main Street, 17th Floor
Cambridge, MA 02142-1519
MGN Opportunity Group LLC
801 Second Avenue
13th Floor
Seattle, WA 98104
Norman D. Colbert
One Bush Street
San Francisco, CA 94104
Robert A. Keller
One Bush Street
San Francisco, CA 94104
Paul W. Noglows
One Bush Street
San Francisco, CA 94104
Hambrecht & Quist California
One Bush Street
San Francisco, CA 94104
Hambrecht & Quist Employee Venture Fund, L.P. II
EXHIBIT C-2
FOURTH AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
NAME AND ADDRESS
- ----------------------------------------------------------------------------
One Bush Street
San Francisco, CA 94104
H&Q ImproveNet Investors, LLC
c/o Hambrecht & Quist
One Bush Street
San Francisco, CA 94104
Access Technology Partners, L.P.
One Bush Street
San Francisco, CA 94104
Access Technology Partners Brokers Fund, L.P.
One Bush Street
San Francisco, CA 94104
Kellett Partners, L.P.
200 Galleria Parkway
Suite 1800
Atlanta, GA 30339
Gary Sledge
200 Galleria Parkway
Suite 1800
Atlanta, GA 30339
Clear Fir Partners, L.P.
4303 54th Avenue, N.E.
Seattle, WA 98105
GG-JS Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
J2 JV, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Staenberg Private Capital, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Heidron-Staenberg Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
KFIT-JRS Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
EXHIBIT C-3
FOURTH AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
NAME AND ADDRESS
- ----------------------------------------------------------------------------
Lum-Staenberg Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
MAD Fund JV, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Carmel Fund LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Blackshirts Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
JR-JS JV, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Alco JV, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
GT-JS JV, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
ANV Joint Venture, LLC
2000 First Avenue, Suite 1001
Seattle, WA 98121
Lise Buyer
164 Selby Lane
Atherton, CA 94027
Stanford University
2770 Sand Hill Road
Menlo Park, CA 94025
Charles M. Brown
P.O. Box 222
785 Shiloh Road
Adamsville, TN 38310
Charles E. Fenton
4010 Cloverland Drive
Phoenix, MD 21131
Danielle Iuliano
EXHIBIT C-4
FOURTH AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
NAME AND ADDRESS
- ----------------------------------------------------------------------------
2400 Hanover Street
Palo Alto, CA 94304
GE Capital Equity Investments, Inc.
120 Long Ridge Road
Stamford, CT 06927
Owens Corning
One Owens Corning Boulevard
Toledo, OH 43659
The Dow Chemical Company
2030 Dow Center
Midland, MI 48674
E.I. du Pont de Nemours and Company
1007 Market Street
Wilmington, DE 19898
Attn: Global Financial Manager
Armstrong.Com Holding Co.
2500 Columbia Avenue
Lancaster, PA 17604
Attn: Marco Alvarez
QBB MGMT I, L.L.C.
11 Madison Avenue
New York, NY 10010
Attn: John Carroll
EXHIBIT C-5
FOURTH AMENDED AND RESTATED VOTING AGREEMENT
<PAGE>
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this _____ day of ________________,
1999 by and between IMPROVENET, INC., a Delaware corporation (the
"Corporation"), and __________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his
capacity as _______ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as _________ of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as ________
after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; PROVIDED,
HOWEVER, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE>
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent solely for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct;
(c) on account of Agent's conduct that is established by a final
judgment as constituting a breach of Agent's duty of loyalty to the Corporation
or resulting in any personal profit or advantage to which Agent was not legally
entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the
2.
<PAGE>
proceeding was authorized by the Board of Directors of the Corporation, (iii)
such indemnification is provided by the Corporation, in its sole discretion,
pursuant to the powers vested in the Corporation under the Code, or (iv) the
proceeding is initiated pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified
and electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent
of its election to assume the defense thereof, the Corporation will not be
liable to Agent under this Agreement for any legal or other expenses
subsequently incurred by Agent in connection with the defense thereof except
for reasonable costs of investigation or otherwise as provided below. Agent
shall have the right to employ separate counsel in such action, suit or
proceeding but the fees and expenses of such counsel incurred after notice
from the Corporation of its assumption of the defense thereof shall be at the
expense of Agent unless (i) the employment of counsel by Agent has been
authorized by the Corporation, (ii) Agent shall have reasonably concluded,
and so notified the Corporation, that there is an actual conflict of interest
between the Corporation and Agent in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such
3.
<PAGE>
action, in each of which cases the fees and expenses of Agent's separate
counsel shall be at the expense of the Corporation. The Corporation shall
not be entitled to assume the defense of any action, suit or proceeding
brought by or on behalf of the Corporation or as to which Agent shall have
made the conclusion provided for in clause (ii) above; and
(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, PROVIDED THAT the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
4.
<PAGE>
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(i) upon delivery if delivered by hand to the party to whom such communication
was directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
5.
<PAGE>
(b) If to the Corporation, to:
IMPROVENET, INC.
720 Bay Road
Redwood City, CA 94063
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
IMPROVENET, INC.
By:
-------------------------------------------
Ronald B. Cooper
President and Chief Executive Officer
AGENT
By:
-------------------------------------------
Name:
--------------------------------------
Address:
-----------------------------------
-----------------------------------
6.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our report dated November 16, 1999, except for Note 15 for which the date is
December 13, 1999, relating to the financial statements of ImproveNet, Inc., and
of our report dated November 24, 1999 relating to the financial statements of
Contractor Referral Service, LLC, which appear in such Registration Statement.
We also consent to the references to us under the heading "Experts" in such
Registration Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, CA
December 15, 1999
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<PAGE>
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